Acquisitions are one of the most powerful tools available to companies for achieving growth and building long-term value.
Unfortunately, while lots of deals get done, few of them succeed. According to the Harvard Business Review, somewhere between 70-90% of all deals fail. Worse still, according to such firms as KPMG, The Boston Consulting Group, and L.E.K., 50-60% actually destroy shareholder value.
One simple but effective way to ensure a successful acquisition is to study why others have failed and do something different.
Here are nine common root causes of failed acquisitions. Every cause cited could have been avoided or mitigated with earlier or more concerted attention to the demands of integration.
|1. Strategy||Poor strategic logic or fit, strategy not used to determine goals of integration||eBay / Skype
Arby’s / Wendy’s
|2. Synergy||Overestimation of potential synergies, underestimation of synergy complexities or timetable to delivery||AOL / Time Warner
HP / Compaq
|3. Culture||Fundamental incompatibilities (including buyer’s lack of self-awareness), ineffective integration, squelching positive attributes of target’s culture in name of uniformity||Daimler Benz / Chrysler
Alcatel / Lucent
|4. Leadership||Weak leadership, delays in appointing new leadership team, loss of key talent, insufficient participation in the transaction and integration processes, ego clashes, failure to deliver on pledges||Sprint / Nextel|
|5. Transaction Parameters||Overpaying, inappropriate deal structure, endless negotiations bleeding both companies dry||Quaker Oats / Snapple|
|6. Due Diligence||Insufficient investigation (especially little or no strategic and operational due diligence), failure to translate findings into actions.||Bank of America / Countrywide
HP / Autonomy
|7. Communications||Failure to communicate with sufficient transparency, awareness, depth or frequency; failure to take key messages to appropriate stakeholders, failure to address the concerns of each group with targeted yet strategically consistent messaging, making empty promises||Few deals have gone bad for sheer communication failures. However, ineffective communications can lead to talent loss, customer loss and a host of other more direct forms of failure.|
|8. Key Talent||Failure to identify key personnel, failure to act swift enough to retain them||Bank of America / Merrill Lynch|
|9. Technology||Failure to identify fundamental incompatibilities (poor due diligence), underestimating complexities or time required for system integration||Sprint / Nextel
Facebook / Instagram
How to Beat the Odds
How can acquirers avoid these problems?
Successful acquirers embrace the process of integration as the single-most powerful value creation tool available, and view their investment in integration as one of the elemental costs of doing a deal. And they understand that integrating and operating are two different processes, with unique objectives and requiring separate attention and separate skills.
Running a company is an ongoing process aimed at optimizing an existing set of circumstances (be they products or technologies or know-how). Merging two companies is a temporary process aimed at changing those circumstances. Running a company is a recurring evolution. Acquiring or merging is a finite revolution. The two have different objectives and require different approaches altogether.
For middle market acquirers, while the scale of the deals may be different, there is still a lot to learn from larger, more frequent buyers. The same is true for private equity firms who specialize in the middle market space and are hoping to build on platform investments.
Ideally, integration insight is woven into virtually every step of the acquisition process. It is incorporated into the strategic thinking and target identification, into the due diligence and the valuation process. It plays a huge role during the months before and after closing. And it carries on long after the deal is done and the bankers and lawyers have all gone home. Thinking about integration at every step in the deal process will help companies beat the historically ugly odds of deal failure.