Can we change the way we do M&A?

Can we change the way we do M&A?

OK, M&A is back on the corporate agenda; there is cash available, targets identified and teams assembled in readiness with all the requisite tools and skills.   All this is necessary of course, alongside a well-structured framework for executing on the selected deal (both pre- and post-closure).  So if all this is widely recognised as necessary, why is the well-known failure rate for M&A not falling significantly? 
 
We think that something else is going on and we have evidence, building on preliminary results of a recent survey that something else is at work.  Whilst all the tools, skill and processes form a vital part of the process, they are not sufficient when it comes to the whole picture – there are some vital precursors that can be missing.  These revolve around the business development process that leads to the ‘go-no go’ decision and starts with the executive board itself; how focussed are they on challenging the CEO’s enthusiasm for the deal – do they have the details and are they prepared to ask hard questions?  In this context, are the management team open to being challenged and held accountable for the decision itself, are they clear (and objective) about the challenges that lie ahead?  What about post-close activity – have the management team put sufficient thought into the integration itself, including resources, KPI’s, accountability and targets?
 
Let’s be clear; the lack of one or more of the above will not prevent a deal from being signed off and getting implemented.  Insufficient attention paid to these factors will, however, hinder both short and long term success of any deal – good or bad.  We see bad ones that fail spectacularly – especially mega-mergers that get press attention.  But the high failure rates point to something else – an awful lot of deals go through that don’t quite fail – they just don’t live up to expectations and become ‘zombie acquisition’; simply existing and drained of all life, infecting other parts of the business, and eventually having to be killed off through the well-known method of goodwill write downs.
 
Over the coming months, we, our colleagues and members of our M&A Advisory Board will be exploring these themes – and how to address them – through our blogs and speaking opportunities. The next blog will focus on the first of these, the old chestnut of deal fever, and will include some interesting results from our recent surveys and corporate interviews. As ever, we welcome your thoughts and comments as we continue the dialogue.
 
Carlos Keener & Colin Hopkins