There’s an old saying in the M&A business, “Bad planning and execution will kill a good deal every time, but the best diligence and integration will never save a bad deal.” For valid reasons, there’s so much attention placed on failure factors in due diligence and integration that the role of deal strategy in overall M&A success or failure is easy to overlook. The reality is that there are just as many strategy-related failure factors. Here’s one of the most important to be vigilant about:
"A lack of clear understanding of the core strategic fit questions such as 'What are we really buying and why?'”
Harvard professor, Clayton M. Christensen, et al, writing in The Big Idea: The New M&A Playbook, nails this point. “Every day, the wrong companies are purchased for the wrong purpose and the wrong elements are integrated into the wrong business models.” How can that be, given even the typical level of analysis, valuation, diligence and planning for most deals? Recent M&A Leadership Council alumni will remember these three fundamental inputs to evaluate when developing an initial integration strategy framework prior to deal announcement:
- What is the “deal-type DNA”? Are you primarily buying scope, scale, efficiencies, capabilities to leverage, pipeline (typically talent, R&D or intellectual property), diversification or industry transformation?
- What is the type of transaction? Is this an asset acquisition, cross-border, spin-off, joint venture, roll-up or stock merger (even though there never is such thing as a “merger of equals” from an integration or operational standpoint)?
- What role will the buyer have to play to maximize deal value? Is your principal value-add as an investor, coach, integrator, surgeon or architect?
We’ll provide some highlights on “deal-type DNA” in an upcoming article. Until then,Strategy Considerations for M&A Success offers a quick reminder of essential macro-level strategic inputs to evaluate in developing your overall integration strategy framework.