05 Feb Driving Transformation through M&A: Ten Tips for Success!
It’s coming up to 20 years since I worked on my first M&A transaction. During that time I’ve been studying the things critical to M&A success; working alongside clients helping them find, acquire and integrate deals that work for them in the long term.
I’m incredibly thankful for this experience. Seriously! there’s nothing like working with literally dozens of firms seeing, thinking and doing things critical to their business success. Professionally and emotionally, there have been plenty of highs, and, dare I say, a few lows.
In this piece, I wanted to encapsulate just a few things I’ve personally learnt and felt are important when it comes to delivering value from M&A – especially when it’s used to transform a business.
First of all, and it almost goes without saying, M&A is wildly complex. It’s a management discipline like no other! So it’s very tempting to write at length and provide some wildly complex answers. But I won’t. That’s the easy thing to do. Instead, I wanted to keep it short and sweet. Just ten simple tips (perhaps revelations is a better term) with a sentence or two on each. I’ll expand on each of these tips in forthcoming posts coming out in each week. Do check back!
I’m writing this because I want to chip in with my own thoughts and experiences so that all of us professionally involved – CEOs, CFOs, Executives, Consultants and Advisors – get that little bit better next time around.
First of all, let’s get some context….
Business disruption is all around us. Organisations around the world do not need to look far into the future to see the tsunami of business disruption headed towards them. Indeed, it’s happening now; transforming the way organisations operate and how they engage with their customers.
Organisations are increasingly using M&A to transform themselves. Organisations are increasingly using M&A to go well beyond the traditional cost-driven consolidation type deals of the past. What this means is that businesses aren’t just wanting to expand what they’re already doing. Rather, they’re looking at transforming themselves so they can continue to thrive and prosper in the long term. Organisations are wanting to disrupt themselves, because they have no choice.
Transformation through M&A is going in with a strategic imperative. A common strategic imperative is the acquisition of new digital capabilities, value chains and the know-how that goes along with it. Alternatively, organisations may be looking for new market breakthroughs by acquiring new products, services and channels to market. Another strategic must-do is the reshaping of customer experience.
It’s widely understood that M&A is often a faster and cheaper alternative to organic growth. Whatever the imperative, organisations understand that the things that matter most to performance —digital, technology, people, products and services — take too long to transform. The powerful alternative, saving both time and money, is to buy them and bring them instead.
However! Transformation through M&A is a far more challenging and nuanced exercise compared to the more traditional approach. While many have gone down the M&A path before and probably feel quite familiar with the management steps they need to take, driving transformation through M&A is a far more challenging and nuanced exercise. It’s not as quite straightforward as it seems!
Given the context, I want to provide what I think and feel are the most important things to get right if you are going to truly succeed, and create the kind of growth that only M&A can deliver. There are ten. Short and sweet. Here goes…
1. Move beyond the Transactional Mindset
If M&A is being used to achieve transformational goals – whether it’s in existing operations, products or customer experience, the standardised, reductionist and mechanised approach to M&A – the hallmarks of transactional thinking, will almost certainly guarantee failure from the very start. I’ve seen it, been there and done that; the transactional mindset is great – for the transaction. But it’s a miserable way of working otherwise.
If you want to know why so many M&A hopes are dashed then look no further: The transactional approach to M&A will not deliver transformational results!
The transformational mindset instead represents a more expansive view of M&A. It’s a way of thinking and doing that doesn’t rest. The mind is continually illuminated by new possibilities to deliver both short-term and long-term value. It’s eclectic in its approach and aspirational in its goals. It’s about creating value – not just capturing it.
Transformational M&A is about creating value – not just capturing it.
2. Live and Breathe Risk Management
Playing it safe in M&A is incredibly risky. It means taking a pass on moving the business forward and achieving the kind of competitive advantage only M&A can deliver. There needs to be a willingness to continuously accept, embrace and manage risk with a positive affirmative attitude that recognises risk and opportunity go hand-in-hand.
Avoiding risk is one of the riskiest things you can do.
3. Make M&A that “Window of Opportunity”
A major acquisition creates that unique and almost palpable “window of opportunity” to bring about true change. It’s a moment in time that brings both excitement and anticipation on what’s possible. But this window soon closes again. It needs bold leadership and courage to “seize the day” during this brief moment of cultural unfreezing.
Seize the Day! You either do it or you don’t.
