Acquisitions and mergers.
When done right, bringing a new company into the fold can be a game-changer- opening up new markets, strengthening capabilities, and putting your organization’s growth on overdrive. However, mergers and acquisitions also have huge potential to go sideways. The stats don’t lie- more than half of these deals fail to generate value for the acquiring company.
So why do so many well-resourced, smart companies still flub these deals? Often it comes down to some key mistakes in valuation, planning, due diligence, company culture issues, integration preparation, retaining talent- errors that may seem small at first but end up being costly. We want your organization to avoid stepping into those nasty acquisition pitfalls! Learning from the mishaps others have made is invaluable so you can navigate around them.
In this article, we’ll have a frank but friendly discussion about those frequent acquisition mistakes, why they happen, and how to dodge them. That way, when you pursue that next big deal, you’ll do so armed with the right intel to create a smooth integration and realization of true synergy.
We feel you on the allure of acquisitions. When they go right, it’s like a boost of rocket fuel propelling your company to new heights! But you’ve also seen the headlines of mega-mergers gone wrong. Billions invested only to be followed by declining stock prices, failed integration, talent exodus.
Where do things go sideways? Well, first, companies often forget to clearly define what they want to get out of an acquisition and why it aligns with long-term goals. Without strategic clarity, you can’t set yourself up for success. Another big factor is overpaying- getting swept up in a bidding war or overly optimistic projections. Doing insufficient due diligence can also come back to bite you if you discover unwanted surprises.
But let’s get real here for a minute. Even with all the i’s dotted and t’s crossed, mergers can still struggle if company cultures aren’t in sync. All the cost-savings estimates mean nothing if teams aren’t gelling. Similarly, inadequate integration planning only prolongs systems mismatches and process kinks, dragging out timelines to capture synergies. And if your shiny new acquisition sees all its bright talents heading for the exits? Well that deflates value fast.
Companies get so caught up in the excitement of expansion that they forget to ask themselves: why exactly are we doing this and what will success look like?
The risk is that you end up chasing vague notions of “synergy” without concrete definitions. Soon after closing the deal, confusion starts brewing around what this acquisition was supposed to accomplish strategically. That lack of clarity creates gaps in operational integration and hinders capturing value from the newly combined entity.
Our advice? Start by outlining the core objective aligned to long-term business goals. Does the target expand your geographic or product footprint? Bolster technology assets and IP? Add marquee brands? Complement existing offerings? Build teams with specialized skills? Unless you can crisply define the angles on strategic value add, you’ll struggle on performance metrics later.
It’s 100% okay if goals evolve post-deal. Markets change faster than we can predict. But you need those stake-in-the-ground intentions defined upfront to guide planning. Revisit them actively as you progress through negotiation, diligence, and integration. Tie synergy capture and incentive compensation back to those north stars. This goes miles in steering everyone to lean into what will make that acquisition successful.
Overpaying is all too tempting when we get caught up in the thrill of projected synergies. Let’s be honest – it’s enticing to justify an inflated price tag when envisioning rapid expansion potential. However, remaining grounded is key. Rational thinking should anchor grand growth assumptions during negotiations. Otherwise, we risk leveraging up and overextending financials to finance an unrealistic valuation.
Post-close, the repercussions catch up fast when performance strains under lofty expectations. Goodwill balloons on the balance sheet, stock prices waver, and investors scrutinize the ‘prudent’ capital we allocated. It’s not a comfortable position.
Our advice would be to critically pressure-test best-case synergies through due diligence. Ensure leadership alignment on both sides regarding timelines, investment requirements, and obstacles standing between current capability gaps and future vision. Approach projections conservatively to avoid overcommitting resources. Building in room for unexpected roadblocks or cultural integration challenges allows for flexibility.
