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:
- 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.
- 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.
- 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.