4. Put Discipline into Innovation
Organisations understand they must do things differently if they are to achieve a step-change in performance. I’ve personally engaged innovation specialists, and ran innovation workshops myself during past transformation deals. The thing I learnt is that innovation is quite simply a systematic and disciplined way of looking at and solving business problems. Innovation is not brainstorming! There are literally dozens of reframing tools and techniques readily available. Use them to drive new and different ways of working.
To be innovative you’ve got to be disciplined.
5. Use Simple Rules to drive Complex Work
Driving a transformational deal is seriously complex. The answer to combating this complexity is not through large and unwieldy strategy documents. These just sit on a shelf gathering dust. Instead, having just a few simple rules to guide the course of work can be tremendously powerful. Here we are talking about guiding principles, codes of conduct, business maxims, boundary rules; simple and direct statements used to provide the contextual understanding, empowerment and direction on what people need to do during the course of the transformation. I always go out of my way to get almost everything down to just a handful of principles to guide the course of work.
Simple rules give meaning, empowerment and direction. Use them!
6. Adopt Agile Ways of Working
For those who’ve previously worked in the M&A pressure cooker environment will readily see just how well the agile approach can be applied. So where there’s opportunity then go ahead and use the various methods – product backlogs, burndowns, sprints, scrums and so on. However, adopting agile ways of working has much more to do with a set of values than it is with process. Go back to the Agile Manifesto. Let the values speak to you. Remember: being agile is more about mindset, meaning and behaviours than process.
For M&A to be truly successful it must always be agile!
7. Engineer the Delivery of Value
One of the great M&A challenges is the ability to identify, deliver and measure deal value. The tried and tested response is to leverage the wide arsenal financial accounting tools and techniques to help make wiser strategic and operating decisions.
But another way that nicely complements this approach is to put the engineering hat on, and take a good hard look at the operating model nuts and bolts. The objective is to seek out the operational drivers (value levers) and how they interact with each other to provide a multiplier effect on business performance. A deeper understanding of the firms engine of growth – the operating model – makes value come alive. It makes a cold and lifeless accounting exercise into something that’s visual, engaging and invigorating.
When it comes to value, don’t just spreadsheet it, engineer it!
8. Establish Activist Accountability
Accountability is a key ingredient to any success, but one of the most common reasons why initiatives fail is the inability to properly locate accountability upfront. A positive sense of accountability is required with people ready and willing to take ownership and given the corresponding authority to take control.
I see accountability as a feeling, a presence of mind; something that’s life-affirming. This is I think the best way to understand it. There is no blaming, complaining or excuses; that’s the easy way out. It’s a form of personal expression; a way of standing out from the crowd. Above all, making ourselves actively accountable for own actions and consequences, is the key to success and personal well-being.
Activist accountability is the key to success and personal well-being.
9. Focus on Purpose
Perhaps it was Simon Sinek’s best-selling book “Start with Why” that has a lot of people talking about purpose these days. While it may be very much the talk of the town, it’s certainly a good thing that people are.
Consider this: when an organisation is embarking on an acquisition, executives and advisors will spend an abundance of time on ‘what’ needs to be done to complete the deal. Time will also spent by those spirited individuals on ‘how’ integration will need to work to deliver the synergies. But it’s the ‘why’ part of a deal that finds many organisations scratching at the surface.
But being able to understand, communicate and commit to the ‘why’ can be the most powerful motivator of all.
Explaining the ‘why’ is the most powerful motivator of all.
10. Embrace Product Management
This tip is really aimed at those customer-centric deals where the strategic imperative is new market breakthroughs.
Now I’ve worked on quite a few of these. I’ve also been in the fortunate position of working with some of the best product leaders in the field. Strategic Product Management, executed by those who are on top of their game, has a certain, almost visceral power that is both market-led and customer-focused. I have a soft-spot for the Product Management. I get it. It’s true ‘outside-in’ thinking as it involves a mindset that shifts the focus from “what sales need to do to close deals” towards “what would contribute to generating more customer value”.
It was Peter Drucker who said that the purpose of a business to ‘create and keep customers’. And that’s what Product Management is about – creating and keeping customers. Product management dives into those devilish and complex interactions with customers like no other discipline.
Product Management has come of age in the age of the customer. Embrace it!
There you have it. These are the ten things I believe you’ve got to get right when driving transformational growth through M&A. I’ll expand on these in forthcoming posts.
Hopefully, this post has given you some thought. As an industry veteran, I’ve been working on transformational deals for several years, and as is often the case, it’s the softer side of things – people, leadership and culture, that really matter. The process will naturally follow when you get these right. My email is below; happy to discuss this and other posts in further detail.
Thank you for reading!
Toby Tester, Senior Consultant