Successful mergers and acquisitions – Ten thoughts and tips

A client is considering a merger and asked for my tips on how to do so successfully.  The simple answer is: it’s difficult.  Most mergers fail to deliver the benefits shareholders expect.  My view is that is largely because there is insufficient energy put into the detail of how the benefits of the deal will be realised.

Sadly that happens a lot for some simple reasons.  Doing the deal is tricky and time consuming. That creates a lot of pressure on the operational leaders. They have to do the deal alongside their previously full time role of running the business itself.  So there tends to be a degree of reliance upon the specialist deal advisors and deal makers. Which is fine except they aren’t usually responsible for the post deal integration and realisation of the benefits of the deal.  Indeed they often have a commercial interest in getting the deal done as quickly as possible with minimum distraction and complexity. A dangerous combination.

So here are a few tips on how to ensure a merger goes successfully from someone who has managed the process as the operational business leader a few times.

  1. Don’t let doing the deal distract from day to day business. Too often the potential deal distracts, revenues or profits fall, the buyer feels a lower value/more risk then drops the price and it all begins to unravel. Best to be conservative in first conversations and be able to give them good news (and up the price) as the deal progresses.
  2. Never rely upon the deal happening until the ink is dry. Retain the ability to walk away. Professional buyers in particular will want you committed to the deal so they can negotiate a better one.
  3. If the deal is anything other than a pure cash deal, then regardless of if they are bigger you have a right to do at least some due diligence on them. Even with a pure cash deal you have a right to verify they have the means to pay.
  4. Be clear whether and how the deal creates value. There are reasons for doing deals where the result is simply the addition of the two P&Ls and there is no additional value from strategic synergy. Better deals are those where combining the two organisations offers the potential for additional value. eg Increasing combined revenues by selling the products of business A through the channel/customers/partners of business B. eg By only having one FD and finance function. It is important to be clear on such synergies. 
  5. Be clear (at least in the owners minds however you represent it externally) whether this is a steamroller acquisition or a real merger.  In the former the larger, more successful business runs the show and it is their processes, systems and managers that will dominate post acquisition. That can happen with acquisitions of a failing business but is rarely the case otherwise. Whilst very rarely does a merger involve complete equality, often the synergy will involve retaining the strongest elements of both sides.
  6. Having identified the synergies, plan the post merger integration and value realisation process carefully. Some of the decisions will be difficult. The process for making such difficult decisions is best agreed and clarified pre-deal and will often follow a hierarchical logic.  eg Agree who will be the new board and Chief Executive. The Chief Executive then agrees with the board the new management team (bearing in mind some managers may be redundant as a result). Then that management team agrees its teams and processes.
  7. In planning the integration be careful to get the timing of communications and decisions right.  For example staff, customers and some suppliers and partners will start to get nervous as soon as they hear. So aim to communicate a consistent considered message to both groups very quickly after the announcement. There is nothing worse for a customer of both parties than to have two account managers calling them and claiming to be leading the relationship for the combined entity… and even saying different things. The personality of many account managers is such that without management this is likely to happen. So decide who will manage your top accounts before announcement and provide your account managers with the messaging you want them to communicate. Similarly an announcement to staff, customers and relevant suppliers and others needs to go out simultaneously as early as possible.
  8. It is not practical to decide everything in advance of completion. Not least because sometimes you need the decisions to be made by people not aware of the deal. In the cases where you can’t decide the final result, you can decide who will decide and when. So build into the integration plan a decision process.
  9. Likewise, not everything can be done immediately. Plan for a series of integration projects that may not be completed for some weeks, months or even years. Many IT projects can be complex and time consuming. Whilst it is critical to assess what is possible and how before the deal, it may be that the migration and training process will take many months. Additionally, many other ‘back office’ benefits (such as combining finance functions) may be deferred in order to focus on the critical core business challenges such as those mentioned earlier first.
  10. Finally, manage the integration process as a programme in its own right.  The operational teams will be very busy doing their normal roles and additional work created by the integration. They will not often have time to focus on the overall integration programme. So appoint an integration programme manager (maybe temporary) reporting to the board and agree with them a programme plan, probably comprising a number of projects with clearly agreed goals and roles.

Business acquisition with confidence

Buying a business is one of the biggest decisions a Managing Director ever makes. Integrating two businesses is one of the most important operational challenges a business leader faces. The problem is, unless you are a specialist in acquiring and merging businesses either within or without a business, you won’t do it very often. So it’s usually a new challenge and an opportunity to learn from mistakes.

So, how does a business leader get advice?

Obviously, the specialist advisors in the corporate finance team will be delighted to help, but they are usually financiers with a vested interest in the deal completing. In any case, financiers aren’t usually experts in winning the hearts and minds of staff. One alternative which many find helpful is to talk the situation through with fellow business leaders at an MD2MD meeting.

Whilst clearly no two situations are the same, the perspectives of other business leaders who may themselves have learned the hard way can be invaluable. Even if they haven’t led a deal, they may have been on the receiving end of one and be able to share those insights. Or they might just come up with useful alternative perspectives. So if you are thinking of buying or selling a business, why not give MD2MD membership a try?