After a cautious, quiet year for US dealmakers, with political and macroeconomic upheavals thwarting or postponing many transactions, M&A activity is set to accelerate in 2025—assuming falling interest rates, readily accessible capital and more deal-friendly regulatory priorities. In all likelihood, the domestic and international dealmaking environment will remain volatile, rocked by unpredictable shifts in regulatory scrutiny and compliance requirements as well as trade policy and alliances. Business leaders can rise to the challenge by implementing a well-tailored deals strategy.
Overseeing deals and your company’s portfolio strategy
Drivers of a deals strategy
- Which sectors, products and services are likely to thrive in the current environment?
- On which basic beliefs around consumer behaviors can we capitalize?
- What are the recovery and growth trajectories for targeted markets, in both the short and long term?
- When it comes to geographic choice, does market opportunity outweigh distance and geopolitical risk?
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- What inorganic opportunities would help create growth? What levers are available to create greater value (e.g., channels to market, pricing, supply chain, production, talent)?
- How could supply chains be reconfigured to emphasize resilience?
- How can we capitalize on new opportunities with emerging technology?
- How do we allocate capabilities—outsource versus own?
- How can we embrace best practices in talent management?
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- Are we receiving appropriate return on capital, with the discipline to redeploy if the returns are not there?
- Should we divest under-returning (or underperforming) businesses?
- Could we achieve better tax efficiency? Are we monitoring changes and proposed changes in taxation?
- How can we optimize our debt and capital structure? What sources of capital are best suited for the business model?
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The best-performing companies:
- Plainly articulate the portfolio logic—how each business fits with other businesses in the portfolio, not just how it performs on its own.
- Have a multi-year capital allocation plan.
- Focus investment on “strategic platforms”—existing businesses that can grow or new businesses in adjacent markets that could help drive growth.
- Create a portfolio matrix that lays out an investment thesis—and timeline, where appropriate—for each existing business, such as categorizing each as Grow, Maintain, Fix, or Exit.
Key questions directors should ask about their company’s portfolio strategy
- Portfolio matrix
- Strategic platforms
- Investment plans
Portfolio matrix
- How did management determine the classification for each business in the matrix?
- How is management addressing any Exit businesses?
- Are there persistent underperformers in the Fix category that really should be in the Exit category?
- How realistic is it that management will be able to fix those businesses, and what are the key milestones and timelines?
Strategic platforms
- Are existing and potential strategic platforms—those businesses that will drive growth—clearly identified?
- Is there evidence that those businesses have an advantage in the market or can gain an advantage?
- Do the markets in which they participate have clear headroom for profitable growth?
Investment plans
- For the strategic platforms, is there a defined investment plan—both organic and inorganic—to sustain and extend their advantages?
- Does the investment plan include both financial investments and an analysis to determine whether there is the right talent to drive the growth plan?
- Has management identified the type of deals that fit strategically and provided a list of potential acquisitions?
Strategy for different deals
The right acquisition can boost a customer base, increase revenue and even reduce costs. But making an acquisition is a huge decision for a company. Before taking the plunge, the board needs to be confident that it’s the right move with the right target. This applies not only to an individual deal but to how acquisitions fit into a company’s overall portfolio strategy.
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Divestitures can be challenging. A company must identify the business units to be separated, decide on the type of separation, and either develop a standalone operating model and cost structure for that business or prepare it for sale. While these steps may seem straightforward, a divestiture ultimately is a surgical procedure, with a degree of complexity that demands careful planning and caution.
... read more in the report.
Strategic alliances and JVs hold a unique place in the deal universe. Unlike an acquisition that adds a business or a divestiture that eliminates one, an alliance or joint venture allows two or more companies to pursue a shared goal while continuing to operate the other parts of their businesses independently. When considering an alliance or JV, the board should know the broader deal landscape, including market trends and competitors’ recent actions, and understand how the move fits into the broader portfolio strategy.
... read more in the report.
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