We talk a lot about various failure factors from a standpoint of helping executives recognize what to do and not do in the midst of a live and fast-moving deal. But not all failure factors are created equal, as they say. For my two cents, avoiding an epic failure during integration all begins with a clear understanding of what we like to call “Deal-type DNA,” or the fundamental code of what really drives value in a given transaction.
Harvard professor, Clayton M. Christensen, et al, writing in The Big Idea: The New M&A Playbook, emphasizes why every acquirer must get this right… “Failing to understand where value resides, and therefore integrating incorrectly, has caused some of the biggest disasters in acquisitions history.” That’s absolutely true, and unfortunately, the war stories abound…
- A major consumer products company bought an entirely new product segment which relied on a different and complex go-to-market strategy and supply chain process, but promptly fired all the top executives in the acquired company in the name of cost synergies.
- A major pharmaceutical company had acquired several businesses in anticipation of margin pressure due to expiration of key patents, but several years later had not substantially reduced their global facility footprint or aligned core systems.
You get the picture. No matter how clear the value proposition and investment thesis was at the top, by the time integration decisions were made there was corporate amnesia, or at least a severe loss in translation about the principal value drivers that must be achieved and integrated if the deal is ultimately to be considered a success.
So what is Deal-Type DNA? It’s the principal value or primary purpose of the transaction. This code will largely determine strategic fit, valuation, acquisition criteria, and should heavily influence both what you integrate and how, in order to maximize value. We’ll cover more on the application of this concept in my next blog, but for now, here’s a resource which helps define Deal-Type DNA and provides an overview of the seven most common deal types (Deal-Type DNA Overview).
About the Author: Mark Herndon is President of M&A Partners LLC. He specializes in a broad range of strategic and business effectiveness initiatives, including M&A strategy, due diligence and integration management; financing and capital formation; strategy formulation and execution. Mr. Herndon is the co-author of The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level, (John Wiley / Jossey-Bass Publishers), which has been translated into five languages and is used as a foundational guide for various consulting firms and university programs.