How to Prevent M&A Failure

While most people who enter into an M&A deal know that there’s a chance their deal will fall through, few likely know how often this takes place. In fact, many believe that the success-to-failure ratio hovers around 50%.

But it might not be anywhere near as rosy a picture as that. In fact, the Harvard Business Review hints at a number that’s closer to 90% – meaning 90% of M&A deals are likely to fail. That might be high, but it’s certainly not completely off-base. Other studies concur that a deal is more likely to fail than succeed:

  • A McKinsey study suggests a failure rate between 66% and 75%
  • Global Times reported that 64% of deals in China, in 2014, failed

These numbers just talk about a deal falling through. But a “failed merger” could occur, even if the deal goes through. Take, for example, KPMG’s study that found 83% of M&A deals fail to boost shareholder returns.

Why is there such a high likelihood of failure – on some level – when it comes to a merger? At the forefront of failure is the inability to integrate effectively. Troubles with integration occur on two levels:

  1. Strategic (how you approach integration and identify success)
  2. Tactical (how and when you inform your staff of key decisions)

It’s never too early to plan your integration

By merging one company with another, things (and lives) are about to change. Early on in the process it’s worth taking the time to consider the implications of this impending merger. How can you be empathetic to those whose lives will change from this? How can you make life and work easier for everyone involved? What can you do to ensure your existing IT ecosystem will work cohesively with another incoming system?

When you’re caught up in an M&A transaction, it’s easy to get caught up in numbers, data, and forecasts. But when you get consumed by these numbers, you tend to push aside the people. Remember: each number you pore over represents the efforts of real people. From employees to vendors, shareholders and customers, the people involved in both the target and acquiring companies are what make an M&A successful.

While the merger may not be complete – or even close to complete – it’s still well worth your while to begin to conceptualize life post-integration.

By starting early in the process, you can tackle the easiest, simplest integration issues first, because time is on your side.

Keep the ball rolling

Delays and mishaps happen during an M&A; however, one of the best ways to ensure the success of an M&A is to do your best to keep the ball rolling. Momentum is key, but it’s not always easy to achieve.

Your M&A team should have a clear plan in place, including specific roles for everyone in the C-Suite. There’ll be no confusion over who is in charge of what. You’ll know who has to provide strategic vision, who has to execute these ideas, who has to design an integration plan and more.

Help your employees buy in

Everything can go seemingly right during an M&A deal, but if employees aren’t buying in, failure following the deal is likely to ensue.

Getting all employees to buy in can get a little tricky. The merger needs to be kept under wraps (and on a need-to-know basis) for a period of time to prevent rumors, leaks, and paranoia. But once the integration is announced, employees must be told candidly that their jobs are safe (if that’s the case).

Your word may not be enough, however. One suggestion is to provide employment agreements and non-compete clauses that help provide workers with the peace of mind they need to share in your new vision.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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