M&A Success: When Failure Is Not An Option
We often hear about the significant and market-changing deals that take place, however it is important to remember that there are those that don’t succeed. A study by the Harvard Business Review (HBR) showed that the average rate of M&A failure is at a substantial 80 percent.
Pursuing growth through acquisition is an appealing option for a business that is looking to increase its market share or improve their capabilities, but a large number of deals continue to fall through.
HBR reports that the research shows the lack of discipline executives brought to the process, was the main obstacle when attempting to complete an M&A deal. So, what exactly can company executives do to ensure that the deal being brokered will be of the correct value, reach completion and, more importantly, be the right way forward for both businesses?
-Cultural alignment – Despite it seeming like a glaringly obvious factor to consider, more often than not, many leadership teams will fail to take into account whether the companies looking into M&A are a good cultural fit for each other. Integrating with another business that is completely out of sync with the core values and ethos of your own will present further issues down the line.
-Initial valuation vs. future benefits – While a deal may initially seem lucrative on paper, it is important to fully understand and analyse forecasted figures to assess whether the deal will be a sustained success.
-Negotiation errors – Instances of overpaying for an acquisition are all too common, and the HBR argues that this is usually due to deal miscalculation. Thus leading to substantial losses and, typically, failures.
-Weak Leadership – A merger or acquisition can be a difficult time for either company, therefore a strong figurehead is required to reassure employees and colleagues that the process will be as smooth as possible.
-Poor communication – The mere mention of M&A can instil fear or panic in many employees, therefore it is essential to tell them exactly why a deal is going ahead.
-Strategy alignment – A deal which delivers on a business’ key strategy will pay dividends in the long run and typically offset the costs associated with M&A. On the other hand, a deal between organisations with differing strategies could prove costly if one of the businesses is forced to realign their strategic vision. Executives must ask themselves: Is this really the right direction for my company?
M&A deals are rarely plain sailing, however, there are several ways in which business leaders can mitigate the associated risks and ensure that their deal is successful. Failure can be damaging to a business both financially and culturally, so it is important not to enter into a deal if it simply is not the right decision for the organisation.
With experience in a number of key sectors and representation throughout the Americas, Europe, Africa and Asia, Benchmark International can connect you with the right opportunity. To find out more, visit http://www.benchmarkcorporate.com.