The merger and acquisitions (M&A) process is not easy. While 30% are successful, this de facto means that 70% fail or don’t meet their intended output at return. So, what are the factors that influence whether a M&A is successful?

We have highlighted some of these key factors below, based on our experience. Some of Team Coaching Boutique’s senior associates have experience of the due diligence process from ‘being acquired’ or ‘acquiring perspective’. This is not an exhaustive list, but probably represents some of the most important elements as either detractors, if executed poorly, or enablers, if done properly. Hopefully, these insights will give you some idea.

The key factors are:

1. Cultural fit
2. Deals and financials
3. Communication
4. Preparation and onboarding
5. Effective planning
6. Follow through and validation

Without breaking each factor down in detail, we can get a sense of the impact of each element.

Cultural fit

If we take cultural fit first, this is probably the biggest challenge as matching cultures that are not aligned can have significant negative consequences. What makes this so significant is that cultural misalignment is not always obvious, and it can take a lot of work and effort to get true cultural integration. The most obvious case of cultural mismatch is when a large company purchases a smaller one and tries to impose its systems and structures on the smaller one too quickly, thereby smothering it and weakening its agility and dynamism. We have witnessed this on more than one occasion.

Deals and financials

Although the board, partners and CFO will probably be the only people who know the details of the deals, these details can often leak out. If not structured correctly, or if there are overvaluations, this can create an expectation mismatch on performance and return from the outset. Getting the deal structured correctly is a tortuous process, especially where there is an emotive element to the sale or purchase. Getting independent valuations, one that can be tracked back to critical data, such as sales, revenue, market share, pipeline and new product development, will be a key success determinant. If goodwill formed part of the deal, then transparency is essential.

Communication

Communication is probably the most important element as it overarches everything, including the other elements. It is easy to get blasé about communication, but usually the gap related to any M&A is confining the communication under a need-to-know basis. Certain levels of confidentiality need to be maintained, but quite often in this process, we forget to share the intent and key milestones with those further down the organisation. This can lead to misalignment and mistrust, which is why communication needs to be appropriate, relevant and effective. In some cases, overcommunication can be as destructive as under communication.

Preparation and onboarding

Poor preparation and onboarding are also key detractors for overall success. This overlaps with communication and planning. It is critical to mentally prepare people for the changes, particularly if they may be dramatic, such as functional or departmental re-structuring which will impact the work people do and their existing relationships. Onboarding people against a specific plan while being authentic, transparent and consistent will make things run smoother. It is also important to do specific onboarding for the teams that will be executing the changes.

Effective planning

With respect to planning, generally people start with a plan for the overall integration, but it becomes static and arguably too rigid. The integration plan needs to have core principles and key milestones but be agile enough to deal with changes or difficulties on the journey. There will be difficulties ahead that will not be foreseen as part of any initial plan. This is where a lean /agile approach will help. This does not mean the plan gets dropped mid-journey, just continual adaption against key milestones and principles. It is important to have a diverse and experienced team in the planning process, and a business integration plan is essential.

Follow through and validation

Finally, we come to the follow through and validation checks. This links back to the planning phase. The planning phase should have incorporated measures and KPIs, both financial (hard) and non-financial, ideally including cultural ones (soft) for the key milestones. The hard measures would typically include elements like revenue, market share, growth rate, profitability, fixed cost reduction and many others. Soft KPIs are more difficult to measure and figure out, but could include survey feedback on culture, levels of integration and adoption of new practices, and employee engagement.

The exact definition of these should be determined by the integration team at the outset. Measures like attrition rate can sit either as hard or soft – it doesn’t matter. There can be attrition at the start of a process, but what matters is if it is going up or down, and if you are losing key people.

These factors and measures should form part of a separate validation plan, which is different from the integration comprehensive plan. Validation generally falls down with the follow through, i.e. it is not seen through to the anticipated end point. In short, victory is declared too early. The key indicator for an unnecessarily early declaration of victory is that the new systems and processes are not properly embedded and therefore unsustainable. One way to avoid this is to have the validation team separated from the integration team, ideally outside of the business.

In the next article, we will show you how to apply some of our thinking to mitigate the detractors. In the meantime, if you would like to know more about completing the M&A process successfully, please reach out via enq@teamcoachingboutique.com.