While the appointment of the CEO is the highest strategic priority for all Boards, a further critical priority is the successful execution on key deals such as mergers and acquisitions (M&As). These deals have wide-reaching impact and typically involve sizeable amounts of money, and so their success is critical to business performance and continuity.
“Boards and Executive leadership teams must commit the necessary time and resources to planning and executing M&As, beyond just addressing the numbers,” says Barry Bloch, Global Partner for Board and Executive Leadership. “Yet, despite the importance of these transactions, data consistently shows that two thirds of all M&As fail or underdeliver – underperformance that is all about leadership and culture.”
“Even when the strategy and the opportunity are right, if the integration falls short, the deal will not live up to its potential,” Barry continues. “Financially, this puts organisations at serious risk. It also represents a significant opportunity loss felt by shareholders, stakeholders, employees, and the wider community and economy.”
Why do M&As fail?
- Ego driven deals: The first red flag that we see with M&As, is when they are ego driven by the CEO and/or the Board. “There are numerous examples where the deal is driven by the CEO or the Board trying to do something big or prove something in the marketplace. This type of deal is typically ego driven and likely to not make good business sense, either strategically or culturally,” says Barry. “Where ego is involved, genuine leadership is largely absent, and deals are significantly compromised.”
- Moving beyond fireside chats: “Historically, there has been a dependence on the cosy fireside chat, CEO to CEO, or Chair to Chair. While relationships are vital to deals there is no evidence that this approach equates to effective strategic and cultural deal making,” says Barry “Again, insight needs to come from rigour and due diligence both strategically and from a leadership, people and cultural perspective. Independent, customised and specialist leadership assessment is core to any effective deal due diligence.”
- Individuals and Relationships: Underestimating or simply ignoring the complexity of individuals and relationships is another mistake that leaders commonly make with M&As, but these are dynamics that can make or break a deal. “Cutting corners on knowing the leaders, the Executive team and the culture is a false economy and a high-risk approach to deal making and integration. Again, in deal due diligence advanced leadership and cultural assessment before the deal is done, are absolutely critical,” says Barry.
- Misaligned leadership: Once the strategic logic is established, deal success boils down to leadership integration first and foremost. Failing to integrate based on an understanding of the shared leadership capacity and capability of the involved organisations, causes many deals to fail. “Deals are intense and intensive, and leaders can feel alone or fatigued if the right support is not in place,” Barry emphasises. “Even when leadership is understood and planned, it is critical to support each individual leader throughout the integration and transition.”
- Not expecting the unexpected: With any significant organisational change we must expect and prepare for the unexpected. “Don’t assume that past individual behaviour will predict future individual response. Assuming and expecting behaviours to mirror history can often undo the deal or impede successful integration,” says Barry.
- Unresolved conflict: Unresolved conflict has a toxic impact on organisational culture and performance. “When you have two or more organisations, teams and cultures coming together, some conflict is inevitable, but if it is mismanaged or swept under the carpet the deal will likely fail to deliver on its promise,” says Barry. “To successfully move through conflict, difficult situations and conversations are better facilitated and coached than left to chance or hope.”
How can the full potential of M&A be realised?
Not only are M&As strategically and commercially important, but they can also be career defining for the leaders involved. “Delivering on the genuine promise of an M&A opportunity can be a powerful way to demonstrate what you are really capable of as a leader,” says Barry. To achieve this, he suggests some governing thoughts for leaders in making these deals:
- Only do deals that make strategic sense: It seems obvious, but deals should only be executed when the organisations involved are aligned strategically, organisationally, culturally, and commercially. “Again, this requires genuine intent and substance to the thinking, planning, due diligence and discovery, decision making, execution and integration of M&As,” says Barry.
- Design the new organisation around a new and shared strategy: M&As bring organisations together to form a new entity, with new leaders, new culture and a new identity. To succeed, this new entity must deliver on a new strategy, not the strategy from any of the predecessor organisations. “Deals fail if there is a win-lose mentality amongst leaders,” says Barry.
- Don’t underestimate the importance of your team: For M&As to succeed, key leadership talent must be retained, developed and supported, and consideration must be given to integrating and including the people, relationships and culture. “Put plans in place to support all leaders through the transition and for at least 12 months following,” says Barry. “Also ensure transparency of criteria and process for assigning new leadership roles. And regardless of individual outcomes, support leaders in determining their individual futures – whether it's inside the new organisation or helping some leaders to find a different future beyond the organisation.”
- Be transparent and fair: When organisations move through significant change there will inevitably be some employee turnover. To minimise this impact and mitigate the distress that can occur, the M&A process must be fair and feel fair. “Your process must stand up under the microscope of legal, social and employee opinion,” says Barry. “If you’re having to spin it, you probably haven't done it right, because the more you invest in the process being fair and felt fair, the less you need to justify that it actually is.”
- Plan to go fast: The ‘go slow and gentle’ philosophy doesn’t win the race for M&As – it increases the risk of failure. “Roughly 85% of M&A value is realised in the first 12 months post deal, so speed is of the essence,” says Barry. “When you execute M&A act swiftly and decisively, and show intentional not accidental leadership – you can’t afford to sit back and see how things pan out.”
- Don't be afraid of emotion: Significant organisational change will evoke an emotional response. To deliver successful M&As and harness these emotions for better organisational outcomes, put the right facilitation, coaching and support in place to help people through the transition and integration.
Seek specialist support
In planning and executing M&As, engaging a high quality advisor can help you to design new talent strategies, perform rigorous and independent assessments of leadership competency, capability and fit, and assist with strategy, culture and leadership implementation.
“When you invest in merging or acquiring another organisation, it's also worth investing in support that can help you to get the execution right,” says Barry. “But don’t settle for off-the-shelf or an army of consultants. Choose a dedicated, immersive partner to work closely with you in designing a solution around the needs and specifics of your organisations and your deal.”
For guidance on M&A, talent strategies or advanced executive assessments, connect with Barry or reach out to your local Gerard Daniels team.
