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The M&A Market Is Hot, But The Results Are Not - How Strategic Planning Can Help

Guest post by: Joe Evans

Article Overview: 2010 saw the first worldwide annual gain in merger and acquisition deal-making since the financial crisis, according to the New York Times’ DealBook, and 2011 was called the “year of M&A” by Forbes. With all the attention on mergers and acquisitions (M&A) of late, there’s a good chance your organization has been faced with the prospects of attempting or at least considering one for itself. If so, read on.

The M&A Market Is Hot, But The Results Are Not - How Strategic Planning Can Help



Why Do More Than 85% of Mergers and Acquisitions Fail and How Can Strategic Planning Help?

2010 saw the first worldwide annual gain in merger and acquisition deal-making since the financial crisis, according to the New York Times’ DealBook, and 2011 was called the “year of M&A” by Forbes. With all the attention on mergers and acquisitions (M&A) of late, there’s a good chance your organization has been faced with the prospects of attempting or at least considering one for itself.

Mergers and acquisitions can present a smart growth strategy for companies looking to create synergies, increase cash flow, and otherwise go beyond what a company could achieve on its own. This is all great in theory; however, a recent KPMG study found that more than 85% of all M&A deals fail. Another study by A.T. Kearney showed that the total return to shareholders on 115 global M&A transactions was negative 58%!

Why the Dismal Statistics for Mergers and Acquisitions?

There are many factors that lead to failed M&A transactions. Here are some of the most common:

Poorly-Defined M&A Objectives

Plans to merge with or acquire another company should never be attempted without a clear definition of the desired outcomes. There are many factors to consider such as how success will be defined, which will be the dominant company, how each company will contribute to the overall success, how staff will be affected, and whether the companies will operate independently or integrate as one. The planning process should address these and other questions in order to clearly define the desired future state of the post M&A business.

Lack of Strategic Planning

There are countless places for M&A transactions to go off track but one sure-fire way to improve the odds of success is through a holistic and structured upfront strategic planning process that includes clear and highly governable plans for execution. M&A plans should address human capital issues such as union negotiations, pay-scales and benefit plans, residual management structures, cultural match-ups, and organizational structures. You’ll also want to address technological integration, financial consolidation and reporting, sales, marketing, and legal ramifications.

Neglecting the Core Business

It is common for top executives to become intensely distracted by M&A transactions such that months or even years can go by in which the executives’ focus on the core business is less than optimal. Unfortunately, this lack of focus can weaken the core business and result in a post-M&A company that falls short of expectations or worse, altogether fails. Instead, executives must find a way to maintain their energy and focus on the core business throughout the M&A dealings. This is entirely possible when upfront planning and structured execution are part of the process.

Underestimating the “People” Side of the M&A

Common to any merger or acquisition is the impact it will have on the people within the affected organizations. Neglecting the people side of the business during an M&A can lead to attrition or loss of support that can derail even the most carefully-planned M&A transaction. Your goal should be to minimize the negative effects with a change management program that communicates the goals of the M&A and how the companies will be integrated.

Core Competencies of the Acquired Company Are Lost in Transition

Bringing companies together in an M&A results in core competencies that must be actively harvested to enrich the new overall organization. If this process is not given the care and attention it needs the resulting company my fail to flourish. Even if intended to be a pure merger, most M&A deals end up as a selection of capabilities from each company coming together. Still, without a structured assessment of core capabilities for each company, you risk leaving behind a critical asset.

Failure to Manage the Cultures

M&A deals are notorious for failures due to cultural mismatches or failing to bring the desired culture from one organization to the other. Within a single organization, there may actually be multiple cultures that need to be understood and broken down in order to understand how the organization works and how work gets done. Understanding cultures, integrating cultures, and aligning your strategy around these cultures is essential to the outcome of an M&A effort.

Focus is On the Terms and Conditions Instead of the Logistics

In a world of terms, conditions, and attorneys, the nuts and bolts of getting an M&A done in practice can get lost in the details of the agreement. While certainly, the contractual arrangement is critical, the terms and conditions of the M&A deal is simply the beginning. Making the merger or acquisition happen in true form takes careful logistical planning. Be organized in your approach, divide the workload among teams, and meet periodically to ensure the logistical aspects of the deal are proceeding at the right pace.

Inadequate Due Diligence

Unfortunately, a big source of M&A failure comes from executives who, for one reason or another, develop only a partial understanding of their M&A partner company and instead choose to fill in the gaps with hopeful strategy and wishful thinking.Due diligence should include a thorough review of each functional area of the target company, in search of risks and potential pitfalls. Take care to also review customer agreements, supplier contracts, credit issues, security, personnel issues, lease agreements, legal entanglements, pricing strategies, value proposition, culture match and management business acumen. Your careful work upfront will greatly reduce your risk of failure since you’ll be making decisions based on a more complete set of information.

Underestimating the Cost of the M&A

Mergers and acquisitions are expensive undertakings. If you haven’t considered not only the purchase price of the company you’re acquiring (in the case of an acquisition), you must also consider all of the ancillary costs associated with travel, attorneys, accountants, financial reviews, HR reviews, client satisfaction surveys, sales pipeline due diligence, market analysis, technology integration and more. To avoid the risk of failure caused by underestimating the costs or skipping important details due to lack of funding, never approach a transaction without a well-planned budget.

At Method Frameworks, we help our clients consider the complete ecosystem of an M&A transaction and to create strategies and plans that enable success. Learn about our merger and acquisition consulting.

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For permission to use or reprint any portions of this copyrighted article, contact Method Frameworks at articles@methodframeworks.com.

About the Author:

Joe Evans is the President and CEO of Method Frameworks. Joe is a published author, frequent speaker and recognized expert in corporate strategic planning. To contact Method Frameworks about scheduling Mr. Evans about an upcoming speaking engagement, visit www.methodframeworks.com/business-speaker or email requests to media_relations@methodframeworks.com.

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