Role of M&A Thesis for Corp Dev

April 2022

Recently, a large German industrial conglomerate reached out to us for help as they explored acquisitions in the IoT space. They understood they needed to upgrade parts of their business to stay competitive in a fast-changing market, but they weren’t sure where to start. While we’re an investment bank and not directly involved in corporate M&A strategy, our sector expertise put us in a unique position to guide them through this complex transformation.

What followed was an engaging and dynamic process—one that went far beyond traditional financial advisory. In many ways, we became an extension of their corporate development team, helping them navigate every stage of the acquisition journey. It wasn’t just about crunching numbers or negotiating deals; it was about helping them define their vision, sharpen their acquisition criteria, and ensure that their M&A activity aligned with their broader corporate goals.

The key to this process was establishing a strong M&A thesis—something that served as a guiding principle for their entire acquisition strategy. Developing this thesis required more than just setting financial targets or outlining ideal acquisition profiles. It meant deeply understanding their strategic intent, the rapid evolution of IoT technology, and the shifting demands of their market. It required both analytical rigor and strategic foresight to ensure that every acquisition would fill critical skill gaps and create lasting value.

M&A is much more than a financial transaction; it’s a transformational tool that, when approached with purpose and discipline, can reshape the trajectory of an entire company. Through this experience, we saw firsthand the importance of having a clear framework—one that goes beyond deal-making and integrates acquisitions into the company’s long-term vision.

The Role of an M&A Thesis in Strategic Growth

I’ve come to appreciate just how critical a well-crafted M&A thesis is for any company looking to grow strategically. It’s not just about expanding for the sake of it; rather, it’s about creating a structured framework that ensures each acquisition is aligned with the company’s broader corporate strategy. I’ve seen firsthand how organizations that establish a clear roadmap are able to leverage M&A as a proactive tool for growth, positioning themselves ahead of opportunities rather than simply reacting to them as they arise.

For me, the real value of an M&A thesis lies in its ability to bring clarity to the acquisition process. It forces a company to identify the critical areas where M&A can truly drive corporate advancement, rather than just chasing deals that seem attractive on the surface. When done right, this approach not only improves efficiency in responding to market opportunities but also helps ensure that any acquisition aligns with the overarching business vision. I’ve found that many companies struggle with the question of whether to build or buy—should they rely on internal development, or is an acquisition the smarter route? A well-structured thesis helps answer that question by clearly outlining where external growth is necessary and which types of targets fit within the company’s strategic and financial parameters.

However, identifying potential acquisitions is only the beginning, validating the deal thesis is just as crucial. It’s one thing to identify an attractive target, but another to ensure that it truly fits within the company’s long-term strategy. The first step is assessing strategic alignment—does the acquisition directly support the company’s broader goals? I always encourage companies to dig deep into the key value drivers of a deal—whether that’s synergies, market expansion, or competitive advantages. It’s equally important to consider alternative strategies; sometimes, organic growth or partnerships might achieve the same objectives without the complexities of an acquisition. Evaluating market positioning is also key—does this deal fill a gap in the company’s portfolio, or is it just a distraction?

One of the biggest lessons I’ve learned is that M&A should never be driven purely by the allure of expansion. Every deal must be weighed against alternative strategies, ensuring that it truly represents the best path forward. I’ve seen companies get caught up in the excitement of a deal, only to realize later that a well-planned internal investment or strategic alliance could have achieved similar results with fewer risks.

Developing a strong M&A thesis requires careful consideration of several factors. First and foremost, the acquisition must align with the company’s corporate strategy, reinforcing its long-term vision rather than diverting resources away from core priorities. Companies also need to assess whether organic growth might be a better alternative in certain areas. A realistic evaluation of market conditions is crucial—understanding the landscape of available targets and whether they are truly actionable can make or break an M&A initiative. Financial constraints always play a role, as companies must determine how much capital they can allocate to acquisitions and whether it’s being used effectively. Finally, practical challenges, such as competing bids, valuation concerns, or cultural mismatches, can derail even the most promising opportunities.

Steps in Deal Thesis Formation

Strategy Formulation

When I think about strategy development, it comes down to one central question: where and how can we create value? Whether we’re looking to enter a new market, defend an existing position, or outmaneuver competitors, the key is determining the capabilities we need and the best way to build or acquire them.

