How to Buck the Trend and Achieve M&A Success

Carlos Keener, Founding Partner, BTD Consulting

M&A remains by far the most popular way of businesses joining forces, despite the fact that more than half of M&As fail to reach their desired objectives. Indeed one Accenture report has noted that just 58% of all acquisitions added shareholder value 24 months past close.

Carlos Keener

Businesses never, surely, go into an M&A situation wanting to be one of the failures. Yet evidence suggests they have a higher chance of failure than of success. There is no getting away from the fact that M&A is difficult, but success should be much more common than it is.

Three central factors influence M&A success – taking the right approach to the integration process, putting the best management team in place, and displaying visible, strong leadership from the top. Getting each of them right should help any business defy the statistics.

A structured, comprehensive process

Integrations succeed when they are viewed not as a way of crashing organisations together, but as the set of initiatives specifically designed to deliver clearly defined acquisition goals. Yet far too often the job of integration is thought of mechanistically, as a process to get out of the way post-close (one senior banker actually referred to it as “just admin”).

It is vital to think before the deal is done about what will happen afterwards. Bullish CEOs and specialist dealmakers wanting to complete one deal and move on to the next will not necessarily consider the integration to follow. But someone must take accountability for this, and their deep involvement in the pre-deal work is essential.

Thinking not of ‘before’ and ‘after’ but of a continuous process helps connect acquisition goals directly to a view of the desired post-close operating model. Describing expectations of the newly merged business in some depth will deliver a plan comprising tangible, goal-focused integration activities and avoid unnecessary, non-value adding initiatives. We call this ‘integration triage’.

Pre-deal work does not need to drill into all the detail. But it should go far enough to draw a roadmap, identify possible areas of risk or difficulty, be realistic about options for their resolution, and give the integration team enough information to hit the ground running post-deal. Such an approach will accelerate benefits while also saving time, money and business disruption.

Simple changes to how and when integration planning is conducted consistently delivers a better deal decision, valuation, negotiating position, communications, and execution post-close. For example, conducting detailed integration planning alongside due diligence, aligning (or even using the same) functional teams to support both, and feeding information and insights from each of these streams of work to the other as they progress in parallel can really help.

Our outside-in assessment of the failed Daimler-Chrysler merger in 1998 suggests insufficient time was taken to understand up-front the clear links between deal value, different supply chain and production approaches and disparate cultures. Their misalignment contributed heavily to the unravelling of the deal.

Experienced people at the helm

While all the principles of transformation and change management apply to post-deal work, the context of an integration is very specifically different from more common organisational transformation initiatives. New people and cultures come together in an environment of uncertainty and nervousness. There is a lack of detail around how the ‘other side’ operates. There are high (sometimes unrealistic) expectations from senior executives and boards. And the pace of change can make the deal process look calm and measured by comparison.

Those responsible for seeing the integration through will need to guide the new organisation through a labyrinth of competing demands and challenges while balancing the needs of business as usual. This requires a range of skills and experience not commonly available in most organisations. Those leading the programme must know how to tailor processes and tools based on the need, capability and culture of both organisations as they come together. Finding the right mix of programme structure and agility is critical to maintaining momentum, delivering quick wins and avoiding costly errors.

Like open-heart surgery or replacing the engines at 30,000ft, this is not a task to be given to the B Team to look after in their spare time. It requires people who can understand the specific challenges of M&A in all their complexity. Such people are rare in business, but it is worth seeking them out.

Leadership culture and behaviours

But a structured approach and experienced people are still not enough to guarantee success. Our research and experience clearly shows that the most significant factor in successful M&A is the attitude of executives and board members both before and during the integration process.

Our research Inconvenient Truths identified ten ‘bad habits’ that can contribute to the failure of M&A. When we analysed their level of adoption we found that leaders who avoid them are 72% more likely to see M&A deliver long term benefits, including a 46% increase in share price over three years – more than twice that of their ‘badly behaving’ peers.

Differences in leadership culture can explain why some organisations consistently succeed at M&A even without strong processes or a history of past M&A, while many experienced serial acquirers appear stuck with mediocre performance deal after deal.

The lessons for successful M&A

Where does this leave companies looking to improve their M&A performance? Regardless of whether they are serial M&A organisations or first-timers, the lessons are the same.

It is vital to think of M&A as a continuous process rather than seeing the deal itself as a break between a time ‘before’ and a time ‘after’. A more joined up view will allow for much better understanding of and preparation for what needs to happen during integration. With that in mind, due attention should be given to the structure and composition of the deal team, so that it includes those with post-deal responsibilities for integration. They could even be financially incentivised to achieve a successful deal. This will help with realistic goal-setting and clear, focussed integration planning.

When it comes to the post-deal work, ensure that experienced, talented, capable people are leading the integration process, and don’t settle for less than the best. And last, but definitely not least, pay attention to leadership culture and behaviour. The senior team must lead visibly and consistently before and through the integration time frame, which may take well over a year.

The right people, the right leadership culture, and the right approach to goal setting and integration management can truly transform M&A performance from good to great.

