At a time when mergers and acquisitions are increasing at a much faster pace across all industries globally, the failure rate of such acquisitions can be as much as 90%, according to a recent Harvard Business Review report.
So, why so many failures take place in M&A? Is it because companies do not do proper due diligence or is it because cultural factors do not support acquisitions. Without a clear long-term strategy outlining every aspect of the deal, effective project management and open communication between all stakeholder groups, the merger or acquisition will struggle to deliver the desired results and will be a failure. The process must be completely transparent, realistic and involve all areas of management if success is to be achieved.
1. While estimating synergies is difficult, doing so is vital and requires more investment in terms of time and human resource. Involving key managers in problem solving and due diligence improves the quality of estimates of the deal and also builds support for post-merger integration initiatives. Synergy analysis also illuminates issues that will shape due diligence, the structure of deals, and the negotiations that lead up to them.
2. Be clear on what matters and why. If the merger or acquisition isn’t going to get you the extra benefit or value-addition to your group than the entities could do separately, walk away before signing on the dotted lines. Arguably if the leaders of more mergers and acquisitions thought through how they were going to win together fewer of them would lose together. You must get your strategy right at the first place and align with your company’s culture.
3. In almost any situation there is a small set of actions that will have the greatest impact. You are always better off focusing on them and put all your resources on the vital areas of doing business. In a merger or acquisition, these will fall into strategic, organizational and operational buckets. Strategically, make sure you are creating and allocating the right resources to the right places in the right way at the right time over time. All is in the service of an energizing mission and vision as well as a set of shared goals that are crystal clear.
4. Merging or acquiring a company can be draining from a personnel and financial perspective, and it can quickly spiral out of control if the businesses have not outlined what they wish to achieve for each stakeholder. Clearly define the goals of the mergers in the first place and do keep a tab on the achievements. This means a unified business plan, enough time to let employees adjust to the change, training programmes for those who need to be brought up to speed, financial and legal adjustments, a consolidated IT department and the creation of a brand identity that everyone can relate to.
5. Clearly defining the purpose of the merger or acquisition – growth, market share, mutual benefits – will establish realistic goals and a natural process that can be managed. Challenges will occur, that is a fact, so make sure your strategy assesses the potential risks and complications that could arise during the process so you are prepared. Remember, nobody can champion a great business alone and this is particularly evident during a merger or acquisition. It is therefore wise to establish an advisory board that includes major stakeholders, heads of department, internal staff and an outside specialist to guide the process.
Mergers and acquisitions require highly sophisticated expertise so consider bringing in an expert who can assess the situation and planned objectives without bias. An independent expert will help challenge claims, validate great business decisions and ensure leadership stays on track in its goals. In fact, independent expert will look to ensure employees receive the support they need through the merger or acquisition and make people understand why the changes are taking place, otherwise they will lose focus, become unhappy and potentially be disruptive for the company and all shareholders and the deal acquisition will collapse in the long run.