Companies take vastly different approaches to strategy. Some follow a structured, methodical process, meticulously mapping out every detail. Others operate more on intuition, making implicit trade-offs along the way. Neither approach is inherently right or wrong, but I’ve found that having an external perspective—whether through consultants or advisors—can be invaluable. These voices help cut through internal biases, uncover overlooked opportunities, and bring much-needed clarity to complex decisions.

Strategy isn’t just about external opportunities—it’s equally about internal assessment. Before looking outward for acquisitions or partnerships, companies need to take a hard, honest look at themselves. What are our true strengths? Where are our gaps? What are the real drivers of our business? Answering these questions with rigor is just as important as evaluating an M&A target.

Identifying Capability Gaps & Choosing the Right Approach

Expanding into a new market—or defending our current position—means facing a stark reality check: do we have the right capabilities to compete effectively? More often than not, the answer is no. The next step, then, is to figure out how to close those gaps. Do we build internally? Do we acquire? Do we partner? Each option comes with trade-offs in terms of speed, cost, and risk.

If M&A is the chosen path, clarity of purpose is non-negotiable. What are we actually trying to achieve? Are we looking for market access? Channel expansion? Product diversification? Technology capabilities? Cost efficiencies? Growth acceleration? If these objectives aren’t well-defined from the outset, the deal can quickly become a distraction rather than a value driver.

Many acquisitions are pursued for the wrong reasons—whether it’s chasing growth for growth’s sake, falling in love with a deal, or simply getting caught up in the excitement of a high-profile transaction. M&A should never be about the thrill of the chase—it should be about managing risk effectively to achieve a tangible, strategic goal.

The Critical Role of Fit in M&A Success

Factors such as financial returns or market positioning plays important role but for many companies its capability alignment. The closer the target’s expertise and operations are to what we already do well, the easier it is to integrate, manage risks, and extract value. I’ve seen companies struggle when they acquire businesses outside their core competency, underestimating the complexity of integration and the following cultural friction.

At the same time, some of the best M&A deals are deliberately designed to bridge capability gaps. A well-chosen acquisition can bring in expertise, technology, or infrastructure that would have taken years to develop internally. But even then, success depends on how well the acquiring company can absorb and leverage those new capabilities.

Setting Up Deal Filtering Criteria

Clarity upfront saves time, money, and potential missteps down the line. Without clearly defined deal criteria, it’s easy to get caught up in the excitement of a potential acquisition that might look good on paper but ultimately doesn’t align with strategic goals.

Setting the right criteria means defining what matters most—whether it’s industry positioning, technological capabilities, market fit, or product synergies. It’s not just about financials; it’s about whether the acquisition brings real, sustainable value. I’ve found that the best targets either meet most of our criteria upfront or show a clear path to doing so post-acquisition. If a company has fundamental gaps, the question becomes: Are those gaps fixable, and is the effort worth it?

One of the most valuable tools I’ve used is a deal qualification system, which brings objectivity to the process. It helps cut through the noise and ensures we’re not making emotional decisions. And then, there’s the “knock-out” criteria—those absolute deal-breakers. If a target doesn’t meet them, we move on. No matter how promising a deal seems, it's a distraction rather than an opportunity if it lacks the fundamentals we’ve identified as critical.

Making Smart Trade-Offs in M&A

Not every opportunity can—or should—be pursued. Resources are finite, and prioritization is crucial. When deciding between organic growth, acquisitions, or shareholder returns, I’ve learned to ask:

At the end of the day, M&A is a tool, not a strategy in itself. The best acquisitions don’t just happen because the capital is available—they happen because they’re the right move at the right time, with the right fit.

 Pipeline Development

After developing the M&A thesis, companies use an M&A scorecard to evaluate potential targets. This involves ranking M&A prospects based on quantitative factors (such as revenue and EBITDA) and qualitative factors (like cultural and strategic fit).

At this early stage, companies formulate value capture strategies, outlining how an acquisition could drive long-term net cash flow growth. Each target summary should include a dedicated "value capture" section, detailing the strategic approach for maximizing long-term value. However, this value capture framework remains a hypothesis that must be validated through later stages of due diligence and execution.

Collaboration Between Corporate Development & Business Units

M&A isn’t just a finance or strategy exercise, it’s an operational reality that impacts every corner of the business. That’s why alignment between corporate development and business units is essential. I’ve seen deals fail simply because the acquiring company didn’t fully understand how the target would integrate operationally.

