By Karen Thomas-Bland, Global Board Level Advisor and founder of Intelligent Transformation Partners.
Who couldn’t have been amazed by the tremendous efforts of Jeff Bezos and Richard Branson recently as they made their journeys into space, opening up new ground in commercial space travel? There are many parallels here to the global mergers and acquisitions (M&A) market which is also reaching record commercial highs. Global M&A activity hit an all-time high in the first six months of 2021, with deals worth more than US$2.6t (EY). The parallels don’t end there – both have the significant preparation lead time, the dizzy highs of the launch and the sheer hard work which comes afterwards to make it work for everyone.
There are people much better placed than me to talk about why the M&A market is so hot – I will say it’s perhaps a combination of chief executives pursuing big deals they planned during the pandemic, private equity companies sitting on almost $1.6 trillion of uninvested cash (Prequin) and blank-cheque companies having raised record amounts this year. What’s more, the great heights of the M&A market are expected to continue to at least the end of the year.
But M&A deals don’t have the best track record of success – a bit like early space exploration. Eighty three percent of mergers fail to boost shareholder value (KPMG) and 61% of acquisitions do not earn a sufficient return on the company’s investment (McKinsey). Deals fail due to several reasons, the key ones being:
- Inability to drive the expected synergies from the deal (e.g., Yahoo/Tumblror eBay/Skype).
- Mass exodus of talent from the seller, most of the key talent/senior managers leave (e.g., Credit Suisse/Donaldson, Lufkin & Jenrette)
- Inability to properly, deeply integrate two businesses that feel initially similar, but have different cultures, processes and ways of working, (e.g., Wendy’s/Arby’s)
So how do you ensure you are in the 17% of deals that boost shareholder value, the ultimate measure of M&A success? From experience of over 50 M&A deals and many post-merger integrations, there are several areas to measure and monitor to ensure your merger or acquisition is a success. I find that establishing an integration scorecard early on covering all aspects of the deal, for example, customer, employees, finance and systems can really help drive focus.
Minimise disruption to the customer base and create positive sentiment about the merge
Customers are known to defect in the face of uncertainty and competitors tend to strike when you are distracted. A good approach can be speaking to customers early on about the deal, outlining if and how it will impact them and how the change can help them to deliver greater value in their business. Having in place a clear and targeted customer retention strategy throughout also really helps.
Types of scorecard measures include:
- What % of your own customers are you retaining?
- What % of the acquired organisations customers are you retaining?
- What is the customer sentiment on the merge?
Create an organisational culture to attract and retain top talent and key leaders
Like customers, top talent can get lured away by competitors when you are distracted. It’s important to understand the potential reasons that could lead people to leave. Early on I typically settle leadership roles quickly to identify who can then help stabilise the rest of the organisation. Figuring out the two cultures of the organisations and the extent to which to knit them together can help with winning the hearts and minds of both sets of employees.
Types of scorecard measures include:
- Are you retaining the top talent/key leadership from the acquired organisation?
- Are you attracting and retaining talent/key leaders to the combined organisation?
- What is the employee sentiment on the merge?
Capture revenue and margin growth opportunities and realise cost synergies
Focusing the integration on the few critical issues that drive the value can really pay dividends. If sources of value and risk are not clearly prioritised early on, it can be a distraction for the organisation. The rigour around revenue synergies needs to be managed at the same level as cost synergies, along with monitoring and challenging investment costs to preserve net value.
Types of scorecard measures include:
- What growth synergies are you achieving vs. the value case?
- What cost synergies are you achieving vs. the value case?
- Are you bringing the integration in on time and budget?
Put guardrails in place around changes to processes and systems
It’s important to define the contribution and role of technology and processes that need to change or be refined in the new business operating model. Developing IT integration principles, including prioritising initiatives that accelerate delivery of synergies across functions helps to drive focus. An issue which can occur if not well managed is the inability to balance support for the base business with process and integration efforts.
Types of scorecard measures include:
- Is the combined IT infrastructure working seamlessly and securely?
- Are processes clear and understood by all from day one?
- Are customers and employees having a frictionless experience?
Measuring overall success
It’s important to measure the success of the deal on how it has achieved the desired impact on the business and unlocked the opportunities as set out in the value case rather than activities completed, for example, ‘plans done and delivered’ or ‘systems integrated’. Monitoring the results closely and appointing someone whose specific role is to ‘keep the score’ can help.
I have found that measuring and monitoring these areas really maximises a company’s chances of realising the value case and increasing shareholder value – the ultimate measure of M&A success.
