Growing through acquisition? Build success into the plan.

Growing through acquisition? Build success into the plan.

How often have we heard that most acquisitions fail?

A well-conceived acquisition puts you on the path to success, and a well-managed integration brings the benefits home. Knowing this ought to lead to success, right? The answer should be “yes,” but while following guidelines such as these makes intellectual sense, one finds it easy to get caught up in the promise of a compelling future and lose sight of the practical requirements for getting there.

How often have we heard that most acquisitions fail? Depending on the source, and there have been many well designed research studies on this topic, the failure rate is pegged at anywhere from 50% to 75%. We have had some second thoughts about continuing to quote these figures in our own conversations with clients, in part because we suspected that they were inaccurate, or at least misleading. We have certainly felt that our own approach has led to much success for our clients over the years. But what is the truth about success rates?

We were reminded of Robert Bruner’s excellent synthesis of the research on M&A success. His assessment is nuanced; it doesn’t fit nicely into a PowerPoint chart. But we can be confident of these three points as we think about successful growth-through-acquisition strategies:

  1. On average, acquisitions perform about the same as most other major business decisions such as new product introductions or R&D programs or other big investments. But while the average is OK, the distribution of results, from poor to outstanding, is unusually wide. Understanding the reasons for the spread can pay off for strategic acquirers.
  2. Leaders can sidestep the worst outcomes (and the lower reaches of this distribution) by maintaining a reasonable skepticism in negotiating the acquisition. This means focusing on acquisitions that strengthen core businesses, avoiding overheated markets and competitive auctions, seeking friendly/negotiated deals, identifying credible synergies, paying cash and valuing cash flow most highly in the analysis of benefits.
  3. You also can ensure post-merger success (seeking to be at the high end of the success distribution) by developing and communicating integration plans before a deal closes, by capturing available synergies quickly, by engaging people in both companies in the critical tasks, and by avoiding choices that increase risk to the business in the aftermath of the acquisition.

So we should consider the structure of the deal and the subsequent integration as the two related but distinct levers driving results. Selection of the target and structuring of the acquisition relies on analytical and strategic thinking. In this realm, avoiding “irrational exuberance” is a critical success factor. Integration is a fundamentally different challenge, rooted in human behavior and organizational dynamics, where personal leadership, organizational alignment, and executional capability are paramount skill sets.

Schaffer Consulting has worked with dozens of companies over two decades to develop, utilize, and refine a disciplined approach to integration. This approach begins with strategic intent and ends by delivering the key objectives of the deal in months rather than years.

 Read our interview with Pete Bellisano, SVP of York Risk Services Group.

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