Secrets to M&A Success in Complex Sectors

Navidar | November 2, 2018

Customers and investors have seen all too often that buying a brand name or acquiring a company at the top of the industry is not sufficient to propel a deal to success. The merging entities’ leaders must work beyond simply assuming that one plus one equals two. Instead, the goal is to identify valuable synergies and then exploit them in a way that multiples, rather than just combines, success. Here are three steps for doing this in complex sectors and challenging mergers.

Develop a Vision Centered Around the Opportunity That Lies Ahead
The most common source of failure in M&A mergers is a failure to envision and define what a successful integration looks like. That vision must include actionable steps, and be informed by an expanded due diligence process. This process must look at both qualitative and quantitative factors—performance and financial data, as well as cultural factors. Cultural mismatches are a critical source of failure in many mergers. The leaders must create a sense of excitement by clearly spelling out the opportunity the merger presents to stakeholders such as customers and staff. You must be able to answers specific, pointed questions—not just offer broad, unspecific promises about how great everything will soon be.

Drive Change by Tapping Informal Networks
To build the energy and culture necessary to support the new company, you must leverage the power of an informal team that runs alongside the traditional organizational hierarchy. Traditional organizational structures remain important to manage and monitor daily tasks. But your leadership team may not be the most appropriate people to monitor more complex aspects of the merger, or to act as ambassadors for the deal. You must rely on a care group of people who can incubate a new culture and support change among employees. The goal here is to create a dual operating system. On one side, you have the standardized, codified organizational hierarchy. On the other side, you have an informal network of people who can help shepherd the deal to success.

Use the Scientific Method
The M&A process is part art, part science. Test the science by testing, learning, adjusting, and repeating. The leaders of the two merging entities should foster a test-fast, fail-fast culture. The goal is to quickly implement ideas so that they can be tested—and so that, if they are doomed to fail, they can do so quickly. Encourage networked groups to quickly act outside of the hierarchy. This innovative culture allows groups within the larger entity to develop new ways of working, then test the success of those strategies over the long-term. Leaders who observe this process can draw upon what works and ignore what doesn’t. Your business is a temporary testing ground.

Ultimately the success of your M&A transaction depends on the ability of leaders to change, innovate, and think critically. It’s not enough to want big change or make impressive promises. You must be prepared to put in the necessary work, and be willing to give a new approach a try.