Holistic Approach to M&A


Having been involved in M&A activities for a long time, I am tired of continuously hearing about the high failure rate of M&A’s, ranging from 50 to 70 per cent. A large amount of money, time and resources is spent on them and many people’s lives are impacted by the deals. Still, the M&A process is one of the worst and least developed business processes today.

Fortunately exceptions do exist and some experienced companies have learned to gain considerable value from their deals. Studies show that the most successful are companies that acquire smaller (and, repetitively, similar) companies. Learning takes place but the improvement is slow. There is clearly a need for major improvement on how M&A’s are managed and processed.


How have we come to this?

Most company executives and managers view an M&A as a one-off event or as a single project. The focus is often mainly on the transaction phase. First timers, especially, but unfortunately also many experienced leaders, think that when the deal is signed their work is done and their organization can take care of the integration.

However, companies have a tendency to underestimate the complexity of the integration phase in M&A. The expectations a buyer builds during the transaction phase are harder to materialize than expected. Integration takes far more time than anticipated and management focus is needed throughout the whole M&A. Also, resources to implement the required changes are often in short supply.

Companies I worked with have experienced that an M&A is typically a combination of big decisions and detailed tasks. It is performed on top of normal daily responsibilities and requires quick decisions mostly with limited data and time. There is a need for continuous multi-level communication and regular reporting. I also learned that M&A’s are about people, culture and management practices. Participants, those affected by the decisions and all other stakeholders must be motivated, involved and kept informed on a continual basis.

From several discussions with my consulting customers, I have come to the conclusion that M&A must be managed as a lifecycle combined with a well-planned and implemented incentive/reward system as well as systematic structuring. This, from strategy to finish – reaching the expected value through a holistic M&A approach – is the way to speed up the learning curve and improve the M&A success rate.

M&A as a Lifecycle – From Dual Approach to Lifecycle Thinking

The purpose of an M&A is to improve the buyer company’s shareholder value. An M&A is a way to fulfill the company’s overall strategy. Traditionally, an M&A is seen to consist of two main phases, transaction and integration, where the focus has been very much on the transaction phase. Due to the uncertainty of the deal, the transaction phase is normally handled by a small number of people from the buyer company with several external advisors. Integration, in turn, involves more people and is executed jointly by both the buyer and target company’s management as well as employees.

This “dual” approach creates potential problems. The purpose and goals of the two phases are quite different, as are the compositions of the teams conducting them. The transaction team is responsible for getting the deal done at an acceptable price and to see that there are no hidden surprises. The integration team has the responsibility of generating the expected business value and synergies, very often without having been involved in setting the targets.

This two-stage thinking becomes even more challenging in cases like auction deals, where information is limited or gained late during the transaction phase. This calls for rapid data collection during integration. The less data collected during the transaction phase, the more and faster these information and data gaps must be filled immediately after change of ownership.

Information and responsibility sharing between the teams is, in most M&A cases, far too limited. However, the more experience companies have with M&A, the more often they appoint managers responsible for integration as members of the transaction team and get them involved in the process as early as possible.

To improve the continually poor M&A success rate and to gain better value from M&A deals, we need to change our approach and start to view M&A as a lifecycle. All M&A phases starting from the strategic decision through target selection, transaction to integration and post-integration learning are sub-phases of the holistic approach. It is also important to appoint one leader/owner to whom the transaction and integration managers, as well as all other responsible managers, report to. Equally important is to prepare clear and easily measurable incentives and rewards to support the fulfillment of the M&A goals and to capture possible synergies.