8 Ways to Avoid an M&A Failure

According to a KPMG study, "83% of all mergers and acquisitions (M&As) failed to produce any benefit for the shareholders and over half actually destroyed value". Further 80% created no shareholder value and 31% of transactions actually destroyed shareholder value according to Neil Sen of the London Financial News.

So, what exactly is the root cause of all these merger and acquisition problems? People and cultural differences; not a surprise if you’ve ever been through even one.

AON reports that the lack of cultural integration is the #2 driver behind failed deals.

According to Rica Bhattacharyya and Sachin Dave in the Economic Times on July 26, 2016, People risks are topping board agendas both while selling and buying including such pain points as employee retention, cultural integration, leadership assessment, compensation, and benefit levels and overall talent management.

The Halpin Companies’ methods ensure these dismal statistics can be turned around quickly and sustainably.

If you are involved in any role in current or future M&A transactions, invest 10- minutes to review this e-Book to ensure your transactions do not become part of these dismal statistics.

Not all of these 83% of these failures are abject failures – but they do fail to achieve all the forecasted ‘synergies’; increased market share, stronger brands, and substantially greater shareholder value.

If you are planning a merger or acquisition in the next few years, this is vital information to your career path, shareholder’s stake and your net worth. Don’t become one of these statistics.

8 Practical Ways to Avoid Becoming an Underperforming M&A Statistic

What can you do today to avoid the risks? Surprisingly the solutions are simple. While these methods are profound in their simplicity they are not easy. These solutions will require your willingness to get out of your comfort zone. However, once you’ve experimented with a few new and different approaches and see the results, you’ll eagerly embrace all of these approaches. Follow all eight of these recommended approaches and you’ll have a framework that ensures success and can be replicated and scaled.

Godred Yaw Koi-Akrofi shared in the July 2016 issue of the International Journal of Innovation and Applied Studies his research on this critically important topic titled, Mergers and Acquisitions Failure Rates and Perspectives on Why They Fail.

Here is his conclusion:

. “The discussions so far on failure perspectives have pointed to the integration stage as one of the critical stages within the whole M & A process which can contribute immensely to M & A failure. This is in consonance with the works of Haspeslagh and Jemison and Saxton and Dollinger who pointed out that post-merger/acquisition integration is essential for the success of the deal. Again from the discussion, the most mentioned problem in the integration stage has to do with the human factor (the employees-coping with cultural differences, politics, lack of effective communication, etc). They contribute a lot to the success or failure of the deal. Equipment and processes can be changed without any problem, but human beings are difficult to change. In the bid or quest to roll out various strategies in the post- M & A era, to ensure good performance, the employee must be pivotal. Any attempt to sideline the employee in all these will spell doom for the new setup.

Another factor that occurred most after the human factor is poor strategies that are rolled out after the deal is sealed. Once management fails to get it right from scratch, it is bound to fail. One particular strategy may not work for different settings and environments, and so it is very important for management to take their time to study the terrain (especially during the time before the deal is sealed) to plan fitting strategies that can yield dividends at the end of the day. In most cases, there is so much pressure on management to roll out strategies immediately after the deal is sealed to announce their presence as an entity, and if prior proper planning is not done it may lead to disaster.

Again, from the discussion, M & A failure rate is very high; averaging about 50%, regardless of the initial high hopes. Despite this high rate of failure, and for the fact that M & As do not necessarily create financial value for shareholders, they are still very popular, and is always almost the way to go for business transformation by top executives of business entities. This suggests that deliberately swallowing potential competitors, increasing points of presence, promoting special brands, running for undercover due to impending bankruptcy, etc may be among the other reasons why M & As are still popular. “

The Halpin Companies’ 8 Practical Approaches

We believe that successful mergers and acquisitions occur in the Lunchroom, not the Board Room. We have a proven, 29-year old methodology that allows leaders to integrate cultures successfully and quickly and build alignment at all levels. We have Playbooks for every Phase of the transaction; pre-, day of, and integration.

As a result, shareholder growth can occur in a predictable and methodical manner.

1. Avoid layoffs at all costs!

Your advisors will encourage you to prepare for an immediate layoff as soon as the ink is dry. However, this typical step can do irreparable damage to the short-term and long-term value of your company and we are vehemently opposed.

Yes, you do need to remove redundancy and minimize personnel costs. However, a layoff is a no-win. Instead, find a way to create win/win/win solutions.

In a layoff, the terminated employees may or may not win depending on their severance and their capacity to transition quickly to a new job. More importantly, the retained employees definitely do not win because, even when not directly impacted, they feel traumatized by the uncertainty. A layoff is the best way to encourage employees to adopt a victim mindset, stop taking ownership for results, and remove all creativity and innovation immediately.

The company does not win because of the lost institutional knowledge and the significant and long-lasting hit to the morale of the remaining employees and the culture. Layoffs are a key reason for these poor statistics.

A win/win/win could result in significantly greater shareholder value through innovation and aligning the right people in the right roles, focused on the right priorities. Using our proven methods, your people will either produce the required results or they will voluntarily leave with their dignity intact.

