Why acquisitions fail? Lessons you can learn

As industries evolve, consolidation is imminent. Companies are sold and acquired as the growth curves flatten. It is also a known fact that at least one in every two acquisitions will fail. The success rates are dismal and haven't improved much in over the decades.

There has been a significant M&A activity in healthcare too. In fact, globally, healthcare M&A was second only to technology in 2019. Healthcare saw 2967 deals worth $580 billion across the globe. According to another report, in UAE alone, there have been healthcare deals worth approximately $1 billion between early 2016 to early 2018.

It remains to be seen how these hefty deals will fructify in the coming years, knowing the pitiful success rates in M&A.

The difference between a successful acquisition and a failure will hinge upon one or more of the following aspects:

Getting basic logic of the deal right. According to Michael Porter, acquisitions need to be based on business strategy rather than financial strategy. Just because two entities will result in more money pool, the acquisition does not necessarily have to go through. There are multiple dimensions apart from financial ones to consider a deal. Overall, the business strategy should mandate growth by acquisition, and not the way around.

Clarity on value addition. Both the entities involved in the deal will need to be clear on what value is being added by each of them to the other. Acquisitions tend to do well if both parties are useful to each other and they tend to fail if only either party is adding value. Bear in mind, merely paying money to buy another is not counted as a value addition.

Time taken in winning the trust. Once a company is acquired, apprehensions and concerns among people are rife. Many a times the times taken to win the trust is too long and a lot of water passes under the bridge before some signs of building trust are seen. The acquiring companies need to act swiftly with a definite plan to build trust as soon the deal is over. One of the practices that works is to retain good people in the acquired company and event promote some of them to key positions as soon as possible.

Successful integration of systems and processes. Modern organizations are complex with systems and processes being integral to their velocity and growth. The entire range of purchase systems, HR processes, IT, operational flows and more need to be integrated and aligned in a time bound manner. The attitude - 'This is how we do it and you must adhere to it too' does not work in favor of the acquirer. A conscious effort to create alignment must be made with consistency.

Integration of new goals and objectives promptly alongside process integration is a must have for a successful alliance. Each day in delay can open doors to potential hazards that may literally cost a fortune.

Take care of grapevine early. Most transactions are fraught with gossip and hearsay. An organized effort to communicate is required at the highest level before, during and after the acquisition. Constant communication with employees on both sides, vendors, industry stakeholders and regulators on myriad platforms can go a long way in successful transition and in mitigating any potential derailing rumors.

'We are better than you' attitude. Talking of attitudes, 'we are better than you,' mindset does not work either. It is not about who is superior. Companies miss the plot when the employees of the acquirer go around thinking that they are superior in a way because they are the ones buying the low-bred acquired. The whole idea is to see what value can one add to another and vice-versa. It is about joining forces and creating synergies rather than proving superiority.

Compromise in Due Diligence. As the name suggests, due diligence needs to be diligent. Sometimes the executives are blinded by glitter of a deal and they overlook some seemingly harmless facts during the due diligence process. Timelines for closing a deal also sometimes prompts them to not probe deeper into aspects that need attention. These aspects can later come back and eclipse the future of the acquisition and sometimes cause heavy damage.

Acquisitions are a serious business and they involve serious amounts of money. Embarking on this route requires walking a tight rope between risk and caution, right from the time the deal begins till the time post acquisition integration is completed successfully.

- Vivek Shukla ---------------------------------------------------------------------------------------------------------------

Vivek Shukla is a Board and CXO Advisor for growth in the healthcare industry. Over the past two decades, he has carried out numerous mandates for organic and inorganic growth advisory. He is prompt on LinkedIn messages.