Mergers and acquisitions take on added importance in wake of aid cuts

The development industry is in survival mode, and that means mergers and acquisitions, or M&A, could be the key for companies — large and small — to withstand today’s tsunami of aid cuts. But M&A transactions are a complicated affair, and the stars still need to align for all parties to not only survive the storm but thrive once it passes. A panel of executives representing for-profit implementers recently convened for a Devex Pro briefing to offer tips on various M&A strategies, including — to use a relationship analogy — when companies should stay single, date, or marry. “Where there is change, there is always opportunity for organizations,” said Christopher Hirst, former CEO of Palladium. “It can help organizations make step changes and get through some of the malaise or bureaucracy that they build up amongst themselves. And so with all the tragedy and disappointment that's going on with the industry … what can you do to come out of this better as an organization?” That means figuring out what “better” looks like. “Understanding where you want to take the organization and what you need to get there … you've got to think through that, and then you can go and try and figure out what you want to do,” he said. And there are myriad options for getting to where you want to be. Kathleen Flanagan, president and CEO of Abt Global, pointed out that joint ventures — where two or more parties pool their resources and expertise and share risks in pursuit of a common goal — are one route to take. “One of the things that we've done over the last couple of years is really put together the spectrum of relationships with others that doesn't have to be the full-blown marriage where you're acquiring and trying to integrate,” Flanagan said. “Acquiring and integration are incredibly difficult under the best of circumstances.” Kevin Murphy, CEO of JE Austin Associates, noted that his company has been the target of multiple acquisitions but has remained independent. Multiple pieces need to come together for a merger or acquisition to make sense, he said. “First of all, it's about values fit, then it's about strategic fit,” he added. “So strategic fit can be, ‘Well, we happen to know all of Africa and South Asia and Southeast Asia. You guys know Europe and Latin America. Together, maybe we could be more than the sum of the parts.’ “Then it's about HR disruption — can you actually merge without doing a lot of damage? — and then it's about the money. Is there a proper valuation or agreement on that?” Murphy added. Flanagan echoed the importance of strategic fit. “I think the number one thing about what you do — whether you pick a JV [joint venture], whether you pick an acquisition — is: What is your strategy as an organization? Are you trying to buy client access? Are you trying to deepen or buy a capability? Are you just trying to get bigger [and] scale with a financial return? All three is the trifecta, obviously. So I think it starts with your leadership team taking a step back and saying, ‘What are we trying to achieve here?’” Flanagan added that M&A brokers can help companies think those questions through and that “having strong, excellent advisers are absolutely key to the first phase.” Chris LeGrand, CEO of BroadReach Group, and former president of DAI Global Health, said initial steps can be as simple as relationship building. “What was always helpful to me was … just being out and talking to people outside of your own company's walls,” he said. “It’s not going out to try to do a deal. It's actually trying to just understand what the landscape is. And you can't do that unless you just go out and start talking to people.” Later on, those relationships can pay dividends if times get tough. “Ultimately, I found, in doing over a dozen transactions … it works best when you've created a relationship with the other executives,” LeGrande said. “You create, fundamentally, a level of trust with executives so that when it does get challenging, when you're trying to close the deal, or after the deal, when you're trying to create the value you thought was there, having that relationship to fall back on is what's really critical.” “I think we all are struggling, whether we're big or small or medium, and I have to say we're all trying to help each other,” Flanagan added. “Nobody wants some of the long-term guys and gals to go out of business. So there's a lot of conversations going around with CEOs of large companies and not-so-large companies on how we work together to support one another to stay in this business.” As for what will happen next in the industry, some amount of consolidation is inevitable — as is some amount of continued government spending on aid, LeGrande said. “Whether it's 50% of what it has been in the last few years or even less, there will be some development spend. There will be a need for implementers to go take that money and do something with it in the marketplace. So I think there's still a market,” he explained. “I would say, for those who can hold out … if you could consolidate, whether it's through joint ventures or other [avenues], and find ways to survive the next year, I do think there'll be a reconstitution.”