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How to make an acquisition work

  • Describe some of the challenges with a corporate acquisition
  • Identify ways to mitigate any culture clash
  • Explain when a boss should announce a merger to employees
CPD
Approx.30min
How to make an acquisition work
 Pexels/Thirdman

According to data from PWC on the deal volume per quarter, in the past three quarters we have seen a consistently higher global volume of merger and acquisition deals than in any of the previous quarters dating back until the beginning of 2019.

Underlying these figures, however, is the harsh reality that not all these mergers will actually succeed, with a 2016 study putting the average M&A failure rate at around 50 per cent.

Even the largest players with huge resources at their disposal have found the M in M&A notoriously tricky to get right. Just look at the famous example of AOL and Time Warner, where after just two years the merged company was reporting a $99bn (£73bn) loss.

M&A activity has been very high in the financial advice sector, too. The main focus of M&A activity is so often on the financial aspects of the deal, but as we have suggested, the actual acquisition is just part one of the story.

From those who have been through it, experience supports the view that a successful integration of the merging companies – ie what the acquiring company does after the acquisition and how well it does it – is key. 

Combining two companies requires a huge amount of time, effort and co-ordination, as both can have different cultures, job functions, systems and processes, so creating a clear path for integration is vital.

Essentially, this determines whether the two companies will go on to become greater than the sum of their parts and deliver the benefits identified in the pre-deal phase.

In this CPD article, we are going to outline seven fundamental steps that companies should take to help undertake a successful integration of an acquired business, based on our own experiences over a number of years and deals.

1. People first 

M&As might make sense from a business perspective but they can feel very unsettling for employees, as they experience concerns around job security, process changes and cultural clashes.

As we have all experienced in recent times, the human brain inherently likes certainty and so change is difficult, often causing anxiety and stress.

The goals and objectives of an integration are traditionally revenue and cost-driven, and cultural aspects are too often overlooked. However, people are vitally important in any merger and it is creating synergy within the cultures that determines whether the deal will live on. 

One concept some companies use is the ‘change curve’ (referencing Kubler-Ross) to help people understand and prepare for the stages of change. 

It is useful to acknowledge and prepare in advance for the change curve to be steeper across people and roles within the acquired business and the curve will undoubtedly be steeper for the acquired business owner, who has built their business over a number of years.

Financial recompense within the deal may only scratch the surface of mitigating that acceptance of the changes ahead and the whole hierarchy of people should be considered.

However, the change curve can be smoothed out and potential impact limited by an early appreciation and understanding of the acquired businesses’ people and culture. Effort and time should be committed to this within the due diligence phase, so the acquiring business can then build the relevant steps to help mitigate this into the integration delivery plan and project structure.