How to Run a Successful M&A Project (& Market Review)

It’s hardly a surprise that mergers and acquisitions have slowed down a lot over the pandemic. Although M&A can bring a ton of rewards, they also involve a lot of risk, so many companies played a cautious game. Business activity began to pick back up this year much like the transformation and change market, and the M&A market exploded. So, we wanted to know what 2022 could look like for mergers and acquisitions. And more than that, how can businesses make sure that their M&As are successful?

Karen Thomas-Bland was the perfect person to speak to for this. She’s spent the last 25 years transforming and integrating businesses and has been running her own business transformation consultancy Seven Transformation for over 10 years. Recently, Karen hit the milestone of completing her 50th M&A project. After talking about how the M&A market is doing, Karen shared her thoughts on important factors in running successful mergers and acquisitions, warning signs to look out for, and the importance of integration management.

Review of the 2021 M&A market

Thankfully, after a slow year, the market for mergers and acquisitions began to pick up again towards the end of 2020. Its success during Q4 meant that there were naturally high expectations for 2021, but Karen explained that the market was even more buoyant than predicted. One KPMG study concluded that M&A deal-making would reach $6 trillion by the end of the year, almost double the amount in 2020.

The pandemic meant that many businesses were ripe for acquisition due to falling income and tighter budgets. At the same time, chief executives used their time during the pandemic to plan where future growth could come from and scope out potential investment opportunities. In fact, it was reported that 8 in 10 CEOs believe inorganic growth will be the main driver of business – companies are clearly seeking value from outside themselves.

Predictions for the 2022 M&A market

Technology and Financial Services are always the most active sectors, but Healthcare and Pharmaceuticals is booming right now for obvious reasons. However, Karen also noted that the utilities and retail industries are being disrupted, so there is a lot of opportunity there too.

So, 2022 is expected to be a great year for M&A too, but how has COVID-19 changed the market? Karen said that companies used to have very strict criteria going into an M&A, but businesses are now looking more at trends in a broader sense. Customer trends are increasingly important for example, as people are buying and spending their money differently. ESG trends are also important as companies move beyond risk avoidance to value creation, considering if they can use deals to accelerate their ESG strategy. The pandemic has shaken many industries up and is forcing them to look at their business from a new perspective.

Important factors for a successful M&A

Value creation

Most investors will look at a potential M&A from a purely financial perspective to start. What value does the investment potentially bring? If an acquisition would improve the businesses offering, then they could be in a position to gain more customers, or more from existing customers, and therefore income. Ultimately, it is the board members’ role to deliver value to shareholders, so this is critical during M&A and the integration should constantly be checked to see if the value case is being met.

Culture fit

When integrating one business into another, there will be different perspectives to contend with. Acquiring a 20-person entrepreneurial startup into a 1000-person organisation could be a culture shock to both parties. Sometimes, the decision may be that the businesses are just too different to be well integrated. In that case, it might work better to acquire the business but not fully integrate it. Mistakes here could be critical to the success of the integration, so it’s important to get it right. Any culture integration needs to consider values, belief systems, leadership styles, processes and symbols of the culture that people hold dear.

Customer perspective

The merger or acquisition should serve the business’s customers in some way. It could improve customer experience or expand your product or service offering, but any change you introduce should also be frictionless. A difficult transition period could easily see customers leaving to a competitor they view as more stable. Communication with customers is vital so people know what to expect. Ideally, there will be no dip in service, but customers caught by surprise will be much more likely to lose trust and jump ship.

ESG (Environmental, Social, Governance)

ESG is becoming more important as many consumers are shifting their views on businesses, expecting them to be socially and environmentally conscious. A company’s ESG score used to be more important to potential acquirers in assessing the risks, but now it’s a great avenue for value creation. Younger generations won’t allow companies to ignore ESG and this will greatly impact M&A activity.

When doing a merger or acquisition its worth deal scanning with your own ESG strategy in mind, making ESG an integral part of your due diligence and making it pivotal in your integration efforts.  ESG factors are increasingly important for unlocking capital (debt and equity) and are becoming on a par with EBITDA, P&L, and overall performance.

Minimising the risks

As mentioned, there are a lot of risks associated with mergers and acquisitions, but fortunately, things can be done to mitigate them. The first is to consider what is your deal thesis and to what extent are you going to integrate the two businesses together.  At what point do you unlock the value? Once you have your value creation strategy it’s about setting out your plan to deliver your cost and growth synergies. Karen also said that among the first things she does when she takes on a new integration project is to bring someone in with a PMO background who can run the plan and risk register. Defining the risks and working on them with the different workstreams needs to be actively managed, and they’re best placed to do that.

Karen also stressed the culture fit angle again, deeming it the biggest risk. Do your homework and make sure that the organisations are actually a good fit. That takes a keen eye and sound judgement, as two organisations can look culturally similar but in actual fact have very different leadership styles, approaches, and ways of working. ‘Knitting them together’, as Karen put it, will be quite difficult if you’ve made the wrong judgement. Get to know the other organisation as early as you can. It will give you a different perspective on the integration and they’ll likely have their own perceived risks, opportunities, and challenges.

Technology and process also carry a lot of risks, as all the processes and systems need to fit together in a way that makes for a smooth transition. People need to be paid on time, to continue working, know which software they need to use and how to use it. There are a lot of hurdles so technology will require special attention.

In conclusion, Karen stressed that her approach to integrations is that a problem is not any one person’s, but everyone’s. By everyone pitching in together, there is a much greater chance of a positive outcome. For that, you need the right people, and Karen explained that one of the most important factors is to have the right people on board with the right skills.

Get in touch to find out how Deltra can help find the right people to make your integration as smooth as possible and deliver your value case – the ultimate measure of M&A success.

Mike Weston

1st December

From the Experts Industry Insight