9 critical factors for a successful post merger or acquisition journey

While presenting on a panel at the recent?M&A Academy, I was asked a thought-provoking question that I wanted to share:

Flipping the perspective from?- when?things go wrong to helping ensure things are set up to go right – can you?(Melvin)?share with us some of what you’ve learned as a consultant working?with companies post transaction???

The success rate of acquisitions varies widely, however, studies have shown that a significant percentage of acquisitions fail to meet their intended objectives, with some estimates suggesting that as many as 50-70% of acquisitions ultimately fail to create value for the acquiring company. As a consultant with more than 20 years of experience helping to transform companies across industries, levels of maturity and geographies, I have witnessed hundreds of companies struggle through the challenges of a merger. Through my experiences I have noticed a number of “usual suspects” that play an important role in the transformation journey of a company triggered by an M&A.

There are?9 success levers: You may recognize some or most of them, but there are always one or two crucial elements that get overlooked which can sabotage your success.

1. Culture:?Understand how the new culture will need to be?shaped.?You can’t have performance without a strong culture, but merging two company cultures together can cause problems that tend to be difficult to diagnose. Company’s that fail to be intentional about the design of the “new”?culture limit their ability to capture the total value of the acquired or combined company. The new culture should be designed to shape the way employees think, communicate, and behave, and help them to establish a shared sense of purpose and direction at a time when they can be vulnerable. Additionally, the right culture can help to attract and retain employees.
2. Knowledge:?Understand and leverage the company’s degrees of sophistication.?Each company in a merger comes with its own nuances, but these special attributes are often neglected when businesses blend.?The company was acquired because it had some gems, which could be sophisticated systems, technologies, or processes. Understanding them will enable a more effective integration. A deep understanding of what has made the acquired business successful is important for effective integration, value maximization, risk management, and the recycling or reshaping of the culture.?Hold on to vital institutional knowledge, as long as you can.?
3. Investments: Reset investment strategies.?The merger or acquisition may have changed the capital structure of the company, or may have introduced new risks to the company, or simply introduced a new strategic center of gravity, which may require a new IS to allocate capital effectively. Specially, when there is a disequilibrium between the sizes of the firms, it is important to develop an investment strategy that fits the needs of the combined companies. New products, services, assets and strategies have to be looked at through the lens of the new company.
4. Value: Pinpoint where and how value is being created.?Incredibly enough, few companies fully understand how each specific stage in their value chain actually generates or consumes value.?By understanding the specific factors that contribute to the company's success, the acquiring company can evaluate the risks and opportunities of the acquisition on its own operations and financial performance or in some cases even build an optimized strategic value chain of the combined companies.
5. Products and services: Simplify your product lines.?When two companies merge or one company acquires another, they often end up with duplicate or overlapping product lines. Maintaining multiple product lines can be complex and expensive, requiring multiple teams, resources, and support infrastructures. Simplifying the product lines can help reduce this complexity and streamline operations.?
6. Assets: Optimize information systems and other multi-generational assets.?While?many companies retain existing pieces of critical operational infrastructure,?it is important to realize that optimizing information systems and other multi-generational assets after an acquisition is often essential to realizing the full potential of the acquisition and maximize the return on investment. In addition, it helps the new company leadership identify redundancies and inefficiencies in the system and eliminate them, resulting in cost savings often difficult to assess pre-deal. It also helps with sustainability, as optimized information systems can provide better data and insights to support decision making by the new owner.
7. People: Acquire fresh talent.?Given that your now bigger company will be more complex, you’ll likely need people who can bring different skills and experiences to the business. Fresh talent brings new ideas and perspectives to the table. An acquisition can sometimes create uncertainty and anxiety among existing employees. Having new team members can help to boost morale and provide a sense of stability, especially if the new talent is experienced and highly skilled. They also help tackle the novel challenges that the new organization may have. An acquisition may not always result in acquiring all the talent needed for the company. Bringing in fresh talent can help fill skill gaps and improve the overall capabilities of the company.
8. Skills: Enhance management skills.?Steering a cruise ship is different than a yacht. Companies that grow through M&A don’t always have the strategy chops to lead a much larger business.??Invest in upskilling your CEO and other executive positions or new people will need to get brought in. After a merger, the new company must be integrated into the existing organization. This can be a complex process that requires strong leadership and management skills. Enhancing management skills can help ensure that the integration process goes smoothly and that the new company is fully integrated into the existing organization. Also, an acquisition often brings significant changes to the organization, such as new products, new processes, customers, markets, systems and new employees. Enhancing management skills can help managers effectively manage these changes and ensure that they are implemented in a way that benefits the organization.
9. Expectations at all levels: Align operating standards.?This is foundational – delineate what each company – your business and the one you’ve acquired – is trying to achieve, and what success looks like at all levels in the organization.?Having a clear set of “new” operating standards can help ensure that all employees understand what is expected of them and how to perform their jobs in compliance with the company’s policies and strategic objectives. In addition, combining operating standards can help to create a shared culture and identity. This can be important for building trust and collaboration among employees.

These nine areas all need to be systematically addressed – Ideally throughout the combination journey – regardless of the size and complexity of the deal.?

Putting a strategic plan in place to address the 9 success levers listed above will significantly enhance your chances of executing a successful merger.??Which is where our sustainable cost transformation team can help.??We work with organizations to identify value, streamline processes, pinpoint talent gaps and more.?

Remember, in the wake of an M&A, one plus one cannot equal two. It must add up to something new.