Decoding the formula for success in corporate M&A
August 2013 | PROFESSIONAL INSIGHT | MERGERS & ACQUISITIONS
Financier Worldwide Magazine
In the heyday of M&A in the 2000s, serial acquirers began to have a certain swagger to their gait. They had helped turn M&A from an art into a science and raised the discipline to a formal one within corporations. Those leading multiple M&A transactions were making headlines on the daily news. And some of them credited successful acquisitions to their own managerial capabilities rather than to good market conditions.
Yet, too often, that air of confidence began to be mistaken as competence. Of course, people and organisations gained valuable experience and became more capable at deal making. But having a certain number of deals under your belt doesn’t mean someone is a sure-fire dealmaker. Each M&A transaction is unique and requires great discretion and the ability to lead instinctively.
In fact, analyses show that M&A learning is not subject to the classical ‘S’ curve, e.g., you are not automatically more successful in the next deal with increasing deal experience. Organisational learning is complex in the M&A context. For one, M&A transactions are not a routine activity. And many experts work on different, individual activities, which makes it hard to determine which of those have the most impact overall.
As a result, assumptions of the learning curve hypothesis don’t always hold up. First, learning doesn’t happen automatically. To do it right, those things that companies have learned through interpretation and reflection (e.g., group discussions, performance assessments, and experience and knowledge exchange) must be captured and codified in the form of handbooks, guidelines and process maps. Second, companies do not only learn from their own experience but can imitate others with training or by bringing in M&A experts and external consultants. Finally, companies must consolidate their knowledge and apply it in the right context to make the most of their experience.
Therefore, companies must make sure they gain both breadth and depth in their M&A experience so they can better identify the specific traits of a transaction, draw the right conclusions about those traits and move forward with the best approach.
Excellence over experience
Rather than run the risk of becoming overconfident, some companies have established a culture that prizes excellence over experience. The culture helps companies match their actual competence with an appropriate level of confidence, and it keeps these players from falling into feverish deal making. Furthermore, such a culture helps avoid bidding wars that drive up valuations and leverage. It also paves the way for sufficient management attention during post-merger integration. Finally, putting excellence first means teams always have grounds for pulling out of unpromising deals early.
In an extensive M&A benchmarking study, we confirmed that the most successful acquirers are neither the companies that have completed the most M&A deals nor the ones with the most M&A experts on staff. Rather, serial acquirers achieve superior M&A performance by developing certain distinctive and robust M&A capabilities in the ‘must have’ areas of M&A strategy management, transaction management and governance. While they tend to be strong in these traditional M&A capabilities, serial acquirers are significantly weaker in the supporting capabilities of M&A performance management and M&A knowledge management. They also exhibit weaknesses in M&A integration management – an area that remains a major challenge for virtually all companies.
Our research shows that companies can make their M&A capabilities more professional to safeguard against creeping overconfidence and other risks. We have identified seven ways to improve capabilities that can also be used to benchmark where a company stands. No single one works on its own; instead, they work in concert to improve capabilities across the M&A function.
Making your M&A capability more professional
Plan the M&A roadmap.An M&A roadmap based on a realistic understanding of various M&A scenarios and the company’s capabilities is key to balancing organic and M&A growth initiatives, prioritising opportunities, and finding the right timing for acquisitions. To close the gap between planning and execution, this roadmap should be substantiated with a detailed and binding action plan, metrics, due dates and responsibilities.
Provide direction and end-to-end process governance.Companies must be able to ensure M&A projects are consistently well managed. This includes the creation of end-to-end M&A guidelines and process descriptions that also define roles, responsibilities, milestones and deliverables throughout the deal cycle. Another key is ensuring that the person who will be in charge of downstream integration is appointed and involved at the very outset of an M&A project.
Build effective incentive and reward systems.Quantitative objectives and incentives for the actual M&A team can be difficult to implement and might induce bias to due diligence and valuations. However, targets and rewards for the line managers responsible for the acquiring business units are some of the biggest levers for M&A success. Incentives should encourage them to drive the deal pipeline. Targets must be value-oriented to make successful integration a top priority. Companies should also have performance management standards for integration managers and incentives linked to the delivery of value targets.
Develop skills across the organisation.To build and maintain strong M&A skills, companies should conduct frequent training sessions for M&A specialists and experts from management and the business. Also, companies should conduct proactive coaching of project members by experienced M&A specialists and provide tools that can help teams find help and guidance when they need it. Finally, frequent knowledge exchange is important to staying up-to-date and gaining new insights.
Learn from experience.Companies should conduct regular, structured ‘lessons learned’ sessions for M&A projects to avoid repeating past mistakes and identify opportunities to excel. Lessons learned, project documentation and M&A assets should be archived in an easily accessible knowledge repository so they can be consulted by future project teams. Project postmortems should generate a list of action items to improve identified shortcomings.
Build a Post Merger Integration (PMI) organisation.To avoid struggles during PMI, companies should appoint a responsible party for PMI that can provide the required expertise. Some companies choose to do this by founding a competence centre or, if the company does not acquire frequently, by appointing a manager who is fully dedicated to leading the integration phase. Project teams that are not staffed with PMI experts require guidance and support, including such essentials as a PMI playbook and a repository of job aids, templates and real life work examples.
Establish a rigorous auditing process.To fully understand its M&A track record, a company should establish a standard review approach and an audit plan ensuring frequent reviews. This approach should combine all relevant review dimensions: strategic, financial, operational and project management. Evaluation criteria need to be clear in advance, reviews should be done by an independent auditor, and results should be reported to top management.
Mirko Dier is an executive partner, Dr Moritz Kübel is a senior manager and Dr Sarah Ali is a manager, at Accenture. Mr Dier can be contacted by email: firstname.lastname@example.org. Dr Kübel can be contacted by email: email@example.com. Dr Ali can be contacted by email:firstname.lastname@example.org.
© Financier Worldwide
Mirko Dier, Dr Moritz Kübel and Dr Sarah Ali