A strong start to M&A activity in 2014 has restored much needed confidence back into global markets. With a positive outlook on deal activity also predicted, and numerous bid announcements, signs of a revival in the M&A market are promising.
Thompson Reuters reported that in the US alone, January’s M&A activity was significantly higher when compared with the first month of 2012, rising from US$46bn to US$156bn.
The number of high-profile deals recently announced suggests that there is a hive of global activity currently taking place ensuring these deals are executed. And yet these figures do not necessarily tell the whole story. Often it is only once a deal has been agreed that the real work begins, and attempting to integrate two different companies with different structures, processes and cultures is no easy task. Beyond the actual deal itself, there is an incredible amount of planning, senior-level management and organisation involved in carrying out a successful merger or acquisition. Yet all too often not enough is done to ensure a smooth transition is carried out.
During a deal process, execution is key. Within that element, having all the parties engaged in the deal able to access specific information expediently, in order to aid the decision-making process and ensure that actions are taken based on full visibility and accountability, is also of the highest priority. Virtual Data Rooms as collaborative workspaces have enabled investors, advisors and companies to make decisions based on the most recent and germane information – to the extent that this level of data and insight is now critical when the due-diligence stage is reached within a transaction.
However a study by the Bureau of Economics - Merger Integration: Delivering on the promise, showed that a startling 47% of the deals had failed to attain the objectives stated in the merger announcement.
So how can deals go wrong so quickly? Of those surveyed in the Bureau of Economics report, the firms that had placed their focus on choosing a strong deal management team and undertaken an in-depth integration plan were more likely to succeed. More recently a whitepaper by KPMG – Post Merger People Integration, stated that the majority of companies reporting an M&A deal failure felt that “people and organisational issues” were to blame. Pitfalls included a lack of shared vision, leadership clash, cultural mismatch, loss of key talent, misaligned structures, lack of management commitment and employee motivation, poor communication and poor change management.
Ensuring careful forethought is given to every area of the integration is the difference between a good deal and a successful deal. Setting and communicating clear goals for the vision, mission and business objectives is key, and ensuring these are aligned with the views of key stakeholders, staff and any other pivotal members is often the first step that should be undertaken. This will ensure that an agreed structure and set communication channels are in place and remain consistent through the process. Employee issues during a merger or acquisition can easily surface during the early stages of a deal if not properly accounted and planned for. Mismanagement of post-merger staff integration has been known to lead to a departure of key members of staff, employee disengagement and culture misalignment, all of which can have serious repercussions with regard to the ongoing success of the new venture.
While the need to integrate is paramount, often the requirement that the core day-to-day business of each company needs to continue ‘ticking along’ with as minimal impact as possible, can be overlooked in the haste to manage the merger. Relatively simple procedures such as making sure information and file structures are shared and their integration is planned for in order to maintain the integrity of sensitive or business critical information, can often be disregarded. Separating the merger process and the teams managing these plans from the core business activity day-to-day ensures that long-term visions and business objectives are met successfully without the added pressure of keeping daily duties flowing effectively.
Most importantly businesses should remember the failure rate of so many of these deals at all stages of the process. If done well, preparation, communication and speed will ensure a smooth transition to a more successful and fulfilled organisation.
This blog is part of a series managed by the Economist Intelligence Unit for HSBC Commercial Banking. Visit HSBC Global Connections for more insight on international business.
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