Ihab Salloum[ad_1]
Discontented with your organization’s disappointing earnings performance following the last acquisition? Worried that the next merger or acquisition will yield similar results? Fear not! Numerous studies have proven that mergers and acquisitions involve substantial risks. Despite the hefty fees collected by M&A advisors, the majority of these transactions fail to deliver the promised financial performance. As with any investment, the greatest risks yield the greatest outcomes, be them favorable or unfavorable. However, one can improve their odds by examining the methods employed by the most successful M&A companies.
As a seasoned industry executive, I have encountered various challenges related to mergers and acquisitions throughout my career. Recently, I conducted interviews with several C-level executives from prominent global companies across multiple industries, delving into this exact topic. Additionally, I conducted an internet-based survey targeting senior managers with extensive M&A experience. From these endeavors, seven winning characteristics emerged among the select few truly successful M&A companies.
Characteristic #1: Successful companies meticulously follow a tried-and-true path when it comes to mergers and acquisitions. Firstly, they engage in meaningful strategic planning, which enables them to identify acquisition targets that align excellently with their corporations, rather than merely seeking opportunities for expansion. Secondly, they conduct meticulous due diligence that delves into the depths of the business processes and information systems capabilities of the target acquisition, ensuring appropriate valuation and strategic fit. Thirdly, they negotiate transaction terms and conditions that prevent overpayment, keeping management from succumbing to an infatuation with the target company. Fourthly, they devise comprehensive post-merger or post-acquisition integration plans, which encompass a thorough communication strategy, objective and performance measure alignment, as well as the integration of processes and systems. Lastly, the most successful companies diligently execute the planned business assimilation and integration activities, as M&A necessitates detailed planning, rigorous management, and aggressive execution to thrive.
Characteristic #2: Successful companies employ initiatives or projects to execute integration, utilizing essential project management techniques to oversee each of these initiatives. Each company, including yours, possesses a unique combination of strengths, weaknesses, and market-facing strategies. The combination of these factors dictates the specific initiatives your company must undertake to assimilate the new business unit. In some cases, rationalizing staffing, facilities, and capital equipment may represent pressing needs. Conversely, achieving information system commonality to facilitate cross-selling and rebranding may be the top priority. Regardless of the combination, your company must effectively lead these initiatives through a formal program management structure. Such a structure encompasses detailed project plans, discrete milestones, defined performance measures, designated responsibilities, risk management, change management processes, and more. Initiative-based integration rooted in sound market-facing strategy enhances the likelihood of successful M&A performance.
Characteristic #3: Successful companies dedicate meaningful attention to the alignment of cultures, organizations, and HR matters such as management retention. If your company has experienced an acquisition or merger, you are well aware of the challenges posed by the differing cultures of the involved companies. Hostile takeovers, in particular, can prove devastating. Employees often discover that behaviors once rewarded by their company can now lead to demotion or dismissal. Performance criteria and evaluators change, leaving management in the acquired company, as well as many employees, feeling threatened, defensive, and resentful. Losing key leadership during critical transitional periods can ruin the deal. Even when the merger remains intact, organizational instability resulting from these issues drains significant energy and time from remaining managers, hindering the new enterprise’s efforts to achieve expected financial goals. Some M&A advisors report that up to 72% of key managers depart within three years of an acquisition or merger. Nearly all successful M&A companies incorporate a formal culture management structure into their integration planning. Some even implement specific performance measures to monitor the success of culture integration following the public announcement of a merger or acquisition. HR details, spanning communication to compensation, function as make-or-break elements in M&A success.
Characteristic #4: Successful companies ensure that the acquisition is an integral part of their overall business strategy. Have some of your company’s acquisitions clashed with the rest of the business? In my recent survey of senior managers with extensive M&A involvement, respondents deemed the targeting of strategically aligned acquisitions as the third most critical factor in ensuring M&A success. Strategic alignment implies close compatibility in terms of the markets served, owned technologies, research and development direction, and financial position (revenues, market share) between the companies involved. It also entails a quantifiable set of synergy-driven opportunities. The top-performing M&A entities maintain robust strategic plans encompassing market-facing strategies, internal operating strategies, specific performance targets, and performance metrics integrated throughout the organization. They incorporate alignment with these acquisition target elements into their integration planning, swiftly executing them post-deal. Effective planning represents a cornerstone of successful business endeavors, serving as the basis for every major decision, particularly in the context of mergers and acquisitions.
Characteristic #5: Successful companies assign dedicated resources, backed by executive accountability, to ensure acquisition success. Does your company assign full-time teams to handle acquisitions, or does it rely on part-time efforts from individuals juggling multiple responsibilities? The pressures of day-to-day job responsibilities make it exceedingly difficult for crucial staff members to dedicate adequate attention to part-time assignments associated with M&A activities. Assigning skilled full-time resources to these tasks during the due diligence phase, as early as possible, often proves critical to achieving success. General Electric, widely regarded as one of the most skilled acquirers in the business (and perhaps the most prolific), recognized the impact of management experience on their endeavors. Consequently, they designated integration management as a full-time role within their organization. Studies on GE and other companies demonstrate that those who deploy full-time teams boast superior M&A track records.
Characteristic #6: Successful companies establish discrete targets for integration activities, along with relatively short-term, quantifiable financial objectives. Did your company define and publicize specific performance targets during its previous acquisition? While broad goals like “achieving accretion within a year” may be sufficiently quantitative, they must be broken down into a set of initiatives accompanied by performance measures to be truly useful. The best companies not only understand the top-level goals in quantifiable terms but also delineate the specific actions, stakeholders, and deadlines necessary to attain desired outcomes. This precision necessitates detailed project plans centered around a defined set of initiatives, as described earlier in Characteristic #2. These initiatives can encompass revenue growth, market share growth, or operating cost reduction, among other aspects. They may involve various actions, such as establishing strategic partnerships for marketing or distribution, cross-selling efforts, facility rationalization, new R&D initiatives, organizational restructuring, and information systems upgrades. The most successful M&A companies meticulously pursue discrete initiatives to achieve quantitative goals, enabling the newly merged entity to fulfill specific financial objectives within designated time frames. Those companies that most precisely define success tend to excel in mergers and acquisitions.
Characteristic #7: Successful companies proactively transition the newly acquired business entity onto shared business processes and information systems early on. During an interview I conducted with a Financial Services executive, they stated that their highest priorities in transactions were gaining market share, growing assets, and decreasing operating costs proportionate to managed assets. Ensuring that the acquired entities adopt common processes and systems represents a strategic imperative for achieving the third goal. However, beyond merely impacting financial performance, this transition affects employee morale, ability to present a consistent image to customers, and efficiency in employee training. When a company like ours moves assertively to integrate acquired entities onto shared processes and systems, it achieves strategic benefits extending beyond financial gains.
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