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 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)
- And finally, what role will the buyer have to play in order to maximize deal value? Is your principal value-add as an investor, coach, integrator, surgeon or architect?
I’ll provide some highlights on “deal-type DNA” in my next blog. Until then, here’s a quick reminder of essential macro-level strategic inputs to evaluate in developing your overall integration strategy framework. (Strategy Considerations for M&A Success).
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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.