Mergers and acquisitions are playing an increasingly important role in the growth journey of progressive organizations. Unfortunately, the majority of M&As do not live up to their promise.
More often than not, shareholder value is eroded, customers are lost, critical talent walks out and/or the collective brand(s) is diluted during integration. Yet companies continue to pursue M&As as an essential tool to scale and realize synergistic returns from the combined entities. Over the last three decades, I have been closely involved with several acquisitions. Here are some important lessons for success.
- Never acquire without knowledge. Growing in a new area is exciting, and expanding capabilities in high-growth areas can be lucrative. However, never go through the evaluation and due diligence processes without deep expertise on the subject matter. Ideally, you must on-board an individual or a well-versed team in the target domain before even starting the search for the perfect target, increasing efficiency and the likelihood of success.
- Look for reasons to buy, and not to. When you find a suitable company, you believe you’ve got your engine for your next phase of growth. However, there’s prudence in having a devil’s advocate. Form two sets of teams for due-diligence — one that looks for reasons to buy the target, while the other debates why not to. Your chances of succeeding with your acquisition only improve when you hear the contra points of view.
- Have a robust first 100 days integration plan. The first 100 days are crucial for both sides, and it is imperative to have a plan in place before closing the deal. Your team handling due diligence and negotiations cannot think about integration when they are consumed by working to close the deal. External help is highly recommended to begin integration the day after the deal is closed.
- Don’t lose the gems. There is usually a period of uncertainty among employees of the acquired company for several months following the announcement of the acquisition. And this often leads to the exit of critical talent. The acquiring company must quickly identify key employees, including the hidden gems, and begin nurturing them. These gems will play a vital role in the success of the acquisition.
- Treat the founders with TLC. In many M&As, the founders of the acquired company are asked to stay on. Founders are typically self-starters, who built the company without a hierarchy above them. Be sensitive to their emotions as they start conforming to a new structure and treat them with respect and empathy. You have acquired their baby, and their employees may still look to them for reassurance on the new direction.
- Respect the culture. A company is built with a vision, backed by a mission, with teams coming together to carry out this mission. People in these teams form the values of the company, hardened over the years. All of these contribute to building a culture unique to the company. It’s therefore critical to respect the culture and not try changing it immediately. Otherwise, you run the risk of destroying the company’s DNA, which was perhaps the very reason you were attracted to the target in the first place.
Look at M&As as an opportunity to increase value for all stakeholders — investors, customers, employees and other partners. Only then can the merging entities be proud of a story they wrote together — that of success, growth, and increasing value.
Vivek Gupta is president & CEO of Mastech Digital