How to Avoid Failure in M&A

2017, 27 Nov | In M & A for Entreprenuers

How to Avoid Failure in M&A

Although one enters an M&A deal know knowing the inherent risk that the deal will sour, one may not know how often it happens. The Harvard Business Review claims that the fail rate is near 90%. Multiple studies agree that a deal is far more likely to fail than succeed:

  • A McKinsey report indicates a failure rate between 66% and 75%.
  • Global Times claims that 64% of deals in 2014 China failed. The numbers above are concerned with a deal falling through. However, a “failed merger” could occur, even if the deal goes through. For example, KPMG released a study which found 83% of M&A deals fail to boost shareholder returns. Why is the likelihood of failure so high when it comes to a merger? Most significantly, failure is the inability to integrate effectively. The troubles with integration occur on two levels:
  1. Strategic (how you approach integration and identify success).
  2. Tactical (how and when you inform your staff of key decisions)

 

                                                                        It’s never too early to plan your integration. By merging one company with another, things (and lives) are going to change. Early in the process it’s worth taking the time to consider the implications of this impending merger. How can one be empathetic to those whose lives will change from this? How can you make life and work easier for everyone involved? What can you do to ensure your existing IT ecosystem will work together with another incoming system?

When you’re caught up in an M&A transaction, it’s easy to get caught up in numbers, data, and forecasts. But when you get consumed by these numbers, you tend to push aside the people.

Remember: each number you pore over represents the efforts of real people. From employees to vendors, shareholders and customers, the people involved in the target and acquiring companies are what makes an M&A successful.

While the merger may not be complete – or even close to complete –it’s still well worth your while to begin to conceptualize life post integration. By starting early in the process, you can tackle the easiest, simplest integration issues first, because time is on your side.

Keep the ball rolling. Delays and mishaps happen during an M&A; however, one of the best ways to ensure the success of a M&A is to do your best to keep things flowing. Momentum is essential, but it’s not always easy to achieve. Your M&A team should have a clear plan in place, including specific roles for everyone in the C-Suite. There’ll be no confusion over who oversees what. You’ll know who must provide strategic vision, who must execute these ideas and who must design an integration plan.

Help your employees buy-in as everything can go seemingly right during an M&A, but if employees aren’t buying in, failure
following the deal is likely to ensue.

Getting all employees to engage can get a little tricky. The merger needs to be kept under wraps (and on a need-to-know basis) for a period to prevent rumors, leaks, and paranoia. However,

once the integration is an announced, employees must be told candidly that their jobs are safe (if that’s the case). Your word may not be enough, however. One suggestion is to provide employment agreements and non-compete clauses that help provide workers with the peace of mind they need to share in your new vision.

A merger has inherent risks but with planning and foresight the opportunity for success is exponentially increased.