Making Your M&A Transaction a Success

By Mark Archer

One of the fastest ways for a company to grow equity value is through acquisitions. Through acquisitions, a company can realize significant value in the first year, often followed by accelerating growth in years to come. Yet according to the Harvard Business Review, an estimated 70% to 90% of all mergers & acquisitions fail. That’s why, in buy-side acquisitions, it is so vital to spend time upfront, to develop a thoughtful M&A strategy including careful sourcing of candidates, a well-negotiated purchase agreement, and successful plan for post-acquisition integration.

Over the course of my career as both a CFO and company President, I have assisted with numerous acquisitions in the consumer and retail sectors. Below are five important factors which will help you more successfully execute your acquisition strategy:

Over Communicate with Stakeholders 

“Communicate, communicate, communicate” is one of the keys to the success of any business merger or acquisition. From the initial stages of due diligence through full integration, all parties must to be clear and concise in their communication to avoid misunderstandings and delays. This means being clear about what each party expects from the other and setting up a system to keep all parties informed of developments and any changes that may occur throughout the acquisition process. For example, if an employee hears different messages from management at the acquiring versus the target company, that news will spread quickly throughout the organization and will impact employee engagement. This will help to ensure a smooth transition and avoid any surprises during or after the acquisition is completed. Remember, in the absence of good communication, acquisition target employees will make their own assumption on what’s going on, and most often it will be the worst case scenario!

Beware of Clashing Corporate Cultures

Corporate culture fit, or lack thereof, is another way acquisition integrations sometimes get off track. When two companies come together, there is always the potential for a cultural clash, as different organizations have different values and ways of operating. If these differences are not addressed early on, they can quickly lead to tension and conflict as the acquisition integration unfolds. According to research by Aon Hewitt, 58 percent of organizations they surveyed used no particular way to evaluate and integrate culture into their M&A deal. As a result, many M&A deals end up being cultural disasters.

I’ve seen two ways of approaching corporate culture challenges. For some companies, the solution is not to integrate the two businesses at all, letting the acquired company operate independently. The downside of this approach is that it’s harder (or impossible) to achieve the synergistic opportunities that may have be assumed when the deal was priced. The other approach is to combine both organizations, but immediately address the issue of corporate culture post-merger. Emphasis should be placed on developing a shared set of values, building mutual trust between the two teams, selecting management from both companies to lead the business moving forward, and establishing best practices that pull from both organizations.

Business Synergies: A Double-Edged Sword

In any acquisition, synergies between the players are an important part of the value of the business combination. In addition to the inherent cost savings they provide, these help the combined company operate more efficiently and effectively. Synergies can come in the form of revenue enhancements, like access to new markets or new products, or through cost synergies, like the reduction in cost of duplicated overhead or through an improved supply chain. But capturing synergies can be a double-edged sword and are a key point of friction where acquisition integration plans can go awry. For example, it’s generally best to go fast when eliminating duplicate overhead functions and to do this in one reduction in force. This will help address the employee concern of “when does the next shoe drop” that occurs when force reductions happen multiple times. But note: if you go too fast, without taking sufficient time to determine who are the keepers and de facto leaders in the newly acquired company, you can make incorrect judgement calls here. My counsel is to proceed carefully and thoughtfully here as you proceed forward. Assemble task forces that pull from the knowledge base of both organizations and then create a detailed implementation plan with critical milestones and dates.

Never Take Your Eye off the Customer

And while you are buried in integration planning, make sure to never forget about the customer! Just like your employees, in an acquisition environment where there is an absence of communication, customers will also often think the worst. Customers should be kept informed throughout the entire acquisition process and should have a conduit where they can ask for clarification and/or further information about how the acquisition will impact them. When the inevitable customer service hiccup occurs, they’ll be much more understanding if they have a better idea of all the changes happening within the organization and feel like they’re “inside the tent.”

Always Respect the Home Team

I’ll close with my M&A advice to the C-Suite with my favorite integration story, filed away in my “Never Do This” file folder.

I was CFO of a retail business that had just been sold to a strategic. In one of the final meetings before the transaction closed, the leadership teams of both companies were to meet to discuss post-merger matters. As we were waiting to start the meeting, I was standing with our CEO and COO about five feet away from the President and COO of the acquiring company. We couldn’t help overhear their conversation about a financial surcharge that my company added to every transaction, cumulatively generating almost $2 million of annual EBITDA to the business. The two executives of the acquiring company decided they were going to drop the surcharge “as it wasn’t something they did in their business.” It didn’t occur to them to consult with the leaders of my company, just a few feet away, or even ask if we knew the financial impact of the decision they had just made.

Postscript: A year later, they had reimplemented the surcharge not only in my business but in theirs as well. It pays to always listen, especially to the “home team.”

If you are planning an M&A transaction, we are experts at FLG Partners. Do reach out. We’re happy to help you plan a successful acquisition integration roadmap and outcome.