Harvard Business Review articles reiterate that 70-90% of acquisitions fail according.
What if you knew that there’s a 70-90% chance you’d lose your money when investing in the stock market, would you invest YOUR money?
M&A Failure Examples
Examples of failed mergers and acquisitions are all over the media: 1) 9 mergers that epically failed, 2) biggest M&A disasters, 3) made in hell: 7 worst tech mergers. If you’re looking for a list of successful mergers, there are only a few….
Below is a sample of the failed acquisitions I’ve seen — sound familiar?
1) Target business: $30MM tech business with innovative product.
- What went wrong: 1) product not aligned with acquiring business , 2) no clear, measurable plan post close. 3) bright shiny object***, 4) No M&A Process.
- Result: within 6 months….1) engineers pulled off from Target Business to do core business work, 2) Acquisition / business / concept disappeared after 6 months (product and all). 3) Loss of $30MM plus associated cost of capital.
2) Target business: $150MM social networking business.
- What went wrong: 1) acquiring business didn’t assess Target’s competing market, so horizontal expansion of product’s social networking tools died rapidly.
- Result: 1) no measurable return on investment. 2) Existing core business remains.
What makes M&A unsuccessful?
Though the list could be quite long (I’m sure many of you have your own lists), so here are some of the most impactful ones:
- Bright Shiny Object: a business you just have to have regardless of anything else. Ever watch your dog or cat follow the moving (though inert) object?
- Financial Analysis: insufficient: Here’s where your corporate development people shine.
- M&A Strategy – misaligned: is it aligned with your core business or where you need to be?
- M&A Integration Playbook / Plan: Insufficient or lack of creates integration issues. The plan is something developed early in due diligence and validated throughout. I’ll discuss more about this below.
Its always great to know what not to do (learn from history so it doesn’t repeat), but even better to know what to do right the first time….
4 Simple Things to Improve Your M&A Process
- Acquisition Strategy
- Financial analysis
- Strategic alignment
- Post close plan
- That’s it! (well, you need great people to execute also!)
In more detail:
1) Acquisition or M&A Strategy: This is defined early on in the merger and acquisition process when you’re looking at a business and you’ve decided why you want to buy them. They’re going to help you increment your existing market (you’re buying customers), their product is better than yours so you plan to use theirs to replace your product, they are in a market you want to enter, etc. Start with this objective, then use this to drive diligence and your integration planning. This helps avoid the “bright shiny object”.
- Who owns: Corporate development partnering with the integration leader.
- What is this: Its a clear plan on why you want to buy them, how you’ll achieve your long term objectives (measurable), and target metrics to be sure you’re headed there (and have achieved your goals over the long term). You’ll use this to drive diligence.
- Success is: A measurable plan.
2) Post Close Integration Plan: You need to start thinking about this in early diligence and the “owner” delivers / measures / manages 2-3 years post close (continuously). You also need to be sure resources across the business are available and assigned to support the development and deployment of the plan. The person leading this is critical.
- Who owns: The integration leader: a person with GM or operational leadership experience, NOT a project manager and NOT a corporate development person. This role manages integrations as a full time job, not just as an ad-hoc requirement … this ensures “muscle memory” to drive continuous success. Project managers will likely be on this person’s team.
- What this is: The plan aligned with business and financial goals that allows you to meet them — and aligned with the acquisition integration strategy defined early on in the process. The plan directly allows you to meet the goals. The plan starts to be created when due diligence begins, and is executed post close by the same person (post close integration). Metrics are established and regularly reviewed showing leading and lagging indicators for the business performance as planned in the financial model, driving strategy achievement. A strong plan can drastically reduce integration issues in mergers and acquisitions.
- Success is: measure against the financial plan, strategic acquisition plan, and management model.
2) Financial Analysis and Model:
- Who owns: the corporate development leader. He also leads negotiations with the Target Company. This person has strong business financial analysis, modeling, market assessment, and negotiation skills.
- What this is: This plan looks at the market, potential growth, financial goal and assessment, revenue and cost synergies, etc. AND determines if the analysis will align with business, strategic, and growth needs….and is willing to put their “stamp” on this saying that its true / actual / real. Involvement ends at close of business.
- Success is: post close financial and other measurements compared to the pre-close analysis and model, performed by “integration leader”.
3) Strategic Alignment and Due Diligence:
- Who Owns: The product leader who is the subject matter expert in this market or product area. This is an ad-hoc role depending on the market and type of acquisition. The Integration Leader helps sheppard this process with the Product Leader.
- What this is: How will this acquisition help the acquiring business meet its strategic objectives? Also includes, pulling together the right Diligence team, providing direction to how we’ll perform Diligence together, execution, and how we’ll review and assess the results. Its also having a hypothesis as to how you want to integrate the business and validate it (or change it) throughout Diligence.
- Success is: follow playbook (see below) steps or make a conscious decision to do something different. Agree on strategic and cultural fit. Validate operational integrity (can the business really operate?). Validate / agree on integration plan.
People and Playbook are Critical (aren’t they always?):
People with the right core competencies, training, and playbook are critical to ensuring the success of the M&A program.
The playbook is the foundation documentation showing how you’ll assess, “strategize”, model, and execute on an acquisition. Though there’s no cookie cutter, it provides a foundation from which you drive the M&A process.
Of course there are many more details around planning and execution, brevity was key here