A sign that we are at the bottom of the cycle and awaiting an upturn, is the growing number of acquisitions. An E&Y survey last year signified a majority of mining companies intended to pursue an acquisition within 12 months. Those with cash or balance sheet capacity will take out those who don’t.
M&A deals are always laden with risk but come with even more hazards in tight economic times. Everyone wants full value and the climate compounds the process especially when marginal assets are involved. Price volatility keeps buyers – extremely focused on risk – and sellers – extremely focused on capital – apart.
Companies that have worked hard to drive down cost have lost their appetite for fixing up an acquisition after it has been completed. They want deals that fit their new business model and someone else’s non core property will require a good deal of polishing before it will begin to look like a fit. A strategy to drive return on capital in core assets is incompatible with a risk laden acquisition.
Most sales will have been delayed until all other options have been exhausted. Consequently data rooms have been put together in haste and often comprise an incomplete picture. In the absence of comprehensive data buyers are even more inclined to negotiate a lower purchase price.
The best diligence considers how functions work together and how they will integrate with the buyer’s organization. The M&A team need to identify and reach consensus with senior management on potential synergies before making a Board proposal. Boards are under pressure from investors eager to protect capital and solid returns following a bleak period for the industry. Most of that pressure will fall to the technical team advising on upside potential but other areas too need to be fully explored for risk and opportunity.
Organizations are running with fewer, less qualified staff carrying bigger workloads. Meantime diligence has become more rigorous in its efforts to identify and mitigate increasing types of risk. A major acquisition is an infrequent activity and for many HR practitioners is a once in a career event. They may not have the right depth of skill to surface all of the risks and opportunities e.g. realistic scale purchasing in non-technical areas for the newly combined workforce. Temporary support skills should be added to share the load and deep dive into these areas.
Mining deals focus traditionally on technical and financial but talent is going to feature more prominently. Skills are scarce even in a downturn and that is not going to change. An acquisition may help fill gaps in the buyer’s succession plan recognizing that it will now be a bigger company requiring more experienced leadership.
The biggest upheaval in workplace culture in decades is about to descend on the industry with the exit of the baby boomers and entry of millennials. It is no longer just the risks below ground that will destroy shareholder value – assets that walk through the gates every evening also pose a risk when they are not motivated to work productively or through a transaction. Having the right skills in the right numbers is important but the right leadership creating the right culture will be critical to engaging a multi-generational workforce.