Change consultants Mieke Jacobs and Paul Zonneveld advise on how to keep your next deal off the ever-growing list of M&A disappointments
It’s widely accepted that that between 70 per cent and 90 per cent of mergers and acquisitions fail to achieve their stated objectives. Despite this terrible record, M&As remain a key strategy for many businesses. Indeed, deal activity is expected to rise again in 2020.
Here are eight lessons that directors can draw on to increase a deal’s chances of success, particularly in the cultural integration phase.
1. Know yourself and your motives.
If you buy an entity to make up for something you’re missing and you bring it into your existing system, you’ll end up killing exactly what you wanted to acquire in the first place. Ask yourself: “What is this M&A an excuse for?” A common response will be “our inability to innovate”. Unless you address the factors that extinguished your own capacity for innovation, you will disarm your new partner.
2. Remember that companies with a strong culture often have an “immune system” that pushes out foreign elements.
Despite good intentions to build on the strengths of the other organisation, a company with a deeply ingrained culture will often have an overwhelming integration plan that lacks a deeper understanding of the other party. Divergent skills, attitudes and approaches are likely to be disregarded by the dominant partner.
3. Understand the other organisation and include its history and identity in the new narrative.
It’s critical to understand the history and repeating patterns of the new partner and to integrate what differentiates it from your business into the merged narrative. This will help you to identify compatibility concerns early in the integration process.
4. Be careful not to alienate the acquired firm’s most valued individuals.
In sectors where knowledge and relationships are crucial, the real value is connected to people. If they walk out and take their expertise and contacts with them, you might end up with a decommissioned asset.
5. Understand that family businesses add another layer of complexity.
Acquiring or merging with a family business often requires extra discernment, transparency and restoration. The underlying dynamics of a family system will play out in the organisational system, despite its members’ best intentions to keep their work and private lives separate.
6. Consciously build the new organisation.
“We start anew” is a phrase that’s often heard after big acquisitions. But it can be hard to negate past events, both good – the glorious early days – and bad – the recent loss of colleagues and/or corporate identity. Only by properly addressing these can you start building the new organisation’s values, methods and culture.
7. Establish the right pecking order and beware of the power of hidden loyalties.
Tenure, technical expertise and even nationality are some of the factors that might have made people successful in the past, but after integration you might need totally different criteria, which will be defined by the new organisation’s purpose. Given that synergy plans often result in the reshuffling of leadership teams, remember that hidden loyalties can undermine the new order.
8. Don’t put the “integration burden” on your customers.
When making your integration plan, you should pay special attention to your customers. Research shows that they seldom benefit from M&As among their suppliers. The “integration burden” often lands in their laps, as they are asked to build new relationships, follow new procedures and adopt new specifications.
Mieke Jacobs and Paul Zonneveld are transformational change consultants and co-authors of Emergent: The power of systemic intelligence to navigate the complexity of M&A (Rethink Press, 2019)