Now M&A Is Completed! What's Next?

Majority of mergers and acquisitions fail so they say. So much have been written about this. But some worked really well. It is a matter or how fast they failed and how to avoid it. You can M&A to start-ups, many people are still doing it and knowing most of them will fail. The difference is the failing of start-up is not a bad thing, it is just part of the game. But failing of a merger/acquisition is not expected or at least the i-bankers won’t admit it.

The reasons for failing can be mostly attributed to post merger strategy and the fact that the average acquirer materially overestimates the synergies a merger will yield to realize the expected return-on-investments on a specific time horizons. These synergies usually come from leveraging economies of scale and scope, talent, knowledge and patents, cross-selling opportunities, and brand leverage.

Over the last 20+ years, I’ve looked at and advised many on these efforts and found that most of the time there is a lacking of robust strategy before the acquisition in the first place. When something good is available and you can afford it don’t necessarily mean you should buy it. Often the top line synergies are inflated and the assumptions were unclear. Then people never consider the “dis-synergies” cost including the loss or conflict of customers and confusion of business offerings etc.

The most common scenario is that buyer often was paying for revenue synergies and ended up praying for revenue synergies. I would say over 80% of mergers or acquisitions failed to achieve the promised synergies. In the case of a large firm acquiring a smaller firm, the most common mistakes are using the the same metrics to measure the other firm which is devastating in forcing structuring and culture change in the company acquired while it was performing well. And this can lead to distractions on the underlying commercial and financial performance of the business, which adversely affect its bottom line. Any dip in on-going performance will cause all hands to be called back on deck, to the detriment of the integration effort and tightening control and disempowering people. There goes the integration’s momentum and negatively impact people and customers and eventually end in failure as people’s energies wear out.

A post-integration business design and architecture is crucial as it can reduce a lot of anxiety and people see how their companies fit into the larger enterprises. So everyone can refocus on the business. Blindly rushing to deliver the already overestimated synergistic expectation is going to do more harm.

As disruption is accelerating during a time when most companies are already struggling to revinent or meet growth expectations, M&A will prove to be a necessity responding to disruption and growth challenges. If you want to beat the odds of success in any acquisitions, success don’t just fall into place by accident or with a few happy town halls. A good M&A leader understands that it’s his/her job to finesse things into place and not leave it out there to let it work out. A good M&A leader knows how to nurture and protect the company's culture. It is the job of an architect, not stockbroker or armchair strategist.