“M&A is a confidence game. With political certainty, the end of the pandemic in sight, and strong capital markets, the confidence levels in the C-suite and board rooms are high. That bodes well for M&A,” says Anu Aiyengar, JP Morgan’s Global Co-Head of M&A.
Aiyengar’s sentiment rings true in M&A markets today. A combination of Chief Executives pursuing big-ticket deals they planned during the pandemic, private equity companies sitting on almost $1.6 trillion of uninvested cash according to the Wall Street Journal and blank-check companies having raised record amounts this year, and have all contributed to the explosion of activity in M&A markets.
But as we know some M&A deals often fail to deliver the intended value case due to:
- Inability to drive the expected synergies from the deal. There are some great case studies where disconnects led to failed acquisitions, Yahoo and Tumblr for example.
- When one company announces it will be bought by another, there can often be a mass exodus of top talent. If key talent leaves the business at this crucial transitional point, the new merged business will have a much harder time succeeding which is what happened when Credit Suisse acquired Donaldson, Lufkin & Jenrette back in 2000.
- When two businesses that are apparently similar, Wendy’s and Arby’s for example, but have different cultures, processes, and ways of working that there becomes an inability to deeply integrate the two together.
So how do you go about delivering the cost and growth synergies?
Follow the money
- Focus the integration on the few critical issues that drive value. My experience, maybe yours too is that the cost synergies are typically well thought through – often enabled by bringing enabling function teams together for example, HR, Finance, Operations that leads to reductions in the number of people, procurement synergies and opportunities to reduce or renegotiate on a company’s property portfolio.
- Safeguard your customer assets through the integration – revenue synergies are often predicated on up sell and cross-sell of new or enhanced products and services to customers and so it’s important to retain and expand your customer base.
Agree your deal thesis
- Consider what are you trying to achieve with the deal? Is it a real merger of equals adopting ‘best of both’ principles? Is it a takeover? An acquisition of assets or IP?
- Align teams, be transparent in communicating the objectives of the deal early and set and manage expectations. Different approaches drive different types of integrations.
- Be specific, define and articulate how the acquired business fits within or sits alongside your strategy and then ensure this alignment is maintained throughout the process.
The importance of ‘Day One’
- Develop a clear blueprint for how you are going to operate on Day One. Then develop plans for one month, 90 days and so on, making sure everyone buys into each stage of the strategy.
- Resist the temptation to do everything on the first day, focus on what you absolutely need to do to get the basics right and then consider what you can do to build from there.
- See getting ‘day one’ right as an important step in creating both momentum and credibility in the organisation.
Stabilize leadership quickly
- Invest time in building great relationships within the organisation being acquired. Sometimes leadership teams turn inwards and fail to build relationships with their new colleagues early on.
- Settle leadership roles quickly to identify who can help stabilise the rest of the organisation.
- Use the opportunity to make changes in the leadership that aren’t necessarily deal related.
Put culture at the top of the agenda
- Understand the nuances of the two cultures and what can be done to marry them together.
- Avoid trying to resolve every culture difference immediately – it is impossible from a leadership perspective, and situations inevitably evolve and change over time.
- Find symbols of change to introduce new ways of working, for example sharing success stories, leaders being visible at key sites or co-creating a new vision and purpose together.
Prioritize talent retention
- Understand the reasons that could lead to talent leaving the organisation and the concerns of the team with regard to the acquisition.
- Engage employees with positive change and by mapping opportunities for personal growth and development the acquisition may present.
- Determine the new organisational structure early and then implement a clear, fair, and transparent process for deciding how roles will be selected.
Remain customer-centric throughout
- Continue delivering the best customer experience throughout the process. This will prevent losing customers and clients to the competition, who tend to strike when you are distracted.
- Speak to clients and customers early on 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.
- Have a clear and targeted customer retention and expansion strategy and execute throughout.
See value beyond financial for example, ESG impacts
- Use M&A opportunities to enhance ESG credentials move from risk avoidance mentality to value creation.
- Benchmark ESG performance against international standards, UN Sustainable Development Goals, and peers in your sector.
- Consider your sources of capital to fund deals – ESG factors are increasingly important for unlocking capital (debt and equity) and are becoming on a par with EBITDA, P&L, and overall performance.
- Measure the success of the integration in terms of how it has achieved the desired impact on the business and unlocked the opportunities as set out in the value case, rather than activities completed.
- Establish a rounded integration scorecard early on, covering all aspects of the deal. For example, finance, people, systems and commercial.
- Have a roadmap for cost and growth synergies, manage ‘cost-to-achieve’ with the same rigour as synergies and monitor and challenge investment costs to preserve net value
- Monitor the results closely and support the business to ensure the objectives are achieved. Appoint someone whose specific role it is to ‘keep the score’.
Taking these critical steps, as I have discovered from my own experience, really helps maximize a company’s chances of realizing the value case and increasing shareholder value – the ultimate measure of M&A success.
Founder and Director – Seven Transformation Ltd.