Missing Links in M&A

No matter the number of case studies one researches or the number of consultants one talks with, the statistics have remained the same for the last two decades. The majority of well-intentioned mergers fail to achieve the expectations set by management at the announcement.  Interestingly enough, the reason for such dismal results is that past emphasis and energy has been placed on analysis and negotiation of the deal and seldom on how to actually deliver the value.  As a matter of fact, many companies continue to go through the entire effort of strategy, pricing, negotiations and due diligence without much consideration for how they will drive value in the transaction after the close.

You have seen these or similar statistics before:

83% are either disappointing or outright failures
50% experience losses of talent and sales in the first 8 months
Most integrations greatly exceed timelines or are never completed
77% don't earn the cost of capital

But it’s improving - 

As the M&A Leadership Council continues its roll as a filter for best practices, tools and techniques used by today’s most effective practitioners, it is apparent that improvements have been made in the process of integrating companies over the last few years.

Indeed, more companies are:

  • Commencing detailed integration planning between announcement and close
  • Establishing the integration leader and team members on or before announcement.
  • Dedicating full-time resources as integration officers

However, the purpose of this blog is to encourage active acquirers and those who will be doing near-term mergers to move their focus even further forward in the acquisition process.  From years of research, practice and interviews with experts and attendees at our workshops around the world, there are still 5 critical links missing in the M&A “Value Chain”.  Yet, we conclude that these initiatives must soon become the norm if acquirers want the assurance of merger success.          

Link 1
Training

We still find that most companies select and deploy people to integration responsibilities with little orientation or training to prepare them.  At a minimum, all team leaders should go through 1-2 days of formal training if just to develop a baseline of understanding the complexity, requirements and workflow for integrating companies.  Merger integration is not “Business as Usual”!

Link 2
Playbook

Any company which plans on doing a merger or multiple acquisitions should have a detailed, repeatable and well documented process for the integration.  It should incorporate best practices and be easily understood and articulated by corporate development, the integration leader and all functional team leaders.  Without a playbook, the integration activities will be ad hoc and have little chance of success.  Playbook design should leverage much of the organization's nomenclature and effective tools from previous integrations and couple them with proven best practices, disciplines and protocols used by the best acquirers.  A playbook is the key to consistent, repeatable performance.  It’s essential and should be rolled out long before a deal is struck.

Link 3
Game Day Strategy

It is essential that Management be fully aligned with their integration strategy and objectives, end state view of the merged business, agreed priorities, a high level plan, and established roles and responsibilities on how things are to be performed and managed in the integration.  If not, there is a good chance that value will begin eroding at the date of announcement (the highest risk day in an M&A) and continue on.  The Game Day workshop is a 1-day critical investment of time on the part of the management team for each transaction.  This is clearly a nuance best practice seldom, if ever, done, yet one of the most important steps in assuring integration success.

Link 4
Transparency, Oversight and Control

Top-down senior leadership, quick decision making, effective communications, and operating guidelines/rules of engagement are critical components in effective M&A integration. There are a number of best practices that have been developed and proven in the area of governance, including the leverage of technology and other tools for better communications, transparency, knowledge sharing, performance tracking, and accelerated issues identification/resolution. Few companies invest properly in this missing link.  

Link 5
Culture Fit

Based on the nature of the transaction, depth of integration and operating sensitivities, it is now possible to investigate potential culture “flash-points” that would negatively impact a merger’s performance.  Research indicates that only 6% of companies do any real culture assessment diligence for integration strategy and planning…..yet, most deals that incur poor performance cite Culture as the primary reason.  Enterprise to enterprise culture comparisons are useless for mergers and acquisitions.  We must be able to cut the data down to the operating unit and even workgroup levels to identify culture fit and take remedial action where “flash-points” occur.

In the coming months, the M&A Leadership Council will be producing more information on each of the “5 Links” and how companies should address each one to improve their results in the future. Please contact us if you would like to learn more.

Photo:  commons.wikimedia.com

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About the Author:  Jim Jeffries is the founder and Chief Executive at M&A Partners. He has held C Level positions in multiple consulting companies and industry.  Mr. Jeffries’ background includes P&L responsibility at various size organizations during multiple stages of growth.   He is also a CEO coach and advisor in global leadership development.  His particular strength is in creating organizational vision to stimulate revenue growth while optimizing returns on invested capital. He has been quoted extensively in USA Today and in recent releases of The Art of M&A book series published by McGraw Hill.