03 Mar Are you managing your M&A upside down?
Mergers and Acquisitions have often been referred to as one of the most unnatural acts in business. There has to be some truth to this characterization given the abundance of data that indicates upwards of 85% of all acquisitions do not meet the expectations of the acquirer.
The reason cited most often for why M&A goes awry is the failure of planning for and implementing correctly the post merger assimilation of cultures, people, values, attitudes and styles . . . what is called the soft side of the equation.
Research conducted by Cass Business School, covering 12,339 deals including 2917 acquisitions of distressed companies from 1984 to 2008 concluded that price was not the determining factor for success but that post acquisition integration was the key.
It’s an odd and intriguing twist of management fate that one of the most critical elements of a company’s long-term growth strategy is governed upside down. Most of management’s attention is focused on the upfront number crunching, due diligence phase of the project, which evidence suggests is the least likely area where M&A runs afoul. The back-end—the post acquisition assimilation phase of the M&A—where research suggests 65% of the failure occurs and where management’s experience and firm hand is needed, is what gets the short shrift.
There are a number of reasons why the post side of an M&A gets this short shrift, among them:
- Advisor Mentality: I have heard from too many executives who’ve engaged an investment bank or a broker to manage their M&A, that when the ink is dry on the deal, off they go, leaving the company to fend for itself on the post-merger integration phase of the acquisition. For these advisors, who have no skin in the game after the deal is done, it is not in their interests to shine a bright light on potential down-road, deal-busting issues.
- Fatigue: By the time an M&A is finalized, after months of talking, meeting, investigating and negotiating with a number of prospects, you’re simply worn out.
- Believing the hard strategy part is done, and now you can leave the tactical stuff to your team to figure out. This is absolutely the wrong way to think. As the Founder, Owner, CEO, Managing Partner, this is no time to step away. This is not meant to disparage the quality of your team; it’s just that knowing this is toughest part of the acquisition means you have to have enough juice left over to provide strong, disciplined, motivating direction to your new enterprise.
This is one of the reasons you bring in a consultant. To keep you fresh for the tough stuff; to do a lot of the heavy-lifting; to be the bad guy when a bad guy is needed; to be the diplomat when a diplomat is needed, to be a sounding board when advice is needed: to be the negotiator when negotiating is needed, and to be someone who knows when, where and how to make these distinctions.