‘Success in M&A? It’s all about the people!'

Blog 1 - Mergers & Acquisitions – So what goes wrong?

My view on why M&A transactions often fail …

Looking back on my experience in the field of mergers & acquisitions, I must admit that the statistics are not wrong. Then I mean the statistics that 70-90% of acquisitions fail[i]. Unfortunately I have indeed experienced this myself, one way or the other. And this is not about doing a good deal, i.e. closing a successful transaction. It only really starts when the deal is closed. This is when the value ought to be created. To pay back the purchase price. Make the expected return on the investment.

So what goes wrong?

In my view, the 4 most important reasons for failing M&A transactions are:

(1) unclear strategic vision on M&A;

(2) insufficient preparation of making a success of the deal;

(3) underestimation of the human aspect in acquiring a company; and

(4) the impact of leadership.

Unclear strategic vision on M&A

In general, companies have a clear reason to pursue M&A as part of their growth strategy. To gain market share, to acquire specific skills or to expand in new markets. However, it is often unclear what requirements need to be fulfilled in order to reach the strategic objectives. What are the market segments that the target company is focussing on, what services does the target company provide, how are services delivered or products produced or sold? In other words, to what extent does the target company fit? A slight change in business model or business proposition can make a huge difference in the acquisition becoming successful, or fail.

Another aspect of the strategic fit of the target company is: how does the new addition fit into the existing organisation? Is the target company organised by product or service line, or geographically? How does the size of the target company impact the success of the integration? If it is very small, it might not bring the required growth, if it is too big, it might be too overpowering to fulfil the acquiring company’s strategy.

Assessing the right target to acquire is key and not easy.

Insufficient preparation ?????

Acquisitions are often executed under a lot of time pressure. The first question I have sometimes asked myself is: Why? The scheduled supervisory board meetings or analyst meetings can play a role in this, or the sales process is run through a ‘controlled auction’ and many other reasons.

My advice: take your time for such an important investment and a risky operation.

Preparation is key, based on clear strategic objectives: what do you intend to achieve by this proposed acquisition?

It starts with the right team, with the right roles, capabilities and experience. A company can pay a high price if it lacks the necessary experience. Is the team capable of taking the right decisions under pressure? Is the right governance structure in place?

It will not be the first time that the transaction team falls in love with the target and that the team starts drifting off on its pink cloud. This leads to unrealistic forecasts, and willingness or even eagerness to pay a price that is might be far too high.?So enjoy the thrill of getting to know your target, but test it thoroughly before committing to a long-term partnership. It’s actually just like a marriage….

Underestimating the human factor in M&A

While many stakeholders view M&A mostly as a financial transaction, its success depends - in the end - very much on the people executing it. Both in the transaction team and all people involved in the integration. M&A is really a people’s business. This is often highly underestimated what the impact of people related aspects are. Why is that? In my view, because it is not easy. Numbers are often easier to understand than people. Systems and processes are more tangible and clearer than behaviour or culture. In addition, senior executives often make judgement calls about people based on their own perspective and their experience with the people in question. Biases can play an important role here. This may not always lead to success.

Impact of Leadership???????????

So how is all of this impacted by leadership? Already various aspects of leadership have been mentioned above: From having the right governance structure, the team with the right capabilities, to making tough decisions, and being culturally aware.

Equally important is the leader responsible for the integration of the acquisition, the one who will deliver the anticipated results, riding on the waves of the different cultures, nurturing the right capabilities and building the bridge between the two companies. What does it require to make this integration a success? Someone who has been successful in running an important business unit may not be suitable for this complex task.

What is your opinion on why mergers & acquisitions often fail? I would love to hear your views. When you are interested in hearing more about "making M&A work" in the coming weeks/months, follow me on LinkedIn and write your views and/or questions in the comments.

[i] The Big Idea: The New M&A Playbook ( hbr.org )