Business unit leaders bring the ground-level perspective—they know what capabilities are needed and what will work post-acquisition. Corporate development, on the other hand, ensures that M&A is being used as a strategic tool rather than a reactive move. When these two groups work together, the best deals emerge—ones that are financially sound and operationally viable.

Collaboration early on is key. Integration becomes an uphill battle if business leaders aren’t invested in an acquisition from the start. The best acquisitions happen when business units champion the deal, not just accept it as a top-down decision.

Identifying & Prioritizing Acquisition Targets

Not all potential acquisitions will align with a company's strategic needs or financial capabilities. Businesses must carefully balance trade-offs between acquiring smaller companies—which may be easier to integrate but have a limited impact on growth—and larger acquisitions, which can drive significant expansion but require substantial investment and resources.

Prioritization is an ongoing process that involves continuous discussions between leadership, corporate development, and business units. These discussions help determine which targets offer the highest strategic value and are feasible within the company’s financial and operational constraints.

 Capital Allocation

No matter how large, every company operates under constraints—capital, resources, time, and execution bandwidth. One of the hardest parts of leadership is deciding where to invest and when to hold back.

Not all investments are created equal. Some are necessary for maintaining core operations, while others are bets on the future. The trick is finding the right balance—ensuring we don’t overcommit to the present at the expense of long-term growth. A good rule of thumb? Allocating 7%-15% of resources to future-oriented initiatives ensures we’re not just optimizing for today but also laying the groundwork for what’s next.

Practically, the right acquisitions should be pursued based on strategic value, not because there’s a budget to spend. It’s easy to fall into the trap of “use it or lose it” thinking, but that’s how bad deals happen. Instead, every deal should be weighed against time to value—how soon and how effectively it will drive real results.

Private companies have more flexibility in capital allocation, while public companies must balance transparency and shareholder expectations. Public companies must justify every dollar spent, whereas private firms can take a more patient, long-term approach.

Finally, one of the biggest shifts in my thinking has been about the role of the board. Too often, boards are seen as oversight bodies, but they should be thought partners. Engaging the board early and often leads to smarter decisions and fewer surprises. M&A is too big of a bet to be made in silos—whether it’s leadership, business units, or the board, alignment is everything.

Gaining Buy-in from Leadership

For any acquisition to succeed business unit leaders must fully champion the deal and take ownership of its integration. Even the most promising M&A deals can struggle or fail without their support. 

As part of a corporate development team, I’ve learned that presenting M&A opportunities effectively requires adapting to different leadership styles. Some leaders are "deal-happy" and may need expectation management to keep them disciplined and prevent overvaluing acquisitions. Others are more sceptical and require a thorough breakdown of risks and financial impacts to gain confidence in the deal. 

Open discussions and ongoing education on the M&A process are essential to aligning leadership with acquisition goals. When everyone understands both the strategic benefits and potential risks, we can ensure a smoother and more successful integration.

Building Consensus Across Teams

M&A decisions have far-reaching implications across multiple departments, including finance, operations, legal, and HR. Successful execution requires cross-functional alignment, where different teams provide input on feasibility, risks, and potential synergies.

By gathering insights from all relevant teams, businesses can build a more comprehensive understanding of each acquisition’s potential benefits and challenges, ultimately leading to better decision-making and smoother integration.

The Risks of Rushed M&A Deals

Mergers and acquisitions (M&A) must be considered part of a range of strategic choices for firms, not as a default for issues. Rushing into acquisitions without trying out the assumptions behind them can lead to critical issues after the deal.

One of the chief reasons M&A transactions fail is a lack of internal alignment; if the corporate unit responsible for integrating the target company is not fully invested, then the takeover will be less likely to flourish within the firm as a whole, generating inefficiencies and lackluster performance.

Unless they have a strategically planned integration policy, companies will be prone to misalignment in priorities, improper allocation of resources, and also cultural clashes. A clear-cut post-acquisition strategy is imperative to achieving synergy and reaping expected value out of the transaction.

Also, a rushed M&A transaction could wind up paying too much for an acquisition candidate or acquiring businesses that do not deliver the desired returns. An ill-fitting acquisition can divert management's focus and attention away from more strategic initiatives.

M&A can be a powerful method of corporate growth if carefully undertaken and on the basis of sound thesis. An effective M&A strategy will involve diligent search of targets on both financial and strategic fit, agreement and commitment on the part of the primary business leaders involved, and a methodical process so as not to overpay for or pursue misaligned transactions. By employing M&A as just one of several strategic levers, companies will be able to maximize value creation and find success in the long term.