The goal of the Certified M&A Specialist program is to allow M&A practitioners to showcase the experience and skills they have gained from their leadership roles in deals: from strategy to due diligence and on through integration. The credential itself is just one component. The M&A Leadership Council, along with the Board of M&A Standards, is committed to building up a community where M&A professionals can network and share what they’ve learned, so we are proud to publish the following insights from Certified M&A Specialist, Wes Beadle.
Prevent M&A Value Disintegration with Solid Integration
By Wes Beadle, Director of Program Management for NSTXL and Certified M&A Specialist
How do we get the most out of M&A deals and really create shareholder value? This is something that eludes most companies after they close a deal. According to a recent Harvard Business Review report, the failure rate for mergers and acquisitions is at least 70 percent. How can we improve our odds of success? One important phase of M&A activity is integration, and it requires an organization’s undivided attention. Truly integrating two or more large entities can be difficult and messy. Unfortunately, most acquiring companies don’t appreciate the time and effort required to integrate and instead revert to business-as-usual activities, or in some cases, get distracted by preparing for the next deal. Here are some actions that can adversely inhibit a successful integration:
Shutting down the M&A Integration Management Office (IMO) shortly after closing the deal. Companies are often anxious to move quickly from integration planning to “we are one team now.” There can be an urge to disband the M&A IMO shortly after the deal is completed. This is a mistake because most of the heavy lifting will happen during the post-close integration phase of the deal. There may be a desire to turn everything over to regular business operations. Inevitably, the day-to-day firefighting will overwhelm integration activity and take precedence, so keep the IMO up and running until clearly defined integration objectives have been accomplished. The IMO, shepherded by a dedicated team, looks after the key milestones and activities related to the merger. This provides other operational and functional teams the space to deal with day-to-day responsibilities of running the business.
Losing sight of the original deal objectives. Leadership at an acquiring company must ask, “Why did we do the deal in the first place?” This gets to the Deal DNA. Make sure that teams continue to monitor key metrics/milestones established to determine deal success. These metrics will most likely include synergy due to duplication, but also key deliverables such as effectively incorporating new technologies and products, combining benefits, or retaining talent. The IMO will help to monitor these activities.
Lack of alignment on the Operating Model for the new combined organization. Standardize a process for identifying best practices and creating the best new operating model for the combined entity. The Operating Model should include the organizational structure; key processes and systems; governance; and importantly, culture. There can be a tendency to want to maintain the status quo of the acquiring company. This expedient but short-sighted approach can lead to inefficiencies, costly rework later and loss of top talent. Ultimately, it’s about what will lead to even more success for the organization in the future and increase shareholder value. Create action items with owners and dates for review and make decisions as soon as possible. As long as the operating model remains ambiguous, organizational effectiveness will be less than optimal.
Admittedly, these activities are largely common sense, but maybe organizations are moving so fast that they lose sight of the fundamentals. Here are some other best practices and considerations:
Identify the best talent and retain that talent. Although the primary reasons for the acquisition might be the assets, patents, or other considerations, there were surely very talented employees who made the former company attractive for the transaction. It’s very costly to lose talented employees, so create a solid process to recruit and retain them to remain with the combined company. The IMO and HR teams can help with retention strategies; drive talent reviews and equitable job leveling; and help address key cultural considerations. And make sure that some of your new high-potential employees are involved in key integration activities, giving them a stake in a successful outcome.
Incentivize teams to stay focused on the integration goals. Make integration goals and metrics a part of everyone’s performance plan. This will reinforce the importance of the successful integration of the entities. It is easy for organizations to get distracted by day-to-day business activities. It is important for teams not to lose sight of the expected deal deliverables and to make them part of ongoing focus and prioritization.
Reinforce accountability for M&A objectives by using a third party. It can be difficult for organizations to accurately assess integration progress in a neutral manner. Bringing in a third party to review and reporting out on your integration and deal success will help with this. They will assess progress at certain frequencies, allowing leadership to course correct as necessary. If there is significant value to be gained in buying another company, then having a third party provide an honest assessment of integration status is a wise investment.
Be as transparent as possible. Employees on both sides of a deal will always be affected in some way. One of the best mitigation strategies to prevent low morale and productivity is to be as transparent as possible. If there is an organizational structure review or a job leveling exercise being conducted, let employees know, and give them a timeline and high-level process overview of activities. Keeping employees informed and following through on commitments is a great way to build credibility with new employees. It will become clear that your organization communicates and follows through.
Proactively monitor cultural integration. Another critical area to monitor is culture. Commission tangible assessments of cultural differences early in the process and develop a plan to cultivate the best culture for the combined entity. Clearly identify goals and measures to drive progress. No two company cultures are exactly alike, so be aware of the differences and address them. For example, levels of authority (at what levels decisions are made). If there are different approaches to levels of approval authority or decision making, then identify the gap. Once you have clearly identified the differences, gain leadership alignment on the agreed-upon approach moving forward and develop a change plan that includes robust communication.
While these are just a handful of considerations, some dedicated attention to these areas will prove valuable and will no doubt increase chances of success. There is a huge opportunity to improve M&A results and increase shareholder value. Good luck!
Wes is the Director of Program Management for NSTXL, with over 20 years of corporate experience, including consumer packaged goods, medical technology and energy. A Certified M&A Specialist (CMAS), he has been involved with numerous M&A transactions. He has a passion for continuous improvement, and prior roles and experience have included Lean Six Sigma Master Black Belt, Agile Scrum Master, Project Management Professional (PMP), and Prosci Change Management Leader. Wes earned a Master of Science degree in Environmental Management from the University of San Francisco and a Bachelor of Science degree from the United States Naval Academy.