AI Magazine Issue 3 2018

58 Acquisition International - Issue 3 2018 M&A failure is far too common – but that can be fixed Carlos Keener, Founding Partner at BTD Consulting &A is absolutely core to modern business. Many start-ups have developed their ‘exit strategy’ (being bought by a bigger fish or merging with a similarly sized one in their particular sea) before they’ve raised their first invoice. And M&A is viewed by even the largest companies, as a good way of getting ahead of the competition. If a rival is doing well, bring them into the fold. If a competitor has great people with great skills, acquire them. Even in economically uncertain times, M&A seems to thrive. During the financial turmoil of the last decade, the worst since the 1930s, the poorest year for M&A saw over 35,000 global deals representing $2.25tn. That’s equivalent to more than 3% of global GDP. But far too few M&As succeed. The tale of how AOL’s $164Bn turn of the century acquisition of Time Warner failed is told time and again, but in reality it is just the poster child for a far too widespread phenomenon. Too many deals, large, small and mega-sized, fail to achieve their objectives. The organisations involved in M&As should be seriously concerned about that. Not only does it damage business reputation and shareholders, it can ruin careers and destroy brands. According to one study , disciplinary replacement of CEOs is 77% higher than in non-acquisitive companies. The business press is littered with research reports about M&A and guidance on how to get it right. Do more due diligence. Plan integration earlier. Focus more on culture. Ensure communications strategies are top-notch and well implemented. None of this is bad advice, and it is readily available and well understood. But M&As still fail in their droves. In no small part this is the result of the ‘gain today, pain tomorrow’ nature of deal-doing which is based on some remarkably resilient principles. M&A deals tend to play out over the long term, while boards and investors are often focussed on the short term future, regulatory bodies concentrate primarily on competitive impact, deal advisors don’t tend to look beyond post-close, and shareholders and boards are not close enough to the detail to be truly influential. In addition, it is accepted that business is inherently risky, and M&A especially so. Within that frame, a measure of M&A failure is seen as normal rather than exceptional. What’s missing is attention to the leadership behaviours that generate and sustain success. In our research report Inconvenient Truths , we describe 10 leadership behaviours that are crucial to success both pre- and post-close. Three of these M Inconvenient Truths have their most significant role before deals are made. 1. Choose deal support specialists who are able to contribute to understanding the big picture . M&A is complex, and in an effort to keep everything co-ordinated and within budget, M&A leaders typically (if not always consciously) discourage any broader thinking on the part of the lawyers, finance due diligence specialists, and others. We found that fewer than 23% of advisers regularly comment on the broader merits and risks of an acquisition beyond their core area of expertise. This is a lost opportunity to bring a wealth of deep experience and differing perspectives that can add real insight into the deal process. Rather than thinking in silos, deal support specialists should be encouraged to contribute and share their views widely across the piece. 2. Select and incentivise advisers to pursue the deal value, not just deals . We found that only 10% of external advisers will typically recommend ending pursuit of a deal if they believe it is unlikely to achieve benefits for shareholders. As a Partner of a top 100 global law firm told us, “I have never seen an adviser blackball a deal when completion is near; they will never tell you not to proceed!” If no deal means no revenue, this bias is unavoidable, leading to deal fever, bad deals and overpayment. Instead, use advisers who have a record of providing holistic deal advice – advice that occasionally includes recommendations to walk away. And most importantly, avoid traditional success fees wherever you can. 3. Activelywork to help the Board play a useful, objective role in the deal process . Boards are the final line of defence against excessive exuberance and deal momentum - except when, at the other extreme, they are so risk- averse as to reject every acquisition proposed. Before embarking on M&A, make sure you understand the underlying motivations and perspectives of individual Board members, and their in-built predisposition to M&A. In some cases a session in advance of any specific deal to ensure there’s sufficient general support for M&A is well overdue and can make all the difference. These points might seem so logical as not to need stating. But in fact, we see many examples where they’re clearly not recognised or implemented. Yet organisations ignoring them run more risk of M&A failure than those who adopt them. Our study found that leaders who successfully follow our 10 ‘good habits’ consistently see M&A deliver long-term benefit 72% of the time. That’s four times more than leaders who don’t. Add in a 42% increase in share price over the three years of our study (compared to the ‘badly behaving’ businesses), and surely the right course of action is obvious. “Our study found that leaders who successfully follow our 10 ‘good habits’ consistently see M&A deliver long-term benefit 72% of the time.”