The reality is that the vast majority of M&A fail to reach their respective objectives set forth in the analysis process. The Harvard Business Review Article published in 2011 is still relevant today. In the business world the best kept secret is that M&A’s are generally driven by the balance sheet rather than the human capital. M&A’s are generally driven by decreasing costs, or acquiring or cross selling products to customers. Yet estimates have the failure rate of M&A’s between 70 to 90 percent. The question that most entrepreneurs ask HafeziCapital is, how can we succeed in the M&A process?
Develop an M&A Strategy
By developing a core M&A Strategy, we develop the key reasoning and reaffirm the values of the company that we are set to acquire. The approach that we take is a 3 Dimensional approach by looking at Financials – Human Capital – and Market equally. Acquisitions generally fail because they don’t meet the second and third dimension. Our approach is to focus on all three dimensions equally and provide the same value, to ensure both ease of integration and a legacy of shareholder value. The three dimensional approach ensures that the correct reasons are developed early in the planning process to acquire the company, rather than implement a forced transaction because reputation is at stake.
A legacy of employee retention post M&A
The most successful M&A are those in which the integration is so successful that the key employees stay and add continues value to the merged company. This is especially true in Growth phase companies, whose Human Capital are the major differentiator in product development and commercialization. Human Capital and talent retention are critical to building growth-based organizations. One of the key symptoms of failed M&A’s is a mass exodus of core talent from the organization. When the structure and implementation of the M&A is not done correctly, the hemorrhaging of talent will help your competitors. M&A should be seen as value creation for your shareholders and not for your competitors. Based on HafeziCapital’s internal statistics, nearly 53% of all new companies are formed during a failed M&A process by the company’s former employees. Employees have an existing relationship with the clients, and when they are not served correctly via the improper M&A structure, your clients and employees can turn against you.
Maximizing value pre and post M&A
Value creation stems from maintaining the client pool and expanding it. Expansion can stem from new product development, value creation through product and service integration and cross selling, or via the streamlining of supply chains and cost reductions. All aspects of the M&A process are client sensitive, given that any failure can effect the delivery of a quality product. Maximizing value is thus not just the reduction in cost, but should focus extensively on increasing the client pool. Most M&A sadly focus on is cost reductions at the expense of expanding the client base. Maximizing value, stems on continuously delivering a superior product or service to a larger client pool, either domestically or internationally. Thus, cost reductions estimates should be viewed in a skeptical way, and focus should ultimately be placed on expanding the client pool to truly maximize value for the company, its customers, its employees and its shareholders.
Reduction of M&A failure to market levels
By having the company focus on the 3-Dimmensional model of Finance, Human Capital and Market, organizations can decrease the failure rate to market levels. The 3D – M&A Process focuses on all aspects of the organization that are empirical to organizational success, namely sales, margins, talent, implementation, and market potential, et. al.. By developing a model that integrates the key value drivers, we can ensure that M&A’s are done in a matter that is consistent with the company’s values, credo, core mission, service and product delivery/offering. This ultimately, allows for a quicker and much more efficient integration process. Time is of the essence when merging companies, and it is visible in the long lasting integration of Continental and United Airlines. This increased both the efficacy of M&A’s as well as the timeframe of integration to growth maximization.