How are we going to grow? It’s a perennial question, and for many senior executives, “mergers and acquisitions” is the quick answer. But such deals are more risky than many executives realize. The stats are sobering: 65 to 85 percent of mergers and acquisitions fail to create shareholder value. One-quarter even destroy it.
Why do so many deals go badly? In general, firms are unprepared and inexperienced to manage complex events, according to a 2011 McKinsey survey of senior executives. The majority of firms do less than one big deal annually, and only one-third of companies have dedicated integration teams. Such deals become special, high-cost events, fraught with risks of losing talent and customers. But given that mergers and acquisitions are so regularly pursued, companies should develop the framework to handle them. They should start by evaluating four areas: strategy, architecture (the organization’s structure), “plumbing and wiring” (technology and operations) and culture.
Here are the 20 critical questions companies can use to assess prospective deals. These questions are meant to spark fruitful conversations and help companies plan, particularly the questions for which the answer isn’t an easy “Yes.”
Strategy: Creating New Value
To be successful, deals need to have a clear vision and mission for exactly how they’ll create economic value, plus a realistic sense of where challenges may lie.
- Are senior leaders in agreement on the strategic goals of this acquisition?
- Have we identified and prioritized the sources of value? (Is value primarily in the resources/assets we’re getting — or the capabilities of the firm?)
- Do we know who will lead the integration efforts and be responsible for the results?
- Can we keep the core business going during integration?
- Have we identified our biggest risks, and do we know who can make quick decisions if/when we hit problems?
Architecture: Building the New Firm
The goal is a firm at which redundancies are eliminated, but the parts of the business that need to be distinct remain independent. Staffing should be decided based on merit and qualification, not a sense of loyalty to longtime colleagues or an attempt to evenly distribute leadership roles between the merged organizations.
- Do we know which divisions should merge and which should remain autonomous?
- Can we quickly identify individuals for top positions?
- Can we identify and retain other key talent?
- Can we make decisions based on excellence rather than “fairness” or internal politics?
- Do we have the talent to run the new structures the deal will create?
Plumbing and Wiring: Scooping Up the Synergies
If they go well, information technology integration can deliver an estimated 10 to 15 percent cost savings, according to McKinsey data. But systems are often an under-scrutinized area, in which unpleasant surprises are too often discovered after the fact.
- Can we integrate systems easily? Is our own back-end in order?
- Are both firms up to industry standard in terms of technology?
- Can senior leaders understand and advise on technical issues?
- Do we know which IT systems provide the most competitive synergies and thus should be integrated first?
- Do we know which integrations aren’t as high priority and can wait?
Culture: Making the Place Hum
Tread carefully: Cultural differences between companies can be greater than cultural differences between nations. It’s vital for companies to know what they hope to be after the deal — their original selves (but bigger), or a new version? They have to work thoughtfully to bridge any cultural gaps.
- Are the mission and values of the two companies compatible?
- Do we know which elements of the culture we’ll keep?
- Do we use similar language when talking about the same concepts?
- Are our meetings like their meetings?
- Do we have the time and resources to understand both companies’ culture?
The preceding is based on the technical note 20 Questions for Every M&A: Improving Postmerger Integration Performance (Darden Business Publishing), by L.J. Bourgeois III and alumnus Allen Harvey (MBA ’12); and Corporate Marriage Counseling: 20 Questions for Integrating Acquisitions (Darden Business Publishing), by L. J. Bourgeois III.