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How to buck the trend and achieve M&A success

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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

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.

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Baidu-Geely EV venture names Mobike co-founder as chief

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Baidu-Geely EV venture names Mobike co-founder as chief 1

BEIJING/SHANGHAI (Reuters) – China’s Baidu Inc and automaker Geely hired Mobike co-founder and former chief technology officer Xia Yiping as chief executive of their new electric vehicle venture, the search engine giant said on Monday.

Baidu last month had announced it would set up a company with Zhejiang Geely Holding Group to leverage its intelligent driving capabilities and Geely’s car manufacturing expertise.

“Xia has extensive management experience in the field of smart cars and mobility services,” Baidu said in a statement. “We welcome Xia Yiping to join Baidu’s auto company and look forward to his contribution to Baidu and the automobile industry.”

Reuters reported Xia’s appointment last week, citing people familiar with the matter.

Xia served as Mobike’s chief technology officer until the company was acquired by food delivery giant Meituan in 2018. Prior to Mobike, he worked at Ford Motor and Fiat Chrysler.

(Reporting by Yingzhi Yang, Yilei Sun and Brenda Goh, Editing by Sherry Jacob-Phillips)

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UK firms report strongest hiring intentions in a year – CIPD

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UK firms report strongest hiring intentions in a year - CIPD 2

LONDON (Reuters) – British businesses have the strongest hiring intentions in a year and fewer are planning to make redundancies as the economic outlook has brightened over the past three months, a human resources industry body said on Monday.

The Chartered Institute of Personnel and Development said 56% of businesses planned to increase staff numbers in the coming months, up from 53% in late 2020 but below the 66% planning to hire staff a year ago before the pandemic.

The proportion of firms planning redundancies dropped sharply to 20% from 30% in the last quarter.

However the CIPD said unemployment was likely to rise sharply if finance minister Rishi Sunak does not extend jobs support for businesses at his March 3 budget.

“It is far too soon to rule out further significant private sector redundancies later in the year if the government does not extend the furlough scheme to the end of June or if the economy suffers any additional unexpected shocks,” said Gerwyn Davies, a senior labour market advisor to the CIPD.

A costly furlough programme that is supporting around one in five private-sector employees during the current lockdown is due to end on April 30.

The British Chambers of Commerce warned last week that one in four of its members planned to make job cuts if the support ended while they were still feeling the impact of the pandemic.

The CIPD said hiring plans were strongest in healthcare, finance, education and IT, and weakest in the hospitality sector which is bearing the brunt of the current lockdown.

The survey, run jointly with recruiters Adecco, covered 2,000 employers between Jan. 5 and Jan. 30.

(Reporting by David Milliken; Editing by William Schomberg)

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Sunak to raise business tax to pay for COVID-19 support – The Sunday Times

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Sunak to raise business tax to pay for COVID-19 support - The Sunday Times 3

(Reuters) – British finance minister Rishi Sunak is set to increase a tax on business to pay for an extension to COVID-19 support schemes in the budget next month, The Sunday Times reported https://bit.ly/3ujaBcU.

Sunak, in his speech on March 3, will announce he is increasing corporation tax from 19 pence in the pound and will outline a pathway where it rises to 23 pence in the pound by the time of the next general election, the report said. The move will raise an expected 12 billion pounds ($16.8 billion) a year, the report added.

According to the report, at least 1 pence is set to be added to the bill for business from this autumn, at a cost to business of 3 billion pounds, with further rises in subsequent years.

Allies of Sunak clarified he would not increase corporation tax higher than 23%.

These measures will be helpful in paying for an extension to the furlough scheme, VAT cuts and business support loans until at least August.

Unlike the 2010 Conservative-led government, which pursued spending cuts to rebalance the economy after the global financial crisis, Sunak is expected to defer most of the toughest decisions about how to pay for that support in his budget speech.

“The corporation tax hike will be higher than expected and the extension of the support schemes will be longer than most people expect,” the newspaper quoted a source as saying.

Insiders indicated the stamp duty holiday on property purchases would also be extended in line with the other coronavirus support measures, the report said.

Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.

($1 = 0.7136 pounds)

 

(Reporting by Vishal Vivek in Bengaluru; Editing by Lincoln Feast.)

 

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