Seven Characteristics of the Most Successful M&A Companies Disappointed with your company’s earnings performance since your last acquisition? Worried that the next acquisition or merger will have a similar affect? You’re not alone! Study after study has demonstrated that mergers and acquisitions are a risky business.
In spite of the fact that a lot of M&A advisors rake in substantial fees each year, almost every major review of companies completing Merger and Acquisition transactions shows that most of these transactions fail to deliver on promised financial performance. Like every other investment, the biggest risks yield the biggest results – whether they’re good or bad. One way to improve your odds is to study the methods of the most successful Merger and Acquisition companies.
As an industry executive,
Ive encountered Merger and Acquisition challenges many times over the course of my career. I have also recently interviewed numerous C level executives from some of the worlds largest and most successful companies across several industries about this topic. I also conducted an internet-based survey of senior managers with extensive Merger and Acquisition experience. Seven winning characteristics emerged among the few truly successful Merger and Acquisition companies:
Successful companies follow a proven path of general acquisition and mergers. First, they do meaningful strategic planning. This practice enables acquisition targets to be identified which are excellent strategic fits for the corporation, rather than mere opportunities for getting bigger. Second, they perform thorough due diligence work. Their due diligence differs from poor performers because they plumb the depths of business processes and information systems capabilities and capacities in the acquisition target to ensure appropriate valuation and strategic fit.
Successful companies use initiatives or projects to perform integration, and fundamental project management techniques to manage each of the initiatives. Every company, including yours, has a unique combination of strengths and weaknesses, and market-facing strategies. The combination of these factors dictates what specific initiatives your company must use to assimilate the new business unit. In some cases, the most urgent needs will revolve around rationalization of staffing, facilities, and capital equipment. In other cases, achieving commonality in information systems to enable cross-selling and rebranding will be most important.
Successful companies pay meaningful attention to the match of cultures, organizations, and HR matters such as management retention. If your company has been through an acquisition or merger, you already know that the different cultures of the companies involved always make the situation challenging. In hostile takeovers, it can prove devastating. Employees often find that the behaviors previously rewarded by their company can sometimes result in demotion or dismissal. Performance criteria change, as do the people measuring the performance. When this happens, management in the acquired company.
Characteristic #4 Seven Characteristics of the Most Successful M&A Companies:
Successful companies ensure that the acquisition is an integral part of overall business strategy. Have some of your company’s acquisitions turned out to be a poor fit with the rest of the business? Responses to my recent survey of senior managers with extensive M&A involvement indicated that the targeting of acquisitions which are a good strategic fit was the third most critical issue to M&A success. Strategic fit implies a close alignment of markets served, technologies owned, Research and Development direction, financial position (revenues, market share) between the companies involved. It also means that there is a real and quantifiable set of synergy related opportunities between the two companies.
Characteristic #5 Seven Characteristics of the Most Successful M&A Companies:
Successful companies have full-time time resources assigned, and strong lines of executive accountability for the success of the acquisition. Does your company assign full-time teams to acquisition pursuits, or rely on part-time efforts from people who also have a day job? The pressures of day-to-day job responsibilities for key staff members make it incredibly difficult for them to focus on a part-time assignment related to Merger and Acquisition activity.
Characteristic #6 Seven Characteristics of the Most Successful M&A Companies:
Successful companies have discrete targets for integration activities, and relatively short-term financial objectives that are quantitative. Hence the detailed project plans around a defined set of initiatives described in Characteristic # 2, above.
Initiatives can relate to revenue growth, market share growth, or operating cost reduction. They can involve a wide variety of actions such as establishing strategic partnerships for marketing or distribution, efforts around cross-selling or re branding, facilities rationalization, new Research and Development initiatives, organizational restructuring, and information systems upgrades. Those companies who are most successful march through discrete initiatives toward quantitative goals. Achieving those discrete goals enables the newly merged company to hit specific financial objectives at designated times. The most successful Merger and Acquisition companies are those who most discretely define what success means.
Characteristic #7 Seven Characteristics of the Most Successful M&A Companies:
Successful companies move assertively to get the newly business entity onto common business processes and information systems early on. Getting the acquired entities onto common processes and systems is strategically critical for us in achieving that third goal. But beyond just our financial performance.