STRATEGIC MANAGEMENT
Compiled by Prashanthi Cooray
BLUEPRINT FOR ACQUISITIONS
Imraz Iqbal provides a guide to acquisition strategies amid ongoing challenges
Q: What factors do you consider when evaluating acquisition opportunities – and how do you assess the strategic fit of the target company?
A: The financial services industry for micro, small and medium enterprises (MSMEs) has seen significant growth across regions like South Asia, Southeast Asia, Central Asia and Africa.
Many small financial institutions with modest loan books have been transformed into successful organisations. These institutions now manage multi-billion dollar asset bases. The key to this success is focussing on unlocking growth potential, rather than acquiring already established companies.
The focus in the MSME financial services sector is on small to medium-size players with high growth potential. Strategic fit is assessed based on factors such as favourable acquisition costs, alignment with industry expertise and feasibility of implementing proven strategies.
This approach enhances operational performance and creates value for the communities we serve.
In non-financial sectors such as plantations, tourism and technology, it is important to apply consistent evaluation criteria. The goal is to identify undervalued opportunities, deploy transformative strategies and maximise long-term returns while fostering sustainable development.
In doing so, we ensure that every acquisition contributes to the organisation’s growth while also delivering lasting value for stakeholders.
Q: So what are the main challenges of an acquisition process and how do you overcome them?
A: One of the most pressing challenges in the acquisition process is determining the value of the target company.
Sellers often aim for the highest possible price, while as acquirers, we focus on identifying intrinsic value. This includes accounting for post-acquisition initiatives and the potential value of strategic interventions. Striking the right balance is critical, as it impacts our ability to achieve the intended return on investment (ROI).
Valuation goes beyond financial metrics to include market potential, operational efficiencies and synergies with our existing portfolio. In Cambodia for example, understanding the local credit culture and regulatory landscape has been pivotal in realising post-acquisition value.
Operating primarily in emerging markets means facing challenges such as currency volatility, fluctuating interest rates, and unstable regulatory and political environments. We mitigate these risks through rigorous due diligence, advanced risk management frameworks and contingency planning.
Through innovation in risk management and adapting to complex landscapes, we can consistently transform these challenges into opportunities.
Q: What best practices ensure smooth post-acquisition integration?
A: Post-acquisition integration is a critical phase that determines the long-term success of any acquisition. An effective approach involves acquiring small to medium-size players with strong growth potential and implementing proven strategies tailored to domestic markets.
A cornerstone of post-acquisition integration strategy is valuing local talent and equipping acquired entities with skilled professionals who understand the nuances of their markets.
While strategic direction is provided centrally, granting autonomy to the right people at the right time is essential. This decentralisation fosters ownership among regional managers and staff, motivating them to drive success.
Operational, technological and cultural alignments should be executed with precision. Key elements include clear communication, robust training programmes and regular performance monitoring.
By balancing centralised oversight with local empowerment, newly acquired entities can achieve sustainable growth and align seamlessly with the broader vision of the group.
Q: Finally, what advice would you offer to companies looking to expand through acquisitions in the prevailing business climate?
A: In the current business climate, my foremost advice to companies considering expansion through acquisitions is to remain aligned with their core strengths.
Leveraging homegrown strategies and operational frameworks that were successful in the domestic market allows for effective adaptation and replication of the model in new territories.
However, success requires agility and a willingness to customise the business model to meet the demands of each local market. A cookie-cutter approach seldom works – instead, improvisation and responsiveness to market feedback are critical.
When assessing potential acquisitions, it is vital to adopt a holistic perspective. Companies should seek opportunities that others might overlook while maintaining a sharp focus on identifying risks that could diminish post-acquisition.
According to a 2023 Deloitte study, nearly 55 percent of mergers and acquisitions fail to achieve the desired synergies due to integration issues.
This underscores the importance of thorough due diligence and risk management, and reinforces the need to balance ambition with caution. Early identification of synergies and potential challenges is key to safeguarding value creation.
Acquisition success relies on excelling in three fundamental stages: acquisition, integration and operations. Beyond financial capability, companies must have the operational acumen and strategic foresight to integrate, and grow acquired businesses seamlessly.
Research conducted by the McKinsey Global Institute highlights that organisations that excel in post-acquisition integration realise a 30 percent higher return on investment than those who fail to integrate effectively. Robust due diligence, clear strategic alignment and the ability to adapt to local markets are non-negotiable.
By embracing innovation, adaptability and strategic foresight, companies can unlock transformative potential in the current acquisition landscape.
