Mergers & Acquisitions - a few basics

We’re in what seems to be a recurring cycle of Merger & Acquisition (M&A) activity across multiple industries, including healthcare, manufacturing, technology, and more. Organizations (e.g., healthcare payers and providers) of all sizes are consolidating, specially hospitals and the emerging ’multi-channel’ healthcare payers / retailers / e-tailers. Unfortunately, achieving the anticipated synergistic benefits of the transaction are likely to not be easily gained. Most acquirers (buyers) routinely overvalue the synergies that were anticipated through the M&As and these deals are notorious for failing at performing adequate due diligence (i.e., delving into processes and IT). We must take the opportunity to learn from our own (and others’) experiences and missteps.

Mergers and Acquisitions (M&A) can be an effective strategy for growing the top-line and bottom line for organization. Companies consolidate to increase market share, remove redundant capacities, acquire services / specialties / technology more quickly than it could be organically built, develop new businesses / enhance delivery models, and improve the company performance. Most often, companies merge or acquire to grow, with the goal of providing new top-line revenue or bottom-line profitability. Working closely with M&A teams we position the critical aspects of people, process, technology, and culture in the M&A life cycle.

The art of successful M&A requires focus and discipline for effective mergers & acquisitions (M&A) and completion of an post-merger integration plan. Without integrating the companies fully (culture, people, process, and technologies) the potential exists for the separate entities losing out on valuable connections and synergies. Falling short makes it harder to establish an organization culture to that will discover, stimulate, and institutionalize innovation. It's clear that new enterprises are increasingly likely to succeed when they optimize the resources of the converging companies.

Too often, we see that when companies merge, most of the ‘shareholder value’ created is likely to the seller and not the buyer. On average, the buyer (acquirer) pays the seller (target) almost all the value ever generated by a merger, in the form of a 10 to 50 percent premium above the target company’s market value. Deloitte, McKinsey, and others note that this fact is well established and while the specific reasons may be obscured, there seems to be recurring (systemic) issues and unresolved challenges with leadership, culture, governance, and integration into a cohesive organization / environment. Furthermore, and it’s not at all surprising, the problems seem to start at the top.

A ~75% failure rate doesn't have to be this way... it can be readily addressed and produce plans with realistic expectations and corresponding impressive results.

What are your thoughts?

Next up: Some M&A Postmortem Insights