In your opinion, what key issues contribute to acquisition failure and value destruction during the M&A process? Do dealmakers often overlook important components of the transaction?
The most difficult part of any M&A deal is finding a way to successfully integrate two different cultures, two different systems, two different geographies and two different sets of people with different values, goals and objectives. People often don’t spend enough time focusing on this and thinking out these aspects of a deal. Frequently when deals don’t work out this is what causes the majority of the headaches. Even when a deal seems like a complete no-brainer, if you’re not able to pull these aspects off successfully, you’ll often end up with a disaster. However, if you are able to achieve this, after that it just becomes a matter of executing and your likelihood of success will be far greater.
To what extent is shareholder activism impacting the M&A space? With activists gaining more support and prominence across the board, how should companies respond to their intervention in proposed deals?
Shareholder activism often creates more M&A opportunities, but this can often be for the wrong reasons. Investors who consider themselves “activists” often stir-up problems within a company in order to bring light to areas where they think the company’s management is not doing their jobs or not realizing the maximum shareholder value. A lot of times activists and management teams alike will use M&A activity as a way to shift focus away from fundamental problems that may be occurring within the company, which common sense would tell you is the wrong reason to engage in M&A.
When it comes to the post-acquisition integration stage, what strategies should parties deploy to ensure that the merged organisation is in a position to deliver expected value?
The key to any M&A deal is integrating two companies into one aligned strategy. But this can’t be an afterthought. The strategy needs to be well thought-out from the outset so you know what you’re going to buy, how you’re buying it and how you are going to integrate it into your existing operations. You can’t look at these areas as separate strategies. When you take the approach of, “now that we’ve bought this, let’s think about how we are going to integrate it,” you are going to find yourself destined to fail.
What overarching advice can you offer to acquirers in terms of developing and implementing an effective strategy to manage transactional risks and satisfy shareholders seeking value?
Transactional risk increases if you don’t have an experienced team. If you have lawyers and accountants within an M&A team, who you have used before and trust, it shouldn’t be an issue. My advice is to stay true to very strict due diligence guidelines and avoid downplaying potential risks because you’re so excited to get things done. Face up to risks and try to resolve them, then your transactional risk should not be where the big risks lie. The big risks are going to lie in integration and operation, with transaction being the least of your worries.
Looking ahead, do you expect boards to continue using M&A to create shareholder value? What trends and developments do you expect to see in this space?
Of course they will, but it’s the CEOs job, not the board’s, to find acquisitions that will help to grow the business. They must have a strategy of whether they are looking for a small bolt-on acquisition with which they can grow their business and bring some value to the table. The board’s job is to seek out more transformational mergers, such as the deal between Hershey’s and Cadbury.
This trend continues as markets continue to evolve. Many companies are caught up with not being able to change with the times and not being able to keep up with competitors, and therefore they find themselves falling behind. They use M&A as a way to catch up. Over time they may have become older and slower, and feel the need to buy younger and more aggressive companies, especially in the tech space, to make sure they stay ahead.