Key challenges in the M&A market  

Making deals during uncertain times is a key challenge for clients in today’s volatile environment. Values are changing rapidly as markets are impacted by geopolitical events, ongoing supply chain issues, rising inflation and financing costs. The ability to assess risks and upsides while solidifying value creation potential has never been more important.

“The ability to assess a company’s capacity to deliver the right performance in today’s new environment is now crucial.”

— Jean-Philippe Grosmaitre, Partner, Paris

How L.E.K. Consulting is helping clients 

After more than 30 years of low or no inflation, inflationary pressures are now here to stay. In a survey of 1,000 mid-cap companies during summer 2022, we found that one third of companies expect to offset inflation with powerful actions on revenues and costs, while two thirds of companies lack the resilience needed to tackle inflation head-on. No sector is immune to these pressures. Inflation will have an impact on the quality of assets presented for sale; buyers will need to discount temporary impacts and identify best practices and action levers to create value. 

Beyond the company’s positioning in the market in terms of products, competition and commercial performance, it is crucial to assess their capacity to deliver the right performance in a new environment. Numerous questions arise when exploring this: How can procurement, manufacturing and logistics be optimised? How can cost-out initiatives secure performance? What kind of product/service redesign could restore product profitability and affordability? How agile is the company in passing through inflation to prices? How should the product portfolio be recalibrated? Is the sales force sufficiently able to change the way it operates on customer relationships, marketing and contracts? How is the company performing in its ability to retain talents and adjust its workforce model? How agile is it in recruiting and developing new talents? How is the company managing its cash, working capital and capex in times of inflation? How helpful to the business is the finance function in its ability to monitor inflation and assist sales to successfully adjust prices? 

A company’s executive committee level makes decisions to address inflation every day. Under a CEO’s leadership, the head of sales works on commercial effectiveness, the COO on operational resilience, the CHRO on proactive talent management and the CFO on tight financial management to secure the company’s response to inflationary pressure in both the short-term and the mid-term. 

There is an urgent need to assess the maturity of the company on each of these different dimensions, as they become a differentiator in a company’s ability to protect and create value in the future.  

The goal of our work on operational due diligence is to gauge the level of performance and understand the potential improvements in a company’s operations that can create value. 

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