While few mergers|acquisitions actually add shareholder value for the acquirer, those where the value of the acquisition tends to reside largely in its people and their client relationship are especially perilous. Some companies have beaten the odds and achieved notably successful mergers|acquisitions.
So what does it take to integrate organizations to make sure the deal creates value?
1.) Understanding the nature of the business involved and their major units—their similarities and differences and the real potential for synergy – is critical.
Defining these issues is often more difficult for service businesses than it is for product-driven companies. Many leaders fail to grasp this point and do not strive to understand the strategic implications for combining companies that derive competitive advantage from relationships and unique talent.
2.) When much of the price covers the social and intellectual capital of the company leadership of the integration process is particularly important.
Value is preserved – or –lost through effective integration, a process many top executives leave to lower levels of management.
Five Key Elements in Diagnosing an Acquisition
1.) Define and validate the overall merger|acquisition vision and strategy
a. What is the reason for the merger|acquisition, i.e. to gain market share, product|service innovation, globalization, or vertical integration? Be crystal clear here. Make sure you understand how one plus one equals two or more
2.) Carefully examine the ways in which the companies are similar and dissimilar, looking at all business units. Some critical elements to consider:
a. How do the business operating models compare? How close or compatible are they?
b. How do the brands compare or compete? Is one organization perceived has high value where the other is perceived as a commodity?
3.) How do leadership styles and strategies compare?
a. Are there cultural aspects of one company that are considered the “magic” of the firm?
b. When these are ignored or destroyed, value can be quickly be destroyed as well
4.) Determine the type of merger|acquisition
a. The best merger|acquisition type capitalizes on the strategy and the vision and drives value creation.
b. Ask why is this merger|acquisition different from all others?
c. What is the essence of the merger|acquisition? What does the merger|acquisition promise?
d. Is the value derived from the combination as well as or from leveraging the parts?
5.) Determine secondary strategies
a. Determine if a single primary strategy will drive the integration process
b. Does there need to be differentiated approaches?
c. These differentiated approaches may be based on markets, customers, cultures, etc.
d. The merger|acquisition plan may be multiple plans to address different enterprise combinations
Five Signs of Failure in Merger|Acquisitions
- Top management is focused solely on the financials, which have a very short time frame—they give little thought to what they are creating
- Leaders give little thought to deep-level integration , despite the fact that it is two or three levels down that the real integration must occur and despite that fact their participation is critical
- Executives are richly rewarded for making the deal, not for executing the integration and there is little (if any) personal downside if the deal doesn’t work in the long run
- The financial plan becomes the sole dominant part of the deal. The articulated vision, what the merger would mean in the long run, and how it would make the organization stronger become marginalized
- Leaders do not understand that for a merger|acquisition to work it is about creating a union and that inevitably involves dissolution to some degree of each entity
What I have seen is that when companies do more acquisitions they do not necessarily do them better…unless they have learned from their experiences and have developed the ability to see and practice the strategic implications of different types of transactions.
Those that have mastered it seem to do more smaller acquisitions|mergers. Their leaders to be more analytical and deliberate. They ask themselves the hard questions. There is a logical architecture for how the business and products will fit before the deal. It is like they see a jigsaw puzzle and are looking for specifically shaped pieces.
Successful acquirers take due diligence far beyond the numbers. They dig deep. One CEO said “it is our job to get to know the company, like we have been there for a year”. This means spending time with mid-level people because they know where the real threat is and the real problems.