Disappointed with your company’s earnings performance since your last acquisition? Are you worried that the next acquisition or merger will have a similar effect? You’re not alone! Study after study has shown that mergers and acquisitions are a risky business. Despite the fact that many M&A advisers charge substantial fees each year, almost all major reviews of companies completing M&A transactions show that most of these transactions do not deliver on promised financial performance. Like any other investment, the highest risks produce the highest returns, good or bad. One way to improve your odds is to study the methods of the most successful M&A companies.

 

As an industry executive, I have encountered M&A challenges many times throughout my career. I have also recently interviewed numerous C-level executives from some of the world’s largest and most successful companies in various industries on this topic. I also conducted an online survey of senior managers with extensive experience in mergers and acquisitions. Among the few truly successful M&A companies, seven winning characteristics emerged:

 

Characteristic n. # 1: Successful companies follow a proven path of general acquisitions and mergers.First, they do meaningful strategic planning. This practice allows you to identify acquisition objectives that are excellent strategic adjustments for the corporation, rather than mere opportunities for growth. Second, they do thorough due diligence work. Their due diligence differs from underperforming ones because they probe the depths of business processes and the capabilities and capabilities of information systems on the acquisition target to ensure proper valuation and strategic fit. Third, they negotiate the terms and conditions of the transaction that avoid overpayment. They accomplish this by ensuring that management does not fall in love with the target company. Fourth, they plan a post-merger or post-acquisition integration. That plan includes a comprehensive communications plan, alignment of objectives and performance measures, and integration of processes and systems. Fifth and last, once the deal is closed, the most successful companies relentlessly execute the planned business integration and assimilation activity. Mergers and acquisitions require detailed planning, rigorous management, and aggressive execution to be successful.

 

Trait # 2: Successful companies use initiatives or projects to perform integration and fundamental project management techniques to manage each of the initiatives.Every company, including yours, has a unique combination of strengths and weaknesses, and strategies for going to market. The combination of these factors dictates which specific initiatives your company should use to assimilate the new business unit. In some cases, the most pressing needs will revolve around rationalization of personnel, facilities, and capital equipment. In other cases, the most important thing will be to achieve common elements in the information systems to allow cross-selling and rebranding. Whatever the combination, your company must lead these initiatives effectively through a formal program management structure. Formally structured and carefully managed initiatives are an important characteristic of the most successful M&A companies. Formal program management requires elements such as a detailed project plan, discrete milestones, defined performance measures, designated responsibilities, risk management and change management processes, etc. Initiative-based integration rooted in a strong go-to-market strategy will improve the odds of successful M&A performance.

 

Characteristic n. # 3: Successful companies pay significant attention to the mix of cultures, organizations, and human resource issues, such as management retention.If your company has been through an acquisition or merger, you already know that the different cultures of the companies involved always make the situation challenging. In hostile takeovers, it can be devastating. Employees often find that behaviors previously rewarded by their company can sometimes result in demotion or firing. Performance criteria change, as do the people who measure performance. When this happens, the management of the acquired company, as well as many of the employees, feel threatened, defensive and resentful. Loss of key leadership in critical transition periods can ruin the deal, and even when the entire deal remains intact, the resulting organizational instability often consumes so much energy and time from the remaining managers that it takes the new company more time to achieve. expected financial performance goals. Some M&A advisers report that up to 72 percent of key managers make their way within three years of an acquisition or merger. Almost all successful M&A companies incorporate a formal culture management structure into their integration planning. Some even implemented specific performance measures to monitor the success of the culture fusion after their formal public announcement of the merger or acquisition. Human resource details, from communication to compensation, are critical to the success of mergers and acquisitions.

 

Characteristic n. # 4: Successful companies ensure that the acquisition is an integral part of the overall business strategy. Some of your company’s acquisitions don’t mesh well with the rest of the business? Responses to my recent survey of senior managers with extensive involvement in M&A indicated that the selection of acquisitions that fit strategically well was the third most critical issue for M&A success. The strategic adjustment implies a close alignment of the markets served, the proprietary technologies, the Research and Development direction, the financial position (income, market share) among the companies involved. It also means that there is a real and measurable set of opportunities related to synergy between the two companies. The best M&A executors maintain a strong strategic plan with go-to-market strategies, internal operating strategies, specific performance targets, and performance metrics linked from top to bottom across the company. They incorporate the alignment of those acquisition goal elements into integration planning for their transactions and tighten them shortly after the deal is consummated. Effective planning is a critical element of business success. In M&A situations, it should also be the basis for all major decisions.

 

Trait # 5: Successful companies are assigned full-time resources and strong lines of executive responsibility for successful acquisition.Does your company assign full-time teams to search for acquisitions, or do you rely on the part-time efforts of people who also have a day job? The pressures of day-to-day job responsibilities for key staff members make it incredibly difficult for them to focus on a part-time assignment related to M&A activity. Early allocation of qualified full-time resources to these tasks as early as possible in the due diligence phase of the acquisition or merger process is often critical to success. General Electric, arguably one of the best acquirers in the business (arguably one of the most prolific) recognized that management experience made a huge difference to the success of their efforts and, as a result, decided a few years ago to appoint the management of integration as a full-time role in your company. Studies by GE and others show that companies that assign full-time teams have better M&A records.

 

Trait # 6: Successful companies have discrete goals for integration activities and relatively short-term financial goals that are quantitative.In the last acquisition of your company, were the specific performance targets publicized and widely publicized? While goals such as “increase by one year” are quantitative enough, they must be broken down into a set of accompanying initiatives and performance measures to be useful. The best companies understand not only what the high-level goals are in quantitative terms, but also what specific actions will be taken, by whom and by when, to achieve the desired result. Hence the detailed project plans around a defined set of initiatives described in Feature # 2, above. Initiatives can be related to revenue growth, market share growth, or reduced operating costs. They can involve a wide variety of actions, such as establishing strategic partnerships for marketing or distribution, efforts around cross-selling or rebranding, rationalizing facilities, new research and development initiatives, organizational restructuring, and system upgrades. of information. The most successful companies march through low-key initiatives toward quantitative targets. Achieving these discrete goals enables the newly merged company to achieve specific financial goals at specified times. The most successful M&A companies are those that most discreetly define what success means.

 

Characteristic n. 7: Successful companies move assertively to get the newly acquired business entity into common business processes and information systems early on.One of the C-level executives I interviewed (this was a Financial Services executive) in preparation for my book said: “We have three main priorities in these transactions: gaining market share, increasing assets, and reducing operating costs in proportion to the assets we manage. Bringing the acquired entities into common processes and systems is strategically critical for us to achieve that third goal. But beyond our financial performance, it impacts our employee morale, our ability to present a consistent face to our customers, and our efficiency in employee training. When a company like ours has a systematic approach, they can incorporate new acquisitions into common processes and systems in six to nine months. “Most of the leading companies in this area, including companies like GE and Cisco, exhibit this characteristic. Unity and consistency produce and exhibit strength for customers and shareholders. The strength of unity and consistency is never more important than the period immediately following a merger or acquisition.