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. For my two cents, avoiding an epic failure during integration 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 war stories abound:
- A major consumer products company bought an entirely new product segment that 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 and acquisition criteria, and it should heavily influence both what and how you integrate to maximize value. See our Deal-Type DNA Overview for more a deeper dive into this concept.