Though the stakes can be high, the potential of a merger or acquisition (M&A) opportunity is often too great to ignore. Understanding your motives for undertaking this venture, both personal and business-related, can help you stay committed to your purpose and improve your odds of success.
That said, deals can have many failure points. According to the Harvard Business Review, 70% of business deals end in failure. For middle-market businesses, a merger or acquisition can be one of the most uncertain moves an executive or business owner can make.
Even the best-laid plans can encounter roadblocks at various stages of the M&A process, which stall progress. These might include:
- A business strategy that isn’t fully understood throughout the organization
- Delayed decisions on leadership roles that create confusion
- Lack of a comprehensive roadmap for achieving a seamless day-one close
- Not knowing where to prioritize efforts post-close
Below are five tips that can help reduce the risk of a merger or acquisition failure.
1. Let Business Case Drive the Transaction
Every deal has a purpose. Break down the M&A strategy so everyone, company-wide, knows that their role in supporting the value proposition is critical.
A well-built business case captures the reason for initiating a merger or acquisition. Anchor on the business case and make it both the driver and the metric, like increasing revenue, retaining customers, and enhancing product offerings.
The logic of the business case is that whenever resources such as money or time are consumed, they should support the business case. All integration plans should be driven, and results measured, by the business case.
Accelerating deal value requires stretch goals; deals are significant investments and should be treated as valuable assets that require careful planning.
The sequencing of project plans turns the business case into a reality, so they need to be cross-functional and collaboration-intensive. More importantly, the outcomes of the business case need to be baked into profit and loss (P&L) to guarantee executives remain committed.
It’s also important to identify tangible value drivers. A merger or acquisition is designed to fill a key gap or need in the business. While no acquisition will fill that gap completely, it’s important to be intentional about how this transaction furthers overall goals, what investments are still needed, and how the transaction will help your organization become more competitive in its market.
2. Agree on a Master Plan
Every deal needs a master plan to be successful. A master plan is a blueprint for success—a list of critical tasks that must be completed to achieve your ultimate outcome.
A master plan’s purpose, which typically covers day one through two years post-transaction, is to help an entity commit early to timelines, investments, and people-related decisions. Plus, a detailed plan makes it easier to adjust to unexpected changes. Details can add visibility into the interdependencies between teams, departments, and processes. One change can impact many areas and allows leadership to see and know the ripple effects.
Walk through the plan together as an integrated leadership team, which typically consists of functional leaders from human resources (HR), IT, finance, and other departments. Reviewing the plan together can help unveil the bigger picture and highlight gaps in assumptions or needs so the team can adjust them prior to execution.
The master plan must be coordinated across functions where interdependencies lie. For example, IT can’t decide to decommission an application if finance still needs the application to close the books in three months.
3. Empower Your Team
Governance of the M&A process is a multifaceted challenge that requires leadership from various departments, levels, and viewpoints. Integration leadership requires intense focus.
During a merger or acquisition, the leadership team often needs to make commitments with incomplete information and accept risk when the path isn’t clear. It’s important to assign leaders with the authority and reputation to influence change who recognize the situation is temporary until the long-term plan is executed.
Your team needs to understand it’s charged with effectively utilizing company resources, such as time, finances, and people. It must also understand cross-functional interdependencies, for example between finance and IT, to make the transaction successful.
Free up integration leaders, who will need to dedicate large amounts of time to define the end-state operating model, identify cost synergies, and enhance the customer experience.
4. Establish a Highly Effective Governance Structure
There are three key steps to establishing an effective governance structure:
- Create a defined process
- Build accountability into your team’s framework
- Mandate structured meetings
Risks and issues arise daily, and an established governance process that’s reviewed weekly can help address these concerns and prioritize responses.
Make sure accountability is built into the structure, so accountability lies with the integration leadership team as well as with their supporting departments. For example, a controller who is part of the integration leadership team should update accountants about new processes and procedures.
Structured meetings provide the agility needed to uncover issues that impact timelines, money, and resources. Structured meetings are held regularly, with a predetermined agenda and a plan to escalate issues and vet potential resolutions.
These meetings should include individual workstreams for leadership and department managers, steering committees for oversight, and discussions with senior leadership and ownership on integration and expectations.
5. Over Communicate
Develop a strong communication strategy that creates an ongoing process throughout the transaction and beyond the first year of the acquisition.
Create a master narrative that describes the overall story of the deal. The master narrative is the base from which all other strategies will branch out. It drives the way different departments behave and the actions they take. This approach will help you deliver a consistent message at every touchpoint with your employees, customers, and suppliers.
Your team needs to know their value, understand their place in the new organization and, if a change is required, be empowered to quickly take action with integrity.
For example, consider merging two companies, one with an in-house finance function, and one with an outsourced finance function. To unite these functions and processes, the CEO can decide to choose one or the other, or a hybrid of both, for the benefit of the new company.
Employees can have an adverse reaction to an announced merger and commonly productivity takes a pause while employees better understand their role in the company. The first question everyone wants answered is whether or not they still have a job. Lack of a convincing message can create confusion and anxiety until answers are provided.
From day one through the next 12 months, you’ll need a well-defined outreach program that communicates the value of the deal to customers. Whether it’s a notice about a boost to customer service, expanded access to locations, or more diverse product offerings, communicating updates can drive value to your customers and increase their support of your decision.
As a part of your business, suppliers deserve to know where they stand during and after an acquisition. Provide them with detailed information about how their involvement with the company may or may not change.
We’re Here to Help
A transaction is the sum of many moving parts; from structuring and negotiating to managing the details and related parties. Increasing team accountability and avoiding common pitfalls will likely make your transaction’s close more successful.
If you’re interested in having an impartial facilitator’s support in managing your transaction, please contact your Moss Adams professional.