Want Your M&A To Fail? Here's How
Most M&As fall apart in the post-acquisition stage, when management is least likely to expect it.
- By Mike Harvath
- September 01, 2011
During the 2011 Microsoft Worldwide Partner Conference we hosted a panel discussion on mergers and acquisitions (M&A). The panel was presided over by myself and three of your Microsoft partner peers with experience in managing through what has often been described as one of the most unnatural acts in business.
It was a lively discussion about the role of M&A in building a vibrant IT services company, and while we touched on some of the pitfalls in consummating a successful M&A deal, I thought the topic is so important that this would be an opportune time to highlight just how and why M&A can go awry.
And awry they do go if the business literature is a guide, with something like 50 percent to 80 percent of all M&A failing to live up to the intended goal. The reason cited most often for why M&A stumble is the failure of planning for -- and the failure to and correctly implement -- the post-merger assimilation of cultures, people, values, attitudes and styles... All of what is called the soft side of the equation.
It's an odd and intriguing twist of management fate that one of the most critical elements of a company's long-term growth strategy is governed upside down. Most of management's attention is focused on the up front number crunching, due diligence phase of the project, which evidence suggests is one of the least likely areas where M&A run afoul. The back-end -- the post-acquisition assimilation phase of M&A, where research suggests 65 percent of the failure occurs and where management's experience and firm hand is needed -- is what gets the short shrift.
Let's be fair and not put all the blame for these troublesome failure rates on post-acquisition blunders. There are other textbook culprits eager to contribute to this dilemma, and sadly we've seen them all, and far too often.
In no particular order, here are some of the most common pitfalls. Some of them are obvious, but their incidence of occurrence is so universal and so frequent that they bear repeating:
- Flawed corporate strategy by one or both companies, buying or selling for the wrong reason, and doing so out of desperation or fear.
- Executive hubris; thinking the buyer's or seller's key executive is bigger, more important and more powerful than the act.
- False, rosy-eyed, wishful expectations of a savings bonanza.
- Too little focus and effort on building a relationship with the seller and understanding/empathizing with their position and why they're selling. Remember, it's all about them, not you.
- Flying solo; trying to manage a long, complex, time-demanding process that novices never believe is long, complex or time-demanding.
- Relying too heavily on your lawyer, who in his role as counselor will often surface demons that are not really there in an effort to manage every risk.
- Not vetting a deal carefully for strategic, cultural and financial fit -- in that order, and only in that order.
- Getting cold feet, which is a natural reaction, and completely understandable. It's all the more reason you have to undertake an M&A for the right reasons and stick to a proven process.
- Surprises in the last three to five days before closing, when emotions are most fragile and when a steady hand on the tiller is required to cross the finish line. This is the time to find middle ground. It's not the time for a "my way or the highway" message.
- Getting deal fever as the buyer -- again, when emotions are high -- or getting the deal done at any cost, will be deadly in the end.
- Talking yourself into believing you can build it for what you would pay to buy it. This is simply not true.
The consequence of failure for small-to-midsize IT services firms -- without the financial reserves of their larger brethren, who can withstand an M&A miss or two and emerge humbled and bleeding but not broken -- can be devastating. The question for these executives should not be whether to embark on an M&A strategy, but how to do it right.
Next Time: How to Succeed at M&A
About the Author
Mike Harvath has spent his entire 30-year career advising partner companies on implementing winning growth strategies and facilitating mergers and acquisitions. As president and CEO of Revenue Rocket, he and his team have advised over 500 partner companies on reaching their growth goals.