M&A Deal Rescue

Opting for M&A deals is a powerful business strategy that can create weighty value for shareholders. It can also be a complex and traumatic experience for senior management, employees and clients. By the end of the integration phases, it is rare for companies to find themselves on budget or on schedule, with all key talent retained and synergies realised. In fact, more than 70% of M&A deals fail to create their expected value. Some of the main reasons for M&A failure are lack of pre-planning, over-payment, poor communication, culture clashes, loss of key talent, and a slow and inferior integration execution. 

If you find that the vision of your deal is becoming unrealistic, how can you turn things around to capture more value? Let’s explore indicators of the deal heading in the wrong direction as well as some survival tactics.

To make it more accessible I’ll divide the integration process into three phases: Phase 1, the first three months post-announcement of the deal, Phase 2, the next 3-6 months of integration, and Phase 3, the rest of the time it takes to wrap-up implementation based on your deal objectives.  

Phase 1 – the first three months post-announcement of the deal

Angelica Carr (CM&AI, ICF, EMCC), Founder of Aim Business Coaching, delivers talks on dealing with change in M&A for both senior management and employees.

This is an intense phase as decisions are being shaped and delivered, new roles are created, and processes and systems are turned upside down. Without a clear vision and integration strategy on announcement of the deal, senior management quickly loses credibility and trust is affected. If you haven’t done so already, develop a sharp integration roadmap that includes goals, actions to be taken, by whom, by when, resources needed, risk assessment and milestones. Crucially, and too often neglected, decide how to measure success. Begin early on to formally examine progress against all objectives and action plans. Don’t lose sight of productivity, profit and people as your focus.

 This is the ‘ME’ phase where the main concern of employees is “What will my future look like?” Avoid making statements early on such as “There will be no changes” as this is not realistic and will backfire. Without early answers, worries turn into insecurity and frustration. The result is a fall in trust levels, slumped morale and reduced productivity. You may feel people are only focusing on the negative.

 Make communication and employment engagement priority. And keep communication regular and transparent. We may not have the answers but saying so is much better than not communicating at all. Develop efficient external communication with clients, suppliers and media. Change Management is also key in motivating people at all levels. Offer training to both senior management and employees on how to deal with change in M&A.

 The most common complaint in mergers is “What is taking so long?” Inject some pace and urgency into delivering your decisions, even the tough ones. Think of the lack of clarity around the UK and Brexit and the effect uncertainty has on business confidence. We can deal with a surprising amount of change, but uncertainty and ambiguity often result in more resistance.

 The first vulnerable turn-over peak in a merger is during the first weeks of the integration process. People leave after being poached but also as part of our natural defence mechanism. To avoid losing your key talent to competition you need to focus on talent retention at the very beginning. Identify your most valuable individuals and re-recruit them by offering higher salaries, merger specific reward programmes and other incentives.  

 Phase 2 – the next 3-6 months of integration

This phase often hits the organisation hard. You may feel you’re approaching stability but now is typically where most turbulence occurs. The global M&A consultancy Pritchett tellingly calls this stage “Death Valley” and explains that “This is the danger zone where deals most easily start to die”.

Management may experience a sense of merger burnout having worked solidly and non-stop since target evaluation and negotiations. In addition, when senior management is initially formed, board- members typically avoid airing any strong feelings of disagreement. The dialogue is positive and polite as everyone is keen for the merger to run smoothly. But when energy runs out, nerves are on edge, bottled-up views are aired, and power battles around roles and responsibilities take the stage.  Leadership may also be distracted by new potential deals during this phase.

Meanwhile, employees are emotionally exhausted and tired from the extra workload integration brings. They talk about wanting to “go back to normal” and are critical of new colleagues and new ways. As a result, the integration begins to drag and productivity drops. A second turn-over peak often happens during this phase. People are desperate to see any positive results at this stage. Try to communicate quick-wins: a new logo, new clients and any-size concrete financial victory. Also encourage social interaction between the various teams; a sense of community.

 We need effective tools to manage this “Death Valley” phase. Individual and team coaching is one tool and it needs to start from the top. To maintain momentum in the merger it is imperative that the board members show a strong and united leadership supporting both each other and the integration strategy. 

 Merging companies need to make more than economic sense. When executives talk about M&A deals that fail, they blame corporate and national culture clashes more than anything else. It is therefore mind-boggling that 60% of organisations do not conduct culture due diligence. Just like you do with the financial, legal and tax due diligence, use the results to identify any vulnerable areas and urgently decide which differences to leverage. But welcome the shift towards cultural diversity as a corporate asset in your M&A for creativity, new perspectives, added client targets and new market opportunities.

Phase 3 – Finalising implementation

If your company managed to survive the dangers of Phase 2, chances are that you will enjoy a much smoother Phase 3. Here, threat levels drop significantly as implementation is carried out. An official closure celebration is a good investment in the future.

If you decide you have overpaid for an acquired company, the temptation is to squeeze more value from it to restore the expected synergies of the deal.  This is likely to prove counterproductive.  Reneging on explicit or implicit financial terms of the deal to try to restore ‘value’ could result in a decent deal turning bad.  Focus instead on creating performance and shareholder value long-term.

Surveys show that earlier integration planning was the thing most executives would change about a deal made. Yes, ideally M&A management should be proactive but finding solutions to problems quickly and effectively is also important. Continue to measure progress against objectives and to learn from your mistakes. It is not too late to deliver but we need to listen and get stuck in to survive.

 Angelica Carr (CM&AI, ICF, EMCC), Founder of Aim Business Coaching, delivers talks on dealing with change in M&A for both senior management and employees.

