Now that we have analyzed all the reasons that some M&A deals in the past have failed, I have derived the Success M&Antra which I will now share with you. This M&Antra has 5 ingredients, which are: (i) achieving economies of scale; (ii) Cultural Unity, (iii) Going in with the right intentions; (iii) Careful Integration and (v) Transparent Communication.
1. Go In with the Right Intentions
Go into the deal with the intention of making profits, expanding your supply and sale regions and achieving synergies.
Do not look at M&A as a solution to prevent insolvency, liquidation or bankruptcy!
The point of M&A is not to save your drowning business, although at times it can.
Even then, the perspective through which you look at the deal can and does, heavily influence your negotiations, communications and the deal structure itself.
Thus, BEWARE.
There are too many examples of last-ditch M&A efforts that ended up in the ditch.
Don’t subject your business to the same fate.
2. Transparent communication
Throughout this book, you would have encountered multiple references to transparency, none of which have been exaggerated.
Thus, it should not come as a surprise to you that it is the Second Success M&Antra.
BE TRANSPARENT in all your communications, at all levels and at all stages through the M&A Life Cycle. This also includes leaving your personal ego and inhibitions at the door. You will also have to overcome personnel barriers, as we discussed earlier, to achieve transparency.
This point cannot be emphasized enough.
3. Achieve Economies of Scale
Economies of Scale, i.e., synergies are the dream, goal and mecca of M&A deals. They are the raison d’être, the heart and soul of all of the efforts that are put into realizing the deal. They are thus, the fruits of labor and the well-earned rewards for the business and all its stakeholders.
Just imagine if they are not realized.
You cannot imagine a more horrific scene. The stuff of financial nightmares and utter ruin.
After all, you would have poured lakhs, crores, millions or billions into the deal to achieve synergies.
Thus, achieving synergies must be your main aim and what your deal is geared towards. Constant data collections, analysis of data, performance reports and status updates must be conducted to constantly monitor the effect of the deal – to check if you are on the path to realizing synergies. For this, you may need to make course corrections along the way.
So, stay on your toes! Do NOT sleep on the job. Adopt statistical methods of business performance analysis and identify weaknesses and implementation gaps. Most often, they are in the form of a lack of cultural unity or problems with post-M&A integration.
4. Cultural Unity
Culture mismatch is one of the primary reasons for the failure of M&A. Thus, Cultural Unity or a homogeneous blend of culture is what is required for it to be a success. Hence, I have included it as one of the 5 Success M&Antras.
After all, your employees will be the people who plan, strategize, direct and execute all of your future business, your company’s visions, mission and objectives. Thus, the company’s future depends on them.
Human resource is one of the most important resources of any organization. But also, the most trying. This is largely due to human emotions which are affected greatly by the external environment and interpersonal skills. An unstable or conflicted environment causes feelings of anger, resentment, fear, anxiety about the future etc. It takes away their focus from their work and productivity.
You must have experienced a bad day at work yourself due to disagreements with your boss, colleagues or because of job uncertainty. Imagine if you had to endure that uncertainty for weeks or maybe even months?
Most employees in this situation would rather quit and find employment elsewhere.
Employees find it hard to adjust to changes in the company’s culture. Largely because they are used to one way of working for a period of time and see rapid change as an enemy. A sudden influx of employees will be looked at as encroachers upon their territory.
Hence, training, orientation and using all your managerial weapons to bring change need to be employed. Here are a few things you can do –
1. Discuss. Once the M&A deal is inked, hold internal meetings and inform employees at all levels. Require them to maintain confidentiality, if needed. But make them feel included in the new, futuristic and exciting direction your company is heading into.
2. Encourage questions, clear doubts and instil confidence in employees that the deal will be a success.
3. Inform them about the benefits to their careers and the growth of the company. Make them want to contribute and make the deal a success!
4. Provide training to orient the employees to the new organizational structure.
5. Breed Inclusivity. Sensitization training will be needed to merge not only the companies but their workforce as well.
Spread the message that change is not a threat to culture.
5. Careful Integration
This is the home stretch. If you are a fan of cricket, think of post-M&A integration as the super over in an IPL match. It is a make-or-break period of time for the M&A. Thus, careful integration is the concentration of the 5 Success M&Antras.
Thus, constantly analyze the company’s performance during this stage of the M&A Life Cycle.
Set and enforce benchmarks to measure performance – both qualitative and quantitative. Take the support of your managerial staff at every level along with a specialized integration team. Make a Plan to tackle this effort in stages.
Your Post-merger integration plan can include:
(i) The Hiring Plan
1. Measure and meet short-term needs
2. Measure and meet long-term needs
3. Outline the Process
4. Mention the benefits and compensation during the hiring process.
5. Maintain clarity about work position and roles to be fulfilled
(ii) Avoid Overlaps/redundancies
· Secure top employees
· Layoffs and severance forms
(iii) Technology
i. Prepare a new organization chart
ii. Merge systems of both entities
(iv) Employee Performance
1. Prepare and follow training plans
2. Create and Enforce employee review documents and procedures
3. Set in place HR systems
Post-Merger Integration Action Plan:
i. Hold a meeting to key the frontline employees into the M&A Deal.
ii. Hold a Day 0 meeting when the deal is being negotiated to discuss a preliminary integration plan and give a big picture view.
iii. Employ integration management software to keep track across functions and divisions.
iv. Hold a Pre-Close meeting before the deal is inked to go over your integration plan.
v. Hold a Day 1 meeting. The first day of your new/merged entity. Make sure all teams are on the same page and discuss your integration plan’s enforcement.
vi. set up a timely reporting system – either weekly or monthly to keep everyone in the loop and establish accountability and responsibility for integration.
vii. Hold weekly/monthly reviews to analyze and correct deviations from the plan.
Your Legal Integration Checklist should, inter alia, contain the following:
i. Pre-Close
a. Coordinate Deal Negotiations and Agreements
b. Maintain Awareness of the Risk Environment, Including Potential Contingencies
c. Assist Regulators in Deal Evaluation as Requested
d. Monitor Achievement of Closing Conditions
e. Deliver Gun-Jumping Training, and Service as Point of Contact for Gun-Jumping Questions
f. Define Day 1 Legal Department Target Operating Model, Including Organization Design, Systems, Facilities, and Roles/Responsibilities
g. Serve as Point of Contact on Legal Matters, i.e., Interpretation of Legal Agreements
ii. Post-Close
After an M&A deal closes, there are many essential legal roles to be fulfilled. This mostly involves ensuring that all agreements are met and that proper mitigation and advisement is given so that integration execution runs without issue.
a. Monitor Legal Parameters During Escrow Period
b. Advice on Design on Contingency Milestones/Measurements, i.e. for Earn-Out or Other Contingent Payments
c. Oversee Contract Migration, Novation, Termination, or Replacement for Leaseholds, Vendors/Customer Contracts
Remember that EGO IS EVIL in any M&A deal. If your attitude is open-minded and inclusive, you will realize that M&A WORKS!!!
