Merger and Acquisition (M & A) is a strategic decision, enabling growth through the acquisition of new products, expansion into new territories and access to new strategic customers. Additional drivers may also include improving profitability, enhancing strategic capabilities and re-positioning the company. This explains the continued interest in M & A.
It is well reported that the overall success rate of M & A deals is around 50%, even when carried out by experienced M & A consultants. The success rate of achieving desired objectives is even lower, but many business leaders are willing to take the risk.
Chief Executives Officers of medium size companies (USD 50-250M revenue) should take all the necessary measures to ensure that the odds are in their favor and should not simply be enticed by the Return On Investment (ROI).
The knock-on effect of unsuccessful M & A deals on companies depends on the relative size of the target acquisition to the size of the company, bearing in mind that larger companies are better equipped to manage the consequences of a bad M & A deal.
Based on the author’s own modest experience in Europe and the Middle East, a lack of planning at the outside is the major contributor to M & A failures. Most M & A deals look great on paper, but few companies pay sufficient attention to the post-merger and acquisition integration process.
Having carefully examined a number of unsuccessful M & A transactions, a number of key success factors have been identified as a pre-requisite to any successful M & A deal and should be an integral part of the M & A process.
- M & A activities must be fully aligned with the corporate strategy . Furthermore, the value that the M & A brings must be in line with the core values of the acquiring company.
- Before pursuing M & A activities, alternative options should be thoroughly explored . To some extent, M & A should have considered a last resort, as it is a high-risk process.
- A post-acquisition plan should be developed before a deal is agreed . Clarity of what needs to be done once the acquisition is completed is critical. If applicable, the integration process into the acquiring company needs to be clearly outlined. The availability of skilled resources to complete the integration process is as important as the plan itself.
- Cultures should be assessed to establish compatibility. As part of the due diligence process, a thorough assessment of the culture of the target acquisition is important to establish if the companies’ cultures are compatible. If not, then there is little point in proceeding, as the whole deal is doomed to fail.
- The affordability of the deal, including post M & A integration cost, should be verified. The affordability should include all reasonably expenses pre- and post-acquisition, including the investment (human and capital) required for the post-acquisition integration process. Post-acquisition organizational challenges entail many costs that negate the potential profit and impede the realization of the M & A and / or its objectives.
- All risks must be identified and mitigated. Identifying and resisting against all potential risks early on is critical to the long-term success of the deal. Risks should address all aspects of the business environment (political, economic, social, technological and legal).
- Due diligence must be conductively thorough and the results, satisfactory. Careful due diligence is paramount. If the acquiring company does not have the required skill set, they should hire a specialist consulting firm to conduct the process on their behalf. This is an opportunity to verify what you are paying for.
- The acquisition process should be managed as a project, with appropriate governance. The team should consist of experienced subject matter experts with C-level support. There should be an appropriate governance model to deal with issues as and when they emerge.
If one or more of these key success factors are not properly addressed, the integration process is likely to falter. Recovery, if at all possible, can be very expensive both in terms of resources and lost opportunities.
Whilst it might be attractive to proceed with an M & A, fueled by the excitation of an anticipated ROI, the consequences of an unsuccessful M & A deal can be devastating (particularly when no amount of good management can fix an acquisition that should never have happened in the first Place).
To increase the odds of a successful M & A deal, meticulous planning and a comprehensive screening process should take place before closing the deal. Furthermore, both parties should be fully committed to executing the agreed post-acquisition plan once the transaction is signed. It is worth bearing in mind the adage, “failure to plan, plan to fail”.