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Advisors, Business Owners, Private Equity

3 Overlooked Issues in M&A and How to Solve Them


It looks like 2016 is going to be a very strong year for M&A deal volume overall. This isn’t so surprising, considering that the markets are building on the momentum of a record-breaking 2015. While implementing an M&A strategy remains one of the most popular avenues to growth, M&A is not without its issues. Maximizing the benefits of M&A is all about anticipating the disruptions that come with a transaction and mitigating their effects.

Here are three commonly overlooked issues that arise during deals and how to handle them.

1. Issue: Ignoring IT

Today, technology underpins essentially every part of company’s day-to-day operations. Yet IT continues to take a backseat in M&A deal preparations. A survey conducted by Ernst & Young found that only 38 percent of corporate and 22 percent of PE respondents say they put a significant emphasis on IT as part of their approach to transactions. However, in hindsight, 47 percent say in more detailed IT due diligence could have prevented value erosion–a figure that isn’t insignificant, especially considering that approximately half of both corporate and PE respondents didn’t complete separate IT due diligences (47 and 54 percent, respectively).

Ignoring IT can lead to inaccuracies in other parts of the pre-deal process. Sure, a company’s financials may look healthy–but what if their tech is antiquated and obsolete, providing imprecise and incomplete information? Beyond that, disparities between merging IT systems can slow the already disruptive process of bringing two companies two together.

Solution: Expanding Due Diligence

Alleviating IT issues is all about foresight, becoming knowledgeable about a target’s IT as early in the process as possible. Adding an IT professional to your deal team can help you get a complete sense of IT at a target company. It’s possible to simply include IT into a larger due diligence process, but implementing a separate review of IT equipment and practices ensures the thoroughness necessary to really understand this key area of any modern business. If it becomes clear that integrating systems is not an option, consider building new platforms instead of becoming part of the 26 percent of EY respondents that found IT issues often block post-transaction objectives.

2. Issue: Losing Talent

Between 75 and 80 percent of deal leaders are worried about top talent leaving their companies following the close of a deal, according to a survey by Mercer. Their fears aren’t unfounded: during periods of disruption, top talent is often poached by competitors, and difficulties in culture integration often leads to resignations, according to research published in Managing Mergers, Acquisitions, and Strategic Alliances.

Solution: Open Communication & Utilizing HR

According to research by PwC, the top three concerns of employees during an M&A transaction are unclear organizational reporting lines, culture clashes, and employee uncertainty. In order to stem the loss of top talent, companies should implement open lines of communication between top talent and deal professionals during the deal process.

Aon found that being involved in decision-making was the top driver of increased employee engagement in M&A, and key in helping workers understand their place in the organization. The former helped employees see themselves as important to the organization, and the latter allayed fears and feelings of uncertainty.

3. Issue: Culture Clash

Culture clash factors into the issue of losing talent, but is so important that it warrants its own discussion. Sometimes CEOs and deal professionals get so wrapped up discussions on financials and synergies that important soft issues, like company culture, get pushed to the side. But a company’s culture is just as pervasive as IT — it touches every part of the company because every employee plays a role in constructing it. And it holds important financial implications: Bain found that culture clash was the #1 reason deals failed to achieve the promised value.

Employee retention is much more difficult than it used to be. In instances of dramatic culture clash, employees become anxious and discouraged, leading to decreased employee engagement and loss of talent.

Solution: Create a Toolkit

Anticipating and managing culture clashes can be difficult — it’s so dependent on the individual cultures of the two companies coming together. However, acquirers have found ways to work around this by building a set of techniques to be deployed during the transaction process.

Distill the company culture into behaviors exhibited by employees at all levels, the company strategy, and the operating model of the company, then identify the pertinent differences between the acquirer and the target. Afterward, define the new culture you’re trying to construct and build a concrete, measurable plan to implement it. This will require buy-in from HR and employees at both companies, who should be heavily involved in the culture development process. Interviews and employee surveys are invaluable tools to build out this toolkit and better understand — and solve — the root causes of the conflict.


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