A blind survey of 159 North American M&A professionals identifies and ranks a number of value-draining traps organizations fall into during the M&A process. It also sheds some light on the current and future state of M&A deals.
Outpacing other factors, survey respondents selected culture as the most important factor to an integration team working to combine two organizations. In fact, 81 percent of those surveyed said culture was very important, followed by operations (51 percent), markets addressed (38 percent), brand promise (35 percent), speed of integration (34 percent) and centralization (10 percent).
Complete findings from the Annual Jabian M&A Industry Survey, which was fielded in August and September 2014 are available for free download at http://www.jabian.com/mergermetrics
“Diving into the numbers, it’s ironic to see M&A pros estimate that seven out of ten (69 percent) organizations perform poorly on cultural integration during a merger or acquisition,” said Brian Betkowski, partner and co-founder of Jabian, “Yet, nearly the same (65 percent) say their organizations do a good job of cultural integration. Sometimes it’s harder to see yourself falling into these traps than to watch others do the same.”
Additionally, the human resources department, which is the group most often seen as the keeper of a corporation’s culture, is second only to the product and research department in “least likely” to be involved in the typical M&A research and due diligence process.
Value-Drains on M&As
Companies face a rollercoaster capable of draining deal value and straining the company, employees and shareholders when they enter the M&A process. In fact, 93 percent of respondents said during the past five years, 60 percent or fewer of U.S. merger or acquisitions successfully returned a positive value, indicating nearly half of all companies succumbed to one or more of these traps.
Only 60 percent of M&A pros say they have an effective, formalized transition process between their due diligence team and integration team, and virtually the same amount (63 percent) rate the transition process between the two teams as effective.
Through research and experience, Jabian has identified 11 value-draining M&A traps http://www.jabian.com/mergertraps The traps “very likely” to drain possible value from a merger or acquisition include:
• Poor communications (72 percent)
• Loss of executive focus (46 percent)
• Unclear expectations (44 percent)
• No clear definition of success (43 percent)
• Unforeseen surprises not covered in due diligence (42 percent)
“By establishing a Value and Integration Management OfficeTM executives can better navigate the complex decisions that arise during a merger or acquisition,” said Betkowski. “This helps organizations avoid the 11 value-draining M&A traps and achieve the benefits promised to shareholders.”
The M&A Outlook
A plurality (45 percent) of M&A executives say their organizations are currently “seeking smaller strategic deals” and 18 percent have M&A strategies built around “seeking major transformative deals.”
The group pegged the top two drivers for M&A activities over the next three years as a desire to “enter new markets” (47 percent) and to “increase market share” (36 percent). When asked to rank the types of merger or acquisitions that proved to be the hardest to obtain value from the following deals topped the list in this order:
• Accessing new product offerings
• Acquiring efficient business processes
• Adding technology capabilities
• Reaching new customer segments
• Attaining economies of scale
Complete findings from the Annual Jabian M&A Industry Survey are available for free download at http://www.jabian.com/mergermetrics For more information on the 11 value-draining M&A traps visit http://www.jabian.com/mergertraps
About Annual Jabian M&A Industry Survey
Jabian Consulting commissioned a blind survey of North American M&A executives in August of 2014. Respondents to the online survey included a total of 159 M&A leaders. Of that group, 44 percent have been involved in deals valued at $1 billion or more, 58 percent work in organizations with at least 1,000 employees and 58 percent work for private companies. Industries represented included financial services, healthcare, manufacturing, professional services, and technology hardware and software.
About Jabian Consulting
Jabian’s local, senior level consultants help clients create and implement strategies to enhance business processes, develop human capital, and better align technology to their business needs. It’s a Strategy that Works®. For more information, visit www.jabian.com.