Avoiding M&A Cliches

Avoiding M&A Cliches

Recognition: I was sitting down to write this article and found that Tim Galpin, Senior Lecturer, Said Business School, Oxford University had already expressed views identical to mine. Allow me then to recognise Tim as the original author and thank him for his views.

Choosing to grow organically or by acquisition

Faced with a choice of organic or acquisitive growth,  (a “make or buy” decision), management often choose the quicker and seemingly easier “buy” growth strategy, choosing to merge or acquire. According to Thomson Reuters, 2017 was the third year in a row with more than 50,000 M&A deals announced worldwide and according to Deloitte, high deal volumes are set to continue through 2018. Recent analysis from multiple sources have shown that growth in volume and value of M&A transactions will continue through 2019 and beyond.

But, doing deals alone does not create new markets, or improve revenue / profitability or indeed improve competitive advantage.  Most deals today are strategic with targets in the same industry, having complimentary products, and serving similar customers. Therefore, in order to maximize the long-term value of deals, there is a mandate for the successful integration of people, processes, and systems. A key M&A risk is that the organizations fall apart rather than come together, destroying value. Furthermore, the market is unforgiving, as analysts and investors alike have seen that deals are harder to make-work than they are to do.

Don’t do deals – do integrations

Because of their financial bias, most senior teams disproportionately focus their attention, time, and resources on the activities leading up to a deal and on the deal itself – formulating an acquisition strategy, locating target companies which fit that strategy, investigating those companies via due diligence, and negotiating deal terms. While prior to and during the deal are where value is assessed, planned, forecasted and agreed, “post-deal” (during integration) is when value is actually realized. In the M&A world, the difference between winners and losers is not simply doing deals. The difference is making the deals work.

Deal damaging declarations

Management must be aware of and avoid clichés commonly used during M&As. Here are the most common declarations, and the reality associated with each:

“A merger of equals.” There is no such thing. No matter how similar two organizations appear on paper, there are always differences in leadership, operations, and culture.

“It is too early in the deal to begin planning for integration.” It is never too early. Delaying integration planning only serves to put the organization behind the curve, playing catch up, once the financial transaction is complete.

“We don’t need to tell the employees anything until there is something to tell.” There is always something to communicate and information to share; if not decisions, at least what is being worked on and progress along the way.

“We’ll freeze the organization for at least a year, and once things settle down we’ll start integrating” or “We’ll ease the changes in.” Slow integration only increases the depth and duration of the inevitable productivity drop. Swift and fair integration executed with prudent speed, protects productivity.

“Now that the transaction is complete, the deal is done.” Nothing is further from the truth. In fact, the real deal (integration) is just beginning.

“We don’t need any special integration measurement or progress tracking, we are there every day and can see how integration is going.” Management must regularly track and report integration progress against key milestones and synergy targets. If integration isn’t measured, it won’t be managed.

Any of these common statements and resulting approaches alone can be a value killer. Two or more of them together put deals on a rapid path to value destruction. As soon as senior leaders hear any of these phrases being uttered by someone who has an impact on the success of a deal, a caution flag should go up. Worse, if senior management themselves are using these phrases the deal is doomed from the start. Avoiding these clichés, and associated actions, will help ensure success and maximize the value of any deal.

About The Author

Robert Heaton is an Executive Director of BBG Consulting & Advisory is an Australia consulting business working with mid tier ($20M -$200M) clients across a range of industries. Other than general management consulting, the firm specialises in preparing business for sale / divestment and in post M&A integration. BBGCA consultants are all former executives and business leaders with the expertise to deal with every aspect of complex business challenges. www.bgc-consultants.com