Blog >
Improve the Success Rate of Mergers and Acquisitions

Blog

Improve the Success Rate of Mergers and Acquisitions

david-gross-bain-alum-dallas-tx

David Gross shares an article designed to help improve the success of a merger and acquisition transaction.

Trillions of dollars pour into mergers and acquisitions (M&A) annually as companies seek to increase market share, reduce costs, differentiate, diversify, refocus, and capture other sources of value.

Unfortunately, M&A success is the exception, not the rule. A whopping 70 to 90 percent of transactions fail. This means, only 10 to 30 percent of transactions succeed. To put these terrible odds in perspective, let us turn to the gambling capital of the world, Las Vegas. The odds of winning in blackjack are 44 to 48 percent, much greater than the odds upon which companies stake their futures.

Though these statistics may seem grim, there are companies beating the M&A odds, and they’re beating the odds over and over again. But how do these companies, or “M&A Winners,” repeatedly beat the odds? After 20 years of dealmaking, we have discovered 5 hallmarks underpinning their success.  

HALLMARK #1: M&A IS A DAILY ACTIVITY

They say practice makes perfect and consistency is key. The same is true for M&A Winners. These companies have specialized talent, or “dealmakers”, who focus exclusively on M&A strategy and execution. Dealmakers typically reside on the corporate strategy or corporate development team, or on the equivalent business unit team in decentralized organizations. They are adept at marshaling talent, information, and other resources across the company; keeping their eye on critical value drivers and interdependencies; and managing the deal process. Effective and efficient dealmakers pay for themselves many times over. 

An alternative and frequently-taken path is to challenge a leader with operational responsibilities to manage M&A activity day-to-day. Unfortunately, this approach stretches buy-and sell-side leaders too thin and may result in underperformance on the deal and missed operating targets in the existing business. For the sell-side, missed targets may prompt the acquirer to demand a lower valuation and changes to other key terms. 

HALLMARK #2: REGULAR “TUCK-IN” OR “BOLT-ON” ACQUISITIONS

M&A Winners regularly make “tuck-in” or “bolt-on” acquisitions and rapidly integrate them into, or alongside, existing businesses to capture value. These acquisitions are smaller than “bet the company” acquisitions, leverage and complement the existing business, and carry low-to-moderate integration, operating, and financial risks.

Over time, M&A Winners utilizing this approach gain unique process efficiencies and know-how. M&A Winners recognize they have to successfully identify, evaluate, negotiate, close, and integrate acquisitions regularly to