Though the stakes can be high, a merger or acquisition (M&A) can be too great an opportunity to ignore. Understanding your personal and business reasons for taking one on can help you stay committed and improve your odds of success.
Business deals can have many failure points and the majority of 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 careful plans with thorough checklists 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 road map 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.
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For middle-market businesses, a merger or acquisition can be one of the most uncertain moves an executive or business owner can make.
1. Let business case drive the transaction
Every deal has a purpose. Break down the M&A strategy so everyone, company-wide, knows their role in supporting the value proposition is critical.
A well-built business case captures the reason for initiating a merger or acquisition. Make that business case both the driver and the metric for increasing revenue, retaining customers, and enhancing product offerings.
Resources consumed, such as money or time, should always support the business case, with all integration plans driven and results measured.
Stretch goals
Accelerating deal value requires high-effort and high-risk 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 to guarantee executives remain committed.
Value drivers
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.
The purpose of the plan, which typically covers the first day through two years after the transaction, is to help commit early to timelines, investments, and people-related decisions.
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 allow leadership to see and know the ripple effects.
Walk through the plan as an integrated leadership team with functional leaders from human resources, IT, finance, and other departments. Reviewing the plan together can highlight gaps in assumptions or needs that require adjustments.
The master plan must be coordinated across functions. For example, IT can’t decide to decommission an application finance still needs 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 M&A, 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 effectively use company time, finances, and people. For example, during a merger, the target company’s IT department can be an asset with growth potential, or a liability that exposes the organization to risks. Teams must also understand cross-functional interdependencies, such as 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 establish an effective governance structure, even if your board is remote:
Create a defined process
Build accountability into your team’s framework
Mandate structured meetings
Process clarity
Risks and issues arise daily, and an established governance process that’s reviewed weekly can help address these concerns and prioritize responses.
Team accountability
Make sure accountability is built into the structure of 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
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. Overcommunicate
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 behavior and actions of different departments.
This approach will help you deliver a consistent message at every touchpoint with your employees, customers, and suppliers.
Employees
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 sometimes productivity drops until they understand their role in the company.
The first question everyone wants answered is whether or not they still have a job. A convincing message can prevent confusion and anxiety.
Customers
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 better 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.
Suppliers
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.
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.
