Does your growth strategy include acquisitions? Beware!
Merger and acquisition activity is expected to be up sharply in 2014. I find a couple of things interesting about that:
1) Anywhere from 50-90% of transactions fail to meet their stated goals, yet there is this exuberance to spend more money, when even the best odds are like a coin toss.
2) I wonder if this is being driven by companies that are having difficulty achieving their current goals or implementing their own organic growth strategy. Nonetheless, it seems more companies are willing to throw more capital out there in hopes of adding growth to hopefully their top and bottom lines and, of course ultimately, shareholder value.
In our research, we find that acquisitions (and mergers) fail in five main areas; it may be in just one area or a combination of several:
1. Strategy
The company doesn’t really have a strategy around acquisitions. Many times it is just an opportunity that comes out of nowhere and it seems like such a good idea so they jump on it.
2. Strategic Fit
The acquisition target isn’t really a good strategic fit for the company. Yet they proceed only to have it fall apart when attempting to integrate it.
3. Culture
Ah, this is a big one. We don’t have to look far to cite examples of companies with drastically different cultures trying to become one only to have it fail miserably. DaimlerChrysler for one. Culture is a big deal and if you think it isn’t, you’re just fooling yourself.
4. Deal Structure
It’s amazing the promises that will be made all in the name of getting the deal done. If they’re not on paper, they have little chance of being realized. Most often, once the deal is closed, the dealmakers move on and the integration is left to someone else – most likely someone who wasn’t part of making the deal.
5. Integration
This is actually where the value creation begins. It’s most often left to folks in the operating units to handle the integration. Lack of planning and competing priorities many times obscures what really needs to happen to realize the true value of the acquisition.
So what do you do to improve your odds of creating real value from your acquisition? Here are a few ideas.
Create continuity . From the strategy all the way through the integration, have a plan and the people who tie it all together from beginning to end.
Minimize optimism bias . Many people fall in love with the deal and it blinds them to warning signals that pop up during the process. Build in go/no-go criteria and stick to them.
Integration planning . Begin the integration planning from the moment you begin your due diligence.
Assess the cultures . Assess the cultures of both organizations and identify the risks of integrating those two cultures. Better yet, identify the best of both and drive toward that as your ideal.
Hire Sekstant. (A shameless plug) We help companies wanting an outside expert to provide objective oversight and assistance from the strategy development all the way through the integration to increase the probability of meeting expectations.