2. Use strategic approaches.

Working 80 hours a week is a bad plan but it is the typical knee-jerk reaction during periods of change. Instead, step back, think strategically, and prepare for your next discussions.

If you are racing from meeting to meeting with little time to think strategically or prepare for important discussions, you will not notice the red flags – much less pick up on them! These indicators are always present.

We inevitably find ourselves in a reactive mindset, what I call maniac mode. The question is how long will we stay in that mode? An hour, a day, a week or a decade?

When we are in reactive mode we have now transferred control of our destiny to others.

3. Establish a transparent and inclusive process to make decisions – today!

Limited resources have to be allocated every day within every division of your organization. During periods of transition resources can appear to become scarce. Decisions tend to be made in a vacuum without considering the unintended consequences of each independent decision.

Including stakeholders at all levels of the organization and process ensures you have champions who can educate the masses about the importance of these decisions.

More importantly, building in transparency ensures your people will trust the decision-making process because they were involved and see how the decisions impact their day-to-day roles.

4. Assess your own team now!

Not only do you need to do your own due diligence on any potential transaction partner, but you must first assess your leadership team. This assessment will help you see which employees are growing shareholder value, who is simply sustaining the value of your current entity, and who on your team is actually eroding shareholder value.

This exercise prepares you to do a similar assessment with potential management teams as well as assess the potential team dynamics. Any sustainable value of an acquired or merged entity lies in the personal and professional maturity of their management team.

Having a proven method to assess these individuals quickly pre-transaction is crucial.

5. Negotiate expectations upfront and continuously.

During the honeymoon phase of a merger or acquisition, the future looks rosy and the impossible feels very much within reach. Without a proven method to negotiate expectations, especially around compensation, the rosy future can become tarnished or dimmed quickly.

Without the facts, people tend to make up stories. With any amount of ambiguity, the stories your colleagues make up will inevitably damage the potential value of the future entity.

A comprehensive communication campaign is required to communicate concisely, clearly, and consistently to all stakeholders at every level. Customer communications must be aligned with employee communications or mayhem will ensue.

6. Develop a simple, easy-to-understand purpose for this transaction and a method to share this purpose with every employee.

If your current and future employees do not understand the big picture and if the critical nature of their role does not resonate with them at an emotional level, they will quickly become disengaged and give you only a small amount of their individual and team capacity.

You may lose your best employees because they do not see a strategic career path and do not like the unrest, gossip, or lack of clarity.

If they do understand the critical nature of their role and responsibilities, they will give you 200% of their effort and their intellectual capacity. They will bring innovative ideas and take ownership for driving the required results.

7. Build connections quickly and in a sustainable manner.

Years ago I heard a partner in a highly successful national real estate development company share the history of their successes. He said that the three partners spent an inordinate amount of time sitting in a booth at a local Mexican restaurant across the street from their original offices. They had all worked together previously in different capacities but as new Partners they knew the importance of building solid connections.

While this approach may have seemed like a waste of time to many, I believe they established a foundation on which to build this highly respected company. Further, I believe they took their solid connections with each other and solidified these connections. These connections provided a framework for working through difficult decisions over the past 25 years as they’ve grown this amazingly successful brand and organization.

Use established team-building techniques to help people bond. It’s all about trust.

8. Lastly, remember the big picture.

• Why did you grow your original company?
• Why does this acquisition or merger seem like a good idea?
• How can you exponentially leverage the combined assets?
• How can you exponentially leverage the human capital capacity?
• How can each leader create environments where everyone feels safe to share their innovative ideas and large and small concerns?
• How can you create a collective mindset where everyone feels engaged and encouraged to bring their best self to work every day?
• What kind of legacy do you want to leave behind? None of us will live forever and we must be purposeful in our actions today to ensure our legacy is not one of greed and self-interest but where we have created financial security and some level of financial success for our colleagues, our employees, our vendors and supplies, and our shareholders. The key is to use proactive and strategic approaches and get out of the reactive mindset so many of us fall into.
• A New Approach If you want to avoid becoming a statistic, bring in a trusted advisor beyond the normal scope of investment bankers, CPAs, and attorneys. It is important to help keep the “people part” of the merger or acquisition on track. We strongly encourage you to bring in experienced professionals with a proven track record of accelerating growth during transitions. If you have any questions or if we can be of service, we may be reached at 602-266-1961 or via our website at https://www.HalpinCompany.com

About Katharine HalpinKatharine Halpin has been facilitating transitions in organizations of all sizes since 1995. She founded The Halpin Companies in an effort to fill a void she saw every day in her CPA career. “Transactions fail to accomplish the forecasted goals simply because no one is focused on getting the right people in the right roles driving the right results right away.”

She has amassed a suite of tools and methods to exponentially increase the shareholder value of an organization by actually leveraging the transition. Many of the clients of The Halpin Companies have realized growth of 200% to 300% as they prepare for a transaction and move powerfully through the transition.