S2-Ep16: Mergers and Acquisitions: Epic Wins and the Tactics that Create Them

Guests: Carla Morelli & Laura Hult

Carla Morelli and Laura Hult talk about mergers and acquisitions focusing on key factors that drive success and failure. They are seasoned M&A veterans, participating in many transactions and both have seen similar themes. This interview provides insights and recommendations to improve the probability of success for your next transaction – whether you are acquiring, selling or involved in the integrations.  50% – 80% of acquisitions fail to deliver intended results. We will explore key success factors: 1. Understanding the deal goals – the why of the transaction for both sides; 2. Working with the human factors that have the greatest impact (and M&A transactions fail without considering humans and dealing with their needs); 3. Navigating the organizational factors. The participants share their stories of success and their unique perspectives.

 

Mergers & Acquisitions: Five Key Drivers to Deliver Value

Not a well-understood concept here..

Today’s post is a collaboration between Maureen Metcalf, Carla Morelli, and Laura Hult, focusing on mergers and acquisitions (M&A) and identifying key factors that drive success and failure. The post is a companion to a podcast with the authors. They are seasoned veterans who have participated in many transactions and seen similar themes. This post and its companion podcast provide insights and make recommendations to improve the probability of success for your next transaction, whether you are acquiring, selling, or involved in the integration.

Research Indicates that Mergers and Acquisitions Often Fail to Deliver Desired Results

The Financial Times Press’ A Comprehensive Guide to Mergers & Acquisitions: Managing the Critical Success Factors Across Every Stage of the M&A Process says that though studies have historically set the rate of M&A failure at 50 percent or more, recent years have found it to be as high as 83 percent. One might conclude that executives and boards would eschew M&A to achieve growth and profitability in favor of less risky alternatives, but that has not been the case. Despite the warning signs, the number and dollar value of transactions has increased yearly for the last 20 years.

Failure Results from Management’s Lack of Knowledge or Unwillingness to Face Facts

“The primary reasons for failures [are] related to the fact that it is easy to buy but hard to perform an M&A. In general, many mergers and acquisitions are characterized by a lack of planning, limited synergies, differences in the management/organizational/international culture, negotiation mistakes, and difficulties in the implementation of the strategy following the choice of an incorrect integration approach on the part of the merging organizations after the agreement is signed. Most failure factors indicate a lack of knowledge among senior managers for the management tools that enable coping with the known problems of M&A.” Another management shortcoming is an unwillingness to accept information that negatively impacts post-close projections, whether it be market data, synergies, or cultural challenges. Deal teams often find themselves looking for creative ways to meet expectations. Not meaning to mislead, they are still well aware that the scenarios being modeled are more than just a stretch. The post-close result often falls far short of the mark.

Human Factors are Among the Most Important to Consider

Human factors almost always significantly impact a deal’s success and the amount of additional cost and effort required to recover when they were not sufficiently considered. The five human factors below differentiate successful deals:

1. Understand the “why.” The buyer and the seller need a clear understanding of why they are initially engaging in the transaction (referred to as the rudder), such as ensuring the business moves forward when a founder retires. As the deal progresses, use the rudder and be open to refining the “why” as the deal unfolds, like realizing that another key motivation is the well-being of employees who helped build the company.
2. Select an advisory team for both skill and philosophical fit. Advisors play a key role in the deal’s success, and their approach is as important as their skills are. A competent, “bulldog” attorney who takes no prisoners and is more adversarial than the buyer wants to be, for example, is likely to generate wariness and ill will on the seller’s part, eroding the trust and open communication that enables thorough diligence and comprehensive, realistic integration planning. In addition to the advisory team, engage someone to be a sounding board for critical decisions, which can step back when other participants lose their objectivity.
3. Maintain resilience. The M&A process is physically and emotionally exhausting. To ensure enough physical energy and mental clarity to make tough decisions, buyers and sellers must manage their energy and find ways to rejuvenate. This will be different for different people but should include making conscious choices about physical well-being, managing one’s emotional state, managing thinking (remaining positive), and looking to a trusted advisor for support.
4. Build trust among the team. Trust takes time and energy when both are scarce. It is particularly important to create an atmosphere that allows people to constructively deal with negative information rather than “creatively” work around it. If the team is selected based on skills and mindsets that align well (similar values and overall approach), it can work through most issues. Addressing them quickly and openly is critical to sustaining a strong team, which is required when challenges arise – and they always do.
5. Proactively plan and manage the integration. Value is only realized when the organizations are successfully integrated. The most successful integrations have cross-functional integration teams comprised of representatives from both organizations. In addition to keeping the team aligned via regular meetings, progress should be reported at the highest appropriate organizational level (from steering committees to boards of directors, depending on the company's size and transaction) on a cadence that provides visibility and a forum for decision-making when needed.

Managing human factors increases the likelihood of value being realized: people are complicated, and building a team that has the capacity and inclination to attend to them is a differentiator in an industry where many still focus on the technical elements of the deal.

 

About the Authors

Maureen Metcalf, Founder and CEO of ILI, is an executive advisor, speaker, coach, and author of an award-winning book series focused on innovating how you lead. She is also on the faculty of universities in the US and Germany.

Laura Hult works as an outside counsel focusing on corporate finance. She represents private equity funds and financial, strategic, and lifestyle companies as buyers and sellers. Laura structures negotiates and protects investment value in M&A transactions and has represented investors and lenders at every level of the capital stack.

Carla Morelli is a leader who steers people and organizations through complex change, including global M&A transactions. She delivers business-critical results that balance structural needs with human inter-dynamics; her ability to integrate multiple perspectives and mesh the “balcony view” with a detailed understanding of what is required for an initiative to succeed consistently unlocks potential where other approaches have failed.

Reference:

Weber, Yaakov; Oberg, Christina; Tabra, Shlomo. (January 2014), The M&A Paradox: Factors of Success and Failure in Mergers and Acquisitions, Financial Times Press