The Weekly Ledger No. 68: M&A Success

September 21, 2022 Theresa Rex

2 business leaders shaking hands on m&A deal's success

Welcome to The Ledger where we sum up the latest finance and accounting news for you. This week, we've rounded up everything finance leaders need to know about successful merger and acquisition dealmaking. Read on for best practices and winning strategies for every stage of your M&A deal. From what to consider before deciding to proceed and common traps to avoid in the process to what the latest research says about your announcement's impact on the overall success of an M&A deal, you'll find it all in today's entry.

The Weekly Ledger m&a success

Making an M&A Deal? Do This First

If it feels like there's been a major uptick in headlines announcing M&A deals lately, that's because there has been an increase in deals overall. 2021 was a record-breaking year for mergers and acquisitions, and according to a recent Ernst & Young survey, 59 percent of CEOs expect to join the M&A fray within the next 12 months.

If your company is one of them, you can mitigate risk and facilitate success by considering seven important things before you proceed. As an organization, find the answers to the following questions:

  • How does this deal deliver value to our customers? To realize the value you hope a potential M&A will bring your company, make sure it will deliver value to customers first. This should be your M&A strategy's "north star".

  • How does this deal deliver value to the board? Before mergers and acquisitions can proceed, the board of directors will need to sign off on the prospective deal. Make sure you're equipped to demonstrate why it should and use data to do it.

  • Can our company culture withstand consolidation? Make sure you're protecting the company culture you've worked hard to create. Change and transition doesn't need to take a toll if you help employees feel included in the process.

  • How will we handle new employees after our M&A is complete? When you consolidate with another company, that will mean bringing new employees on board or reorganizing. Make sure that you know how your company will handle the influx before you start the M&A process.

  • What's our go-to-market strategy? If your dealmaking results in offering something you haven't before, knowing how you will bring it to market ensures can help determine if the deal is strategically sound.

  • How will we integrate our technology? Whether or not you'll need to marry two tech stacks, you'll definitely need to integrate data collection streams, which means integrating tech. Consider how you'll take this on, who will own it and what a successful tech integration looks like for your M&A deal.

  • How does the competitive landscape look? You may need a new approach to stay competitive when you consolidate, so take the time to factor projections, shifting markets and data on the competitive landscape into your dealmaking strategy.

There are a lot of factors that determine whether consolidation deals succeed, and by considering them beforehand, you can help give yours a fighting chance. For a deeper dive into why the answers to these questions can make or break a potential M&A's success, read the full article on forbes.com.

3 Reasons Mergers & Acquisitions Fail — And How to Avoid Them

According to Harvard Business Review, studies put the M&A failure rate at anywhere between 70 to 90 percent. That remarkably high number, according to executive onboarding and transition expert George Bradt, is primarily thanks to three common mistakes companies make:

  • They lack strategic focus: Merging with or acquiring another business is not a strategy on its own, says Bradt. Instead, M&As should enable a strategic focus on an organization's core competencies.

  • They fail to integrate culturally: Organizations often fail to realize value on consolidation deals because they handle cultural integration by not handling it at all. Instead of trying to maintain separate entities, Bradt advises companies to choose whether they will assimilate new employees into their existing culture or vice versa — or merge the two to create an entirely new culture to operate within.

  • They don't deliver synergies: Instead of only considering the cost savings an M&A can deliver, Bradt recommends paying attention to complementary synergies that support the strategic focus on core competencies.

Your M&A doesn't have to be included in the 70 to 90 percent fail to add value to your business if you understand how to use them to enable your consolidation strategy instead of expecting it to function as the whole strategy. Read the full article on forbes.com and see real-world examples M&A deals that successfully added value and how they did it.

How Announcement Day Impacts M&A Success

Announcement Day is a big deal — it's the day you introduce the deal you've been working so hard to secure to the world, including members of the press and investors. Now, new research that studied over 1200 M&A deals spanning 23 years has revealed another reason for its significance — an organization's communications on Announcement Day and the market's reaction to it set the stage for a merger or acquisition's success long after it's over.

Among the main findings of the study were three data points that stood out to its authors:

  • Consolidators consistently underperform – Sixty percent of all M&A deal announcements were met with negative market reactions and 56 percent had negative one-year returns.

  • Initial market reactions predict long-term results — The remaining 40 percent of deals that were positively received continued to be viewed positively a year later

  • Post-announcement delivery has impact — When consolidators delivered on positive forecasts, they saw a return rate of 60 percent, and when they lived down to negative forecasts the premium paid for the deal was eight percent higher on average.

The conclusion, according to the authors of the study and accompanying book The Synergy Solution is that "Announcement Day can make or break the success of a deal". To turn this conclusion into an actionable strategy, organizations can:

  • Outline credible and measurable targets: It makes perfect sense to want to set an optimistic tone on Announcement Day, but many companies set a fantastical one instead, which is then met with investor skepticism. Announce what clearly understood, tracked and monitored operating targets you plan to use to meet the strategic objectives of the deal when you announce the deal itself.

  • Reduce uncertainty internally: Often the people impacted most by an M&A deal are the ones that will execute it operationally — the employees of both companies. Honest, direct communication about how employees will be affected should be conveyed internally before those effects kick in and externally in your Announcement Day comms.

  • Show how the deal's value justifies the cost: When a deal involves paying a substantial premium to the seller's shareholders, investors are almost guaranteed to mark the buyer's stock down to reflect the cost — unless an organization can make a clear and credible case that the value of consolidation outweighs the cost of acquisition.

Like we said: Announcement Day is a big deal to ensure success in your M&A. Prepare for yours when you read the full article, packed with data-backed insights about successful announcement communication at hbr.org.

Strategic growth requires time to strategize, and that's in short supply for finance leaders these days. Learn more about how one of Personiv's solutions helps finance leaders reinvest their time into strategic initiatives like mergers and acquisitions over on our solutions page.

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