Carlos Keener, Founding Partner, BTD Consulting

M&A remains by far the most popular way of businesses joining forces, despite the fact that more than half of M&As fail to reach their desired objectives. Indeed one Accenture report has noted that just 58% of all acquisitions added shareholder value 24 months past close.

Carlos Keener

Businesses never, surely, go into an M&A situation wanting to be one of the failures. Yet evidence suggests they have a higher chance of failure than of success. There is no getting away from the fact that M&A is difficult, but success should be much more common than it is.

Three central factors influence M&A success – taking the right approach to the integration process, putting the best management team in place, and displaying visible, strong leadership from the top. Getting each of them right should help any business defy the statistics.

A structured, comprehensive process

Integrations succeed when they are viewed not as a way of crashing organisations together, but as the set of initiatives specifically designed to deliver clearly defined acquisition goals. Yet far too often the job of integration is thought of mechanistically, as a process to get out of the way post-close (one senior banker actually referred to it as “just admin”).

It is vital to think before the deal is done about what will happen afterwards. Bullish CEOs and specialist dealmakers wanting to complete one deal and move on to the next will not necessarily consider the integration to follow. But someone must take accountability for this, and their deep involvement in the pre-deal work is essential.

Thinking not of ‘before’ and ‘after’ but of a continuous process helps connect acquisition goals directly to a view of the desired post-close operating model. Describing expectations of the newly merged business in some depth will deliver a plan comprising tangible, goal-focused integration activities and avoid unnecessary, non-value adding initiatives. We call this ‘integration triage’.

Pre-deal work does not need to drill into all the detail. But it should go far enough to draw a roadmap, identify possible areas of risk or difficulty, be realistic about options for their resolution, and give the integration team enough information to hit the ground running post-deal. Such an approach will accelerate benefits while also saving time, money and business disruption.

Simple changes to how and when integration planning is conducted consistently delivers a better deal decision, valuation, negotiating position, communications, and execution post-close. For example, conducting detailed integration planning alongside due diligence, aligning (or even using the same) functional teams to support both, and feeding information and insights from each of these streams of work to the other as they progress in parallel can really help.

Our outside-in assessment of the failed Daimler-Chrysler merger in 1998 suggests insufficient time was taken to understand up-front the clear links between deal value, different supply chain and production approaches and disparate cultures. Their misalignment contributed heavily to the unravelling of the deal.

Experienced people at the helm

While all the principles of transformation and change management apply to post-deal work, the context of an integration is very specifically different from more common organisational transformation initiatives. New people and cultures come together in an environment of uncertainty and nervousness. There is a lack of detail around how the ‘other side’ operates. There are high (sometimes unrealistic) expectations from senior executives and boards. And the pace of change can make the deal process look calm and measured by comparison.

Those responsible for seeing the integration through will need to guide the new organisation through a labyrinth of competing demands and challenges while balancing the needs of business as usual. This requires a range of skills and experience not commonly available in most organisations. Those leading the programme must know how to tailor processes and tools based on the need, capability and culture of both organisations as they come together. Finding the right mix of programme structure and agility is critical to maintaining momentum, delivering quick wins and avoiding costly errors.

Like open-heart surgery or replacing the engines at 30,000ft, this is not a task to be given to the B Team to look after in their spare time. It requires people who can understand the specific challenges of M&A in all their complexity. Such people are rare in business, but it is worth seeking them out.

Leadership culture and behaviours

But a structured approach and experienced people are still not enough to guarantee success. Our research and experience clearly shows that the most significant factor in successful M&A is the attitude of executives and board members both before and during the integration process.

Our research Inconvenient Truths identified ten ‘bad habits’ that can contribute to the failure of M&A. When we analysed their level of adoption we found that leaders who avoid them are 72% more likely to see M&A deliver long term benefits, including a 46% increase in share price over three years – more than twice that of their ‘badly behaving’ peers.

Differences in leadership culture can explain why some organisations consistently succeed at M&A even without strong processes or a history of past M&A, while many experienced serial acquirers appear stuck with mediocre performance deal after deal.

The lessons for successful M&A

Where does this leave companies looking to improve their M&A performance? Regardless of whether they are serial M&A organisations or first-timers, the lessons are the same.

It is vital to think of M&A as a continuous process rather than seeing the deal itself as a break between a time ‘before’ and a time ‘after’. A more joined up view will allow for much better understanding of and preparation for what needs to happen during integration. With that in mind, due attention should be given to the structure and composition of the deal team, so that it includes those with post-deal responsibilities for integration. They could even be financially incentivised to achieve a successful deal. This will help with realistic goal-setting and clear, focussed integration planning.

When it comes to the post-deal work, ensure that experienced, talented, capable people are leading the integration process, and don’t settle for less than the best. And last, but definitely not least, pay attention to leadership culture and behaviour. The senior team must lead visibly and consistently before and through the integration time frame, which may take well over a year.

The right people, the right leadership culture, and the right approach to goal setting and integration management can truly transform M&A performance from good to great.