News & Insights

How to win at M&A

Key Highlights

The biggest mistake that executives make, when going through a merger or acquisition, is looking only at the surface of the acquired company’s mission statement and assuming it jells well with theirs and, therefore, cultures are fairly aligned.

Too often we hear from executives, “We are really similar to this company; it’s not really an issue,” or, “We’ve got this,” because the company plans to leverage a previous acquisition’s playbook. A disregard of the culture and failure to tailor the integration approach are red flags.

Companies combine to gain competitive advantage. But academics have shown that at least half to two-thirds of mergers and acquisitions fail. Our research finds it’s mostly because organizations too often overlook or ignore organizational culture and human capital issues and pay scant attention to integrating these softer issues into the “hard” integration process.
In fact, according to executives responding to the Merger Integration Conference survey (2010-2017), over 50 percent of companies that don’t effectively manage culture when going through a merger or acquisition report that they do not achieve their synergy targets.

Too often we hear from executives, “We are really similar to this company; it’s not really an issue,” or, “We’ve got this,” because the company plans to leverage a previous acquisition’s playbook. A disregard of the culture and failure to tailor the integration approach are red flags.

Why it matters Most companies require inorganic as well as organic growth to achieve superior results. Our research shows that roughly six of 10 successful companies include M&A in their growth strategies. Those companies increased their revenue at or above their industry segment’s growth rate and enjoyed twice the success of lagging competitors.

How winners approach the deal To realize M&A’s full potential, high-performing companies strive to capture significant synergies of 30-100+ percent more than anticipated in the business case or due-diligence model. They realize that value creation requires enhancing revenue and capital productivity, not just achieving traditional cost synergies via M&A.

High performers approach large deals with caution and recognize they are risky, usually require transformation to succeed, and typically take 3-5 years to deliver capital and revenue synergies. The programmatic approach can pay off handsomely in value creation, producing greater excess total return to shareholders.

How winners approach integration High performers understand that several factors for integration success have changed over the past several years, so they have retooled their integration approach accordingly.

Integration used to proceed 24-36 months with little work done before a deal closed. It moves much faster now with considerable planning work done before deal closure. Culture. It received too little attention until late in the integration. High performers now recognize the essential role of culture since organizational and cultural misalignment account for about half of integration failures. Thus, they take a scientific, quantitative approach to diagnosing and addressing cultural conflicts before they derail the integration. And, then, they put actions in place to create greater alignment where it is really needed. Tailoring. Companies used to employ the same processes and playbooks for every integration. High performers today tailor their integration approach to each situation. But learning that lesson doesn’t come easy. As deal types proliferate, companies enter unfamiliar territory. Deals take acquirers further away from their core capabilities, making integration more difficult. Acquirers must tap new sources of value and integrate new talent and, often, a different culture. In these situations, the target company – not the acquirer – can possess many of the integration answers. These challenges require tailoring integration processes and playbooks to specific situations.