The Behavioral Insights in M&A.

The Year 2021 has witnessed a historic record of USD 2.4 trillion of M&A deals globally, the highest since 1980 in any 12 month period. However, statistically, 70-90% of Mergers & Acquisitions have failed.

The Outcomes of an M&A are rather seen pessimistically, however, the behavioral consistencies in successful M&A bring in deeper insights. While reality predicates any forecast of future outcomes, especially in the case of M&As being impacted by a multitude of factors including culture, integration, assimilation, value creation, fitment, etc., still one may see deeper behavioral relationships in the context of both successful & unsuccessful M&A's.

THE CEO IMPACT:

The Role of the CEO globally varies from firm to firm and industry to industry. The ability of a CEO to initiate, sustain and successfully impact the outcome of an M&A is underpinned in the Managerial Discretion held by the incumbent. Many industries including Retail, Technology, Pharma, etc. have a high degree of latitude in the managerial discretion exercised by the CEO, as compared to state-owned, Oil & Oil&Gas, Telecom, Banking, and many other industries.

A CEO is believed to exercise a 15-20% tangible impact on the outcomes, even in a high managerial discretion scenario.

THE CEO - BOARD EQUATION:

The golden CEO-BOARD equation does have a strong bearing on the success of the M&A outcomes. A Generalist CEO is seen to have favored more unrelated acquisitions, with a much more positive outlook. Similarly, Specialist CEOs favor more related acquisitions, playing on the existing strength and synergies. A Generalist CEO is in most cases seen to be more open to innovation, disruptive acquisition & pushing the envelope to unchartered territories.

The equation gets complimented by the Board constitution.

While a generalist Board & CEO are more prone to riskier acquisitions, it certainly has very little bearing on a successful outcome. Similarly, a specialist Board & CEO will rather go conservative and prefer more adjacent space integrations, still, the success outcomes here are less favored.

A more lethal combination is of an opposite trait CEO-BOARD equation, provided it's leads to a decisive consensus in actions and decisions and doesn't jeopardize the Managerial Discretion on both sides.

Additionally, an optimistic CEO supported by a pessimistic or rather more rational CFO also improves the degree of success.

The behavioral underpinnings of the CEO:

A qualitative trait of the CEO, with extremes on both sides, OVerconfidence & NArcissim equally, compounded by the Managerial Discretion exercised in the particular industry, also impacts the nature of M&A undertaken.

Typically, one would see big bold moves in contexts of High Managerial Discretion, in both cases on Overconfidence & Narcissism. The same gets muted and impacted towards much slower change when the Managerial Discretion is reduced, despite the same behavioral traits.

Role Congruence occurs with M&A both related and un-related being balanced with organizations overall responsibilities including CSR, strategic alliances and partnerships, innovations & disruptive projects.

What brings in a successful M&A?

Successful M&As have exhibited three big commonalities, as the decisive paths to three big trade-off decisions. Both the acquirer and the incumbent are hoping for synergies that create larger value post any M&A, however, the nature of existing Complimentarity & Competitiveness does have a strong bearing.

Similarly, positive customer endorsements from existing customers enable synergies for incremental value creation.

Lastly, an Executive-In House Champion with a more positive, bright outlook, with a contagious excitement of the value creation possibilities with the incumbent, is seen to have a strong bearing on a successful outcome.