How to Ensure Your M&A Deal is in the ‘2 in 10’ That Increase Value

The M&A environment is likely to stay strong in 2021, but the success rate of M&A deals isn’t great with 8 out of 10 failing to increase shareholder value. Finance Monthly hears from Karen Thomas-Bland, Advisory Member of The Chairman’s Network and Global Board Level Adviser on how to ensure your M&A is one of the 2 in 10.

It’s well reported that the virtual boardroom has new-found confidence following the rollout of COVID-19 vaccinations, the beginning of a new administration in the United States, Brexit completing in the UK and a strong stock market performance. With increased confidence, CEOs are actively seeking to buy growth.

But many M&A deals fail to deliver the value case, struggling to drive the expected synergies, affected by a mass exodus of top talent from the seller and an inability to deeply integrate two businesses that are apparently similar but have different cultures and ways of working.

So, what actions can you take to maximise your chances of being in the 2 in 10 deals that achieve the value case?

Have clarity

In the first instance, it’s about being clear on what it is you are trying to achieve – is it a real merger of equals adopting ‘best of both’ principles? Or is it a takeover? It’s important to be open and transparent in communications on this early on to set expectations, as each approach drives a different type of integration. Key for leaders at both ends of the deal is to articulate how the business fits within their strategy and then make sure throughout the process that each other’s strategy is well understood.

Get ‘day one’ right

Then it’s about working towards the first big milestone of ‘day one’ and having a clear blueprint for how you are going to operate that everyone buys into. The best piece of advice is not trying to do everything on the first day. First focus on what you absolutely need to do to get the basics right and then consider what you could do. Every detail is important and needs to be understood and communicated appropriately. For example, can you pay people and suppliers on time, can you bill and receive cash? Getting ‘day one’ right is an important step in creating momentum and credibility in the organisation, so it’s not one to get wrong.

It’s also important not to do too much and not to try to run before you can walk. Integration is a complex gradual process and too much change too quickly is the most common mistake. The change needs to be paced and sequenced appropriately, balancing the need to achieve synergies with the need to win people over.

Agree on joint objectives

Investing time in building great relationships with the organisation being acquired can pay dividends later on and will ensure the transition is seamless. Too often, leadership teams turn inwards and fail to build relationships with their new colleagues. The best companies ensure the leadership teams of both organisations come together through the integration process to talk about joint objectives, make plans and start to work together.

Consider a leadership shake-up

Settling leadership roles quickly to identify who can then help stabilise the rest of the organisation is an important step. It might also provide the opportunity to make changes in the leadership that aren’t necessarily related to the deal. In a context where change is already expected, there is a chance to look at teams and departments who might be underperforming or could use a shakeup and position the move as part of the broader integration process.

From a culture and ways of working perspective, to win ‘hearts and minds’, it is worth spending time figuring out how to knit the two organisations together.

Integrate teams and cultures

From a culture and ways of working perspective, to win ‘hearts and minds’, it is worth spending time figuring out how to knit the two organisations together. Careful integration of teams is fundamental for the success of any merger or acquisition. This often involves bringing together people with very different sets of values, behaviours, leadership styles, mindsets and policies. It’s important not to try to resolve every culture difference or issue immediately – it is impossible from a leadership perspective, and situations inevitably evolve and change over time.

To retain talent in both organisations, it’s important through the integration to lead through open and transparent dialogue. Identifying the strong and influential people from both businesses and ensuring that they are involved early in leading the integration is critical. It pays to understand the potential reasons that could lead people to leave and the concerns of the team with regards to the acquisition. Engaging through positive change and mapping opportunities for growth and development that the acquisition may bring are helpful steps. This includes identifying early on where coaching, content or project management support is needed.

Remain customer-focused

With the leadership being distracted by the deal and integration process, it is not uncommon to lose focus on the customer. Organisations must keep delivering for the customer through the process, to prevent losing them to the competition. It pays early on to speak to customers about the deal, outlining if and how it will impact them and how the change can help them to deliver greater value in their business.

Symbols of change

Finding symbols of change to introduce new ways of doing things can help smooth the integration process. To support the implementation and adoption of the integration, it’s important to ensure that the integration is at the forefront of colleagues’ minds. The best way to do this is through a steady cadence of visible acts of change or “symbols of change.”  These will introduce the new way of doing things – for example, sharing success stories, leadership being visible at key customer sites or co-creating a new vision and purpose together.

Measuring success

Finally, measure success simply and pragmatically. The success of the integration should not be measured on activities completed – for example, “plans done and delivered” or “systems integrated”, but rather on how it has achieved the desired impact on the business and unlocked the opportunities as set out in the joint objectives. As such, monitoring the results and supporting the business to ensure the objectives are achieved is an integral part of the integration process. Think about success on a number of dimensions, for example:

  • Customers: Minimise disruption to the customer base and create positive sentiment about the merger, whilst capturing revenue and margin growth opportunities. Example Key Performance Indicators (KPIs) for customers include customer retention in both organisations, customer sentiment survey outcomes and creating a positive customer experience.
  • People: Create an effective and efficient new organisation that can retain existing talents and attract new ones. Example KPIs for people include percentage regretted attrition and an integration engagement score.
  • Finance: Realise the identified cost and revenue synergies. Example KPIs to include are integration programme opex/capex and total synergies by initiative achieved. It’s important to manage cost to achieve with the same rigour as synergies.
  • Technology: This is often about consolidating the IT infrastructure and smoothly migrating data and customers. Example KPIs include systems migration and consolidation deadlines and ensuring no system outages that impact customers, suppliers or employees.

Taking these critical integration steps really maximise a company’s chances of realising the value case and increasing shareholder value – the ultimate measure of M&A success.

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