29 Oct M&A is back: Getting ready for the next wave
My colleagues and I have spent much of the past month speaking at conferences, meeting acquisition and integration professionals, heads of strategy and CEOs across Europe and the US, and listening to their plans, hopes and concerns for the coming year. These discussions along with a growing number of indicators confirm our view that 2014 will see a very significant upturn in merger and acquisition activity – the start of the next M&A wave. Acquisitions Daily recently reported that European inbound acquisitions were already at their highest level since 2007, while in the meantime the number of ‘megadeals’ above $1bn has seen a significant uptick in the last few months alone (including McKesson/Celesio, Vivendi/Lagardere, Telefonica/Telecom Italia to name just some from the past 30 days). The Economist has also recently discussed the anatomy of M&A waves; read their original article here as well as our response with views on root causes.
Yet as we’ve mentioned several times before, long-term M&A success rates appear stuck, originally seen at around 60% since some of the first studies 10-15 years ago, and unchanged in research conducted this year. The issue in our view is down to internal business conditions that drive executive and board behaviours, behaviours that can be at least mitigated and controlled by good governance. (Read our preliminary report on this subject, more on which will be published later this year.)
In the meantime however, businesses will need to move quickly to ensure their readiness to integrate and own keeps up with their increasing ability to buy. Doing so requires a cold, hard look at three things:
- Do you have the processes and tools necessary to drive a consistent, high-quality M&A process? This ‘framework’ should guide and connect the thinking across everything from acquisition strategy through to integration planning, execution and measurement. It should also focus on the principles, experience and hints for conducting each step, not simply be a repository of mandated checklists and action plans.
- Are you putting the best people on the job, and listening to their views? Experience counts for more than skills in this game. Even if they can’t be dedicated to M&A full-time, those involved need to be given the time and space to think about what they’re doing rather than simply ‘checking the boxes’ – this is in my view one of the most common, and most avoidable, problems in M&A. Finally, ensure those responsible for delivering post-close objectives are actively involved and empowered to comment on and ultimately decide on the deal itself – an obvious point perhaps, but in our most recent study, fewer than half consistently do so.
- Are your leaders allowing the pre-deal process to be conducted objectively, unemotionally, and without bias or egos? In our experience and research the biggest challenge of all, one that least do all manner of problems from deal momentum to overpayment to demotivated managers post-close. (How many of you have heard the refrain of, “Who the hell agreed to this? I never did! Why should I kill myself on this job for someone else’s unrealistic promises?” If you haven’t and you regularly struggle to achieve M&A success, you might want to listen a little harder.)
All three – process, people and conditions – are needed to make M&A work, and most long-term deal failures down the years can be attributed to a lack of one or more of these. Before the fun and excitement this next M&A wave offers, just make sure you’re ready – a strong board, a fit and experienced surfer, and a clear head; remember that most people who ride waves wipe out far more often than not.