Insufficient due diligence can certainly come back to bite us through unexpected risks uncovered post-close. It’s understandable how this happens; the fast pace of negotiations coupled with strong strategic rationale dulls our urge to scrutinize. However, cutting corners here causes painful bottlenecks later. Allow us to expand on key diligence aspects worth digging into deeper:
Vetting financial health beyond P&Ls requires parsing operating metrics tied to revenue streams and segment profitability. Auditing contract terms protects against hidden liabilities. Assessing cultural alignment through leadership interviews flags retention risks. Probing technology IP depth and roadmaps reveals execution capacities. Even regulators warrant a glance to anticipate antitrust barriers.
We understand t’s complex to juggle these diligence dimensions amid deal frenzy. But discussing with legal, finance and integration teams helps pressure-test assumptions. Building extra timelines buffer allows accommodating discovered execution risks pre-close. Getting leadership aligned early around thorough diligence ultimately sets us up for minimized surprises and accelerated synergy capture post-merger.
Ensuring culture alignment is such a key part of acquisition success, yet so easily dismissed. When leadership centers the conversation on cost synergies and growth projections, it’s tempting to assume teams will organically mesh post-merger. However, neglecting to properly assess and plan for cultural integration can tank retention and collaboration.
As we evaluate compatibility for the combined organization, let’s have authentic conversations on work norms, values differences, change readiness, and prior acquisition experiences. Surfacing gaps openly allows us to shape cultural initiatives, retain talent through any transition angst, and maintain performance momentum for customers. Being transparent on timelines for integration decisions helps ease uncertainty. And engagement pulse checks after Day 1 matters as much as diligent planning before Day 1.
Even if diligence uncovers now hidden risks or red flags, struggling to consolidate complex systems and processes post-close still happens. The truth is successful integration hinges on broad collaboration rather than just leadership decree.
Allow me to suggest a framework as we plan integration: identify divisional stakeholders early to lead streamlining initiatives based on their operational expertise. Empower them to resolve mismatches with end-user experience in mind, not just policy. Foster cross-functional coordination through an integration management office to unblock resources barriers they escalate. Support their efforts through transparent leadership communication and patience as new workflows settle.
Getting integration right relies on tapping insights from all levels while clearing obstacles for their progress. Collaboration and empathy surrounding the employee experience accelerates establishing holistic workflows – whether in supply chain, compliance, product launches or IT.
Failure to retain key executives, technical experts and other strategic hires during the transition deflates the deal’s value fast. While leaders hammer out integration logistics, anxiety brews within project teams over shifting priorities. High potential individuals quietly stalk job boards as culture or reporting uncertainty spirals.
Let’s remedy retention risk proactively rather than reactively here. On announcing the merger, establish forums for both sides’ leadership to transparently address employee questions around structure and next steps. Reinforce commitment to development paths and highlight opportunities from combined capabilities. Have HR design transitional retention incentives for identified critical staffers from both orgs. Schedule recurring town halls as integration milestones occur to directly tackle rumors and reaffirm cultural vision.
Most failed acquisitions can be traced back to common mistakes – unclear strategy, overpaying, inadequate due diligence, culture clashes, integration delays and inability to retain key staff through uncertainties of change.
The good news is acquiring companies can sidestep these pitfalls with diligent planning and execution. Articulate the strategic rationale and envisioned synergies first. Assemble cross-functional due diligence teams to pressure-test assumptions. Continue cultural integration and change management post-close to ease transitions. Emphasize retaining critical talent.
Lean heavily into stakeholder and people-centric planning. Set reasonable expectations on timelines. Lead with patience and vision through the integration journey. Many acquisitions that initially struggled still close successfully by focusing leadership attention on avoiding known mistakes.
As you formulate deals, feel free to discuss for more tailored perspectives. We’re happy to offer insights that help acquirers secure sustainable new growth!
Hero Technologies Inc. (OTCQB-HENC) is a publicly-traded independent sponsor with a strategic niche in technology, hardware manufacturing, financial services, business services, telecom, and transportation.
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