The New Drivers To Unlock Exceptional M&A Value | Gagen MacDonald

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The New Drivers To Unlock Exceptional M&A Value

Feb 06, 2017

Recall the science experiment you may have done as a child, making a “volcano”: You’re given instructions to combine vinegar and baking soda at an exact ratio. You know what reaction to expect. You’re told to wear goggles and gloves to protect yourself from the risks. You may even be told exactly how to build the structure that will allow the "lava" mixture to bubble over the edges, as well as a moat to catch the overflow.

If you’ve done everything correctly, you’d get the “volcano” you’re aiming for. If done incorrectly, you won’t get any reaction, and no lava spilling over the edges of your peak.

Conducting M&A integration and deal activity transformations—much like this children’s volcano experiment—will produce either the expected reaction or a failed experiment. As companies embark on new dealmaking activities, consider new collaborations and enter new convergent sectors, they can and should strive towards a third—and preferable—outcome: an exceptional reaction that exceeds expectations.

Unlike the volcano experiment, we cannot simply mix one part company A with one part company B to achieve results that will automatically improve the future of a business or industry. Unlocking the full potential value in a merger requires tremendous business transformation initiatives like those we see our clients undertaking every day through mergers, acquisitions, divestitures, joint ventures, alliances and partnerships.

Whether these transformations are undertaken to diversify services, expand product portfolios, acquire specific talent or build new product innovations, they are always complex, and focused on creating value beyond the sum of their parts.

Technology certainly plays a huge part in many of the changes we’re witnessing, with more traditional companies partnering with smaller, more targeted organizations like start-ups or biotechs. Yet mergers today encompass much more than large companies taking over smaller organizations. M&A transactions today involve cross-related industries and sectors converging in ways that can disrupt entire industries through their partnership. The potential for creating exceptional value in these types of relationships is arguably even greater than in traditional mergers.

Often when planning an M&A transaction, organizations will set goals such as:

  • Maintain business continuity
  • Retain top talent
  • Achieve synergies
  • Keep key customers
  • Strengthen the brand and market positions

The top objective of any M&A transaction, however, is to create shareholder value over and above that of the sum of the two companies. The goals above are important, but they are just the beginning. Leaders clearly are conducting proper due diligence and establishing the business case early—going broad and deep to ensure success by numbers—but how are organizations moving beyond that?

Our previous post, Why Most M&As Don’t Reach Their Full Potential, explores this conundrum: 50 to 70 percent of deals fail to achieve their anticipated results, and more than half of all deals actually destroy shareholder value. Why? It’s nearly always a “people thing.” Simply put: employees can make or break a deal’s success. As Gagen President Sherry Scott notes in the post, “For a deal to achieve its stated outcomes, a company must get at underlying beliefs and behaviors that make up the culture, and that are deeply rooted in emotion, to be sure that leaders and employees will embrace the new company strategy—and act in support of it.”

In a world where mastering content is no longer enough, and interaction with technology continues to change, we need new growth drivers to overlay the old. In my next post, I’ll outline the critical basics necessary for M&A integration success, focusing on the "4C Results Drivers": Connection, Communication, Commitment and Culture.

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