How to win at M&A
The biggest mistake
that executives make, when going through a merger or acquisition, is looking
only at the surface of the acquired company’s mission statement and assuming it
jells well with theirs and, therefore, cultures are fairly aligned.
Too often we hear from
executives, “We are really similar to this company; it’s not really an issue,”
or, “We’ve got this,” because the company plans to leverage a previous
acquisition’s playbook. A disregard of the culture and failure to tailor the
integration approach are red flags.
Companies combine to
gain competitive advantage. But academics have shown that at least half to
two-thirds of mergers and acquisitions fail. Our research finds it’s mostly
because organizations too often overlook or ignore organizational culture and
human capital issues and pay scant attention to integrating these softer issues
into the “hard” integration process.
In fact, according to
executives responding to the Merger Integration Conference survey (2010-2017),
over 50 percent of companies that don’t effectively manage culture when going
through a merger or acquisition report that they do not achieve their synergy
targets.
Given the tremendous
value of global M&A deals today ($4.74 trillion U.S. dollars in 2017,
reports Statistica), it’s essential to understand what works and what doesn’t
in melding two often disparate organizations.
Why it matters
Most companies require
inorganic as well as organic growth to achieve superior results. Our research
shows that roughly six of 10 successful companies include M&A in their
growth strategies. Those companies increased their revenue at or above their
industry segment’s growth rate and enjoyed twice the success of lagging
competitors.
How winners approach the deal
To realize M&A’s
full potential, high-performing companies strive to capture significant synergies of 30-100+
percent more than anticipated in the business case or due-diligence model. They
realize that value creation requires enhancing revenue and capital
productivity, not just achieving traditional cost synergies via M&A.
High performers
approach large deals with caution and recognize they are risky, usually require
transformation to succeed, and typically take 3-5 years to deliver capital and
revenue synergies. The programmatic approach can pay off handsomely in value
creation, producing greater excess total return to shareholders.
How winners approach integration
High performers
understand that several factors for integration success have changed over the
past several years, so they have retooled their integration approach
accordingly.
·
Pace.
Integration used to proceed 24-36 months with little work
done before a deal closed. It moves much faster now with considerable planning
work done before deal closure.
·
Culture.
It received too little attention until late in the
integration. High performers now recognize the essential role of culture since
organizational and cultural misalignment account for about half of integration
failures. Thus, they take a scientific, quantitative approach to diagnosing and
addressing cultural conflicts before they derail the integration. And, then,
they put actions in place to create greater alignment where it is really
needed.
·
Tailoring.
Companies used to employ the same processes and playbooks
for every integration. High performers today tailor their integration approach
to each situation. But learning that lesson doesn’t come easy. A U.S.-based
Fortune 100 conglomerate had success doing some 20 deals a year and using its
winning playbook. But that system delivered inadequate guidance when the
company acquired a major TV network, a deal that revolved around the talent
acquired, not the typical lever of past deals – cutting costs.
As deal types
proliferate, companies enter unfamiliar territory. Deals take acquirers further
away from their core capabilities, making integration more difficult. Acquirers
must tap new sources of value and integrate new talent and, often, a different
culture. In these situations, the target company – not the acquirer – can
possess many of the integration answers. These challenges require tailoring
integration processes and playbooks to specific situations.
We’ll continue to
explore the successful approaches to deal strategy and integration on this
blog. M&A is here to stay – it fuels the growth that sustains corporate
survival. So, the real question is not whether M&A is good
or bad; it is a question of how companies can do it well.
by Oliver Engert and
Emily O'Loughlin
https://www.mckinsey.com/business-functions/organization/our-insights/the-organization-blog/how-to-win-at-ma?cid=other-eml-alt-mip-mck-oth-1806&hlkid=f73a3f987b874d0697080c6294e272b6&hctky=1627601&hdpid=fd9da6af-e68d-4c24-8fd2-c9936e31c6df
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