Written by Joris Vanthienen
M&A transactions have a very high failure rate. Mainly due to failing to integrate the two parties involved. To achieve success, it's important to drop the P in Post-Merger Integration and consider integration as a holistic process. Ideally starting when formulating the strategic rationale of a transaction. We’ve seen top performers prioritize merger integration projects and follow six principles for successful integration. In the next six weeks, I’ll dive into each of the six principles, and give you concrete examples of how we implemented them at our clients.
2023 off to a slow M&A start
In the first quarter of 2023, global mergers and acquisitions activity was reported to shrink to its lowest level since 2012. Rising interest rates, high inflation and fears of a recession soured the appetite of companies for dealmaking.
At BrightWolves do believe there are plenty of good reasons to keep your M&A team on the lookout also in 2023. Exploring inorganic growth still is a great way to accelerate the digital and sustainability transformation of your business. Analysis based on Refinitiv data shows that deals done during a downturn are often the most successful. A chance to outperform industry peers.
Don’t make this common M&A mistake !
Doing an M&A is not without risk, however. Based on research published in Harvard Business Review, M&A transactions have a failure rate ranging from 50 to 85 percent. This makes them a riskier undertaking than even business start-ups. Most explanations for this depressing number emphasize problems with integrating the two parties involved (Harvard Business Review, 2020).
M&A transactions have a typical failure rate ranging from 50 to 85 percent (Harvard Business Review)
Out of our own experience, We’ve seen managers often tend to relax when the deal is closed, but in reality, they should be doubling down on their efforts. Conducting a thorough due diligence phase is crucial. However, it is just a projection of pre-deal value that still needs to be realized through proper integration. The M&A team should consider the entire spectrum and ensure that the due diligence and integration processes are closely linked. The work starts where the deal ends. Successful acquirers see M&A as a core competency/business process that they need to build and sustain just like any other capability.
It is crucial to understand that buying good running shoes does not guarantee winning the marathon - one still needs to put in the work.
What top performers do differently: integration fixation
Understanding the importance of executing merger integration projects is the first step. Top performers know very well that it’s much easier to do a deal than to implement one. At BrightWolves we defined the six C’s of successful merger integration. Although each acquisition is different, these six principles, when followed, lead to better integration results.
In the next six weeks, we’ll dive into each of the six principles, and give you concrete examples on how we implemented them at our clients.
Clear choices: not everything has to be merged at one at the same time
When it comes to integrating different entities, tools or processes, it's important to make conscious choices about what to integrate and when. This requires a thoughtful approach that balances the need to merge quickly with the need to leave no opportunities unexplored. Click here to access the article.
Controlled speed: A stable pace steered by a central integration core team
Integration is a crucial process that should be conducted at the highest speed possible. Speed up decisions instead of focusing on precision. At the same time understanding, there are no ideal abstractions in integration speed and interdependencies must be considered. To keep a continuous pace, a centralized project governance should be established. Click here to access the article.
Craft: bring together the best minds of both sides to tackle the key questions
Merger integration is a challenging process that cannot be easily translated into a manual. In this process, it is essential to leverage the collective intelligence of both companies. We’ve seen it works best to select a highly respected integration leader (combining project management skills, with business knowledge and people skills). Click here to access the article.
Communication & Sponsorship: You are communicating enough when you think it’s too much
Communication is a critical component of any change initiative. People do not resist change as such, but rather uncertainty. The way you communicate with people can make a significant difference in how well they receive and accept the change. Finally, it is absolutely crucial to have visible and active sponsorship from top management.
Culture: embrace cultural differences as a springboard for merger success
It is important to factor in cultural differences from the outset of any integration project and make them explicit through self-assessments. This can help identify opportunities that may arise from the differences. Finally, to drive viral change, corporations should identify change agents from both companies, different departments, roles, and seniority levels. Click here to access the article.
Control & measure: you can only manage what you measure
Control and measurement are critical components of successful merger management. Facts- and data gathering are crucial since fact-based decision-making has been shown to overwhelmingly outperform intuition-based decision-making in the long run. Finally, we recommend to conduct project backtracking, for example when tracking your synergies.
Need help setting up your M&A for success? BrightWolves offers consulting services along the full M&A spectrum: ranging from helping to define your M&A strategy, to target screening & selection, commercial due diligence, deal closing and post-merger integration. Do not hesitate to reach out to our expert, Joris Vanthienen
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