Opting for M&A deals is a powerful business strategy that can create weighty value for shareholders. It can also be a complex and traumatic experience for senior management, employees and clients. By the end of the integration phases, it is rare for companies to find themselves on budget or on schedule, with all key talent retained and synergies realised. In fact, more than 70% of M&A deals fail to create their expected value. Some of the main reasons for M&A failure are lack of pre-planning, over-payment, poor communication, culture clashes, loss of key talent, and a slow and inferior integration execution. 

If you find that the vision of your deal is becoming unrealistic, how can you turn things around to capture more value? Let’s explore indicators of the deal heading in the wrong direction as well as some survival tactics.

To make it more accessible I’ll divide the integration process into three phases: Phase 1, the first three months post-announcement of the deal, Phase 2, the next 3-6 months of integration, and Phase 3, the rest of the time it takes to wrap-up implementation based on your deal objectives.  

Phase 1 – the first three months post-announcement of the deal

Angelica Carr (CM&AI, ICF, EMCC), Founder of Aim Business Coaching, delivers talks on dealing with change in M&A for both senior management and employees.

This is an intense phase as decisions are being shaped and delivered, new roles are created, and processes and systems are turned upside down. Without a clear vision and integration strategy on announcement of the deal, senior management quickly loses credibility and trust is affected. If you haven’t done so already, develop a sharp integration roadmap that includes goals, actions to be taken, by whom, by when, resources needed, risk assessment and milestones. Crucially, and too often neglected, decide how to measure success. Begin early on to formally examine progress against all objectives and action plans. Don’t lose sight of productivity, profit and people as your focus.

 This is the ‘ME’ phase where the main concern of employees is “What will my future look like?” Avoid making statements early on such as “There will be no changes” as this is not realistic and will backfire. Without early answers, worries turn into insecurity and frustration. The result is a fall in trust levels, slumped morale and reduced productivity. You may feel people are only focusing on the negative.

 Make communication and employment engagement priority. And keep communication regular and transparent. We may not have the answers but saying so is much better than not communicating at all. Develop efficient external communication with clients, suppliers and media. Change Management is also key in motivating people at all levels. Offer training to both senior management and employees on how to deal with change in M&A.

 The most common complaint in mergers is “What is taking so long?” Inject some pace and urgency into delivering your decisions, even the tough ones. Think of the lack of clarity around the UK and Brexit and the effect uncertainty has on business confidence. We can deal with a surprising amount of change, but uncertainty and ambiguity often result in more resistance.

 The first vulnerable turn-over peak in a merger is during the first weeks of the integration process. People leave after being poached but also as part of our natural defence mechanism. To avoid losing your key talent to competition you need to focus on talent retention at the very beginning. Identify your most valuable individuals and re-recruit them by offering higher salaries, merger specific reward programmes and other incentives.  

 Phase 2 – the next 3-6 months of integration

This phase often hits the organisation hard. You may feel you’re approaching stability but now is typically where most turbulence occurs. The global M&A consultancy Pritchett tellingly calls this stage “Death Valley” and explains that “This is the danger zone where deals most easily start to die”.

Management may experience a sense of merger burnout having worked solidly and non-stop since target evaluation and negotiations. In addition, when senior management is initially formed, board- members typically avoid airing any strong feelings of disagreement. The dialogue is positive and polite as everyone is keen for the merger to run smoothly. But when energy runs out, nerves are on edge, bottled-up views are aired, and power battles around roles and responsibilities take the stage.  Leadership may also be distracted by new potential deals during this phase.

Meanwhile, employees are emotionally exhausted and tired from the extra workload integration brings. They talk about wanting to “go back to normal” and are critical of new colleagues and new ways. As a result, the integration begins to drag and productivity drops. A second turn-over peak often happens during this phase. People are desperate to see any positive results at this stage. Try to communicate quick-wins: a new logo, new clients and any-size concrete financial victory. Also encourage social interaction between the various teams; a sense of community.

 We need effective tools to manage this “Death Valley” phase. Individual and team coaching is one tool and it needs to start from the top. To maintain momentum in the merger it is imperative that the board members show a strong and united leadership supporting both each other and the integration strategy. 

 Merging companies need to make more than economic sense. When executives talk about M&A deals that fail, they blame corporate and national culture clashes more than anything else. It is therefore mind-boggling that 60% of organisations do not conduct culture due diligence. Just like you do with the financial, legal and tax due diligence, use the results to identify any vulnerable areas and urgently decide which differences to leverage. But welcome the shift towards cultural diversity as a corporate asset in your M&A for creativity, new perspectives, added client targets and new market opportunities.

Phase 3 – Finalising implementation

If your company managed to survive the dangers of Phase 2, chances are that you will enjoy a much smoother Phase 3. Here, threat levels drop significantly as implementation is carried out. An official closure celebration is a good investment in the future.

If you decide you have overpaid for an acquired company, the temptation is to squeeze more value from it to restore the expected synergies of the deal.  This is likely to prove counterproductive.  Reneging on explicit or implicit financial terms of the deal to try to restore ‘value’ could result in a decent deal turning bad.  Focus instead on creating performance and shareholder value long-term.

Surveys show that earlier integration planning was the thing most executives would change about a deal made. Yes, ideally M&A management should be proactive but finding solutions to problems quickly and effectively is also important. Continue to measure progress against objectives and to learn from your mistakes. It is not too late to deliver but we need to listen and get stuck in to survive.

 Angelica Carr (CM&AI, ICF, EMCC), Founder of Aim Business Coaching, delivers talks on dealing with change in M&A for both senior management and employees.