Getting M&A Right: The Science Behind the Art of Deal Making

03 Dec. 2012 | Comments (0)

 

Pent up demand has many companies “biting at the bit” for double-digit growth. Often this cannot be achieved through organic measures alone so the number of M&A deals has begun to dramatically increase. The challenge is, historically, only about 30% of these transactions are successful.

In this blog, we will share with you several M&A best practices that if implemented will reduce the amount of stakeholder resistance, increase the percentage of targeted synergies realized, and shorten the overall implementation cycle time. Each best practice is discussed below: 

 

 

 

  • Manage the M&A process cradle to grave like a chain with interdependent links. The process must start with robust strategic planning and include market strategy and financial forecasting. This will help ensure you have mapped financial projections to each internal and external growth engine channel.

  • Exercise restraint: Potential deals gain momentum as you progress through the M&A cycle. Use the deal drivers and targets as decision filters. Also before entering negotiations, agree on a maximum acquisition price and deal terms so as not get involved in “deal fever” and agree to terms that exceed your maximum offer without data to support the decision. Sometimes larger companies find themselves in a bidding war against other giants with deep pockets. To secure the prize they often have to pay a higher premium to outbid their competitors making value creation that much more difficult.

  • Use a balanced, robust, “due diligence” process that addresses financial, situational, and legal issues. Most companies can markedly improve their operational and organizational due diligence capabilities. Research suggests that the organization/people issues are keys to the success of post acquisition integration. Conversely, operational due diligence allows you to confirm synergy targets and identify where and how you can capture them.

  • Identify the value drivers early in the process and translate these into an M&A vision and scorecard. Once in place, ensure they are properly communicated by:

√   Cascading the metrics to each M&A team.

√   Providing visibility at the individual level so that team members are held accountable for realizing targeted synergies.

√   Aligning metrics with appropriate HR practices (performance management, base, bonuses, and equity) to ensure consequences.

  • Start detailed integration planning during due diligence. The primary deliverable of due diligence should be the100 day plan. Therefore the plan should not be focused on figuring out “what to do” but focused on “how” to realize the targeted synergies and deal drivers that were identified during due diligence.

  • Leverage speed as a critical driver of success. Identify the key decisions and don’t let them languish. Decisions about structure, layoffs, and initiative integration efforts should be communicated right after the deal is announced.

  • Drive accountability. The senior management team must be held responsible for the success of the deal - achieving the targeted synergies. Success cannot be delegated to an Integration Project Leader.

  • Proactively address the organizational/people issues. These include:

√   Culture assessment/alignment

√   Leadership assessment

√   Manpower redeployment

√   Talent retention

√   Benefits & compensation rationalization

  • Use a formal integration playbook. A well-defined playbook will have multiple pathways for both simple and complex deals, detail the key activities and tasks, and clarify roles. The playbook should also include a toolbox of due diligence, integration planning, and implementation tools that are standardized and used by all integration teams.

  • Involve Human Resources in the process as early as possible. There are a number of organizational and people issues that can have a material impact on the value (quality of leadership, unfunded pension liabilities, benefits/compensation costs) of the company or the success of an integration (cultural assessment).

  • Use overlapping, cross-functional teams to expedite the information handoffs across the phases. M&A’s go through a series of phases such as target identification/negotiations, due diligence, integration planning, and the 100-day plan. Make sure you have a cross functional team with some overlap from phase to phase to ensure organizational learning is not lost.

  • Aggressively utilize change management principles. This can include:

√   Mapping the culture of the acquired and parent companies, noting areas of convergence and divergence. Be sure to highlight potential problem areas.

√   Segmenting and prioritizing stakeholders. Once completed, develop and execute a commitment strategy.

√   Use the stakeholder analysis to target communications to key groups. Periodically use sensing mechanisms (pulse surveys, focus groups, etc.) to evaluate the effectiveness of communications.

√   Align the technology, people practices, and processes to with the new business plan and integration strategy.

  • Emphasize robust program management and governance. Acquisition integration is a series of mini projects directed toward achieving targeted synergies. Employ project governance, standardized processes (key decision identification, issue escalation, risk management, progress reporting, etc.) and common tools and templates to maximize success.

  • Place emphasis on knowledge capture and sharing. At the completion of each integration collect data from employees of acquired companies, integration team members, executives from both organizations, and integration team leaders to identify:

√   What worked/what didn’t.

√   Recommended changes to the playbook activities/tasks.

√   Recommended changes to the integration tools and templates.

√   Identification of new tools and templates that are needed.

M&A is not a silver bullet that will instantly cure the ailings of your organization. The potential benefits of a properly executed M&A transaction range from increased market share and top line revenue growth to cost synergies and access to new products or technology. In today’s competitive landscape, many leaders are under extraordinary pressure to generate top line growth. M&A is often the tactic of choice used to achieve “home run” results.

Stay tuned for our upcoming blogs, where we will:

1) Share learning’s from other companies that have a successful track record of completing due diligence;

2) Walk you through an M&A integration process that will enhance your ability to realize the targeted synergies; and

3) Discuss the role of HR and leadership during integration planning and 100-day implementation.

 

View our complete listing of Strategic HR blogs.

  • About the Author: Tim Toterhi

    Tim Toterhi Tim Toterhi is an organization development professional based in North Carolina. He began his career in strategic sales in the nuclear industry and transitioned to HR via learning and development. Ove…

    Full Bio | More from Tim Toterhi

  • About the Author: Ronald J. Recardo

    Ronald J. Recardo Ronald J. Recardo is the Managing Partner of The Catalyst Consulting Group LLC, a Connecticut firm founded in the early 1990’s that helps its clients grow their business, improve their performan…

    Full Bio | More from Ronald J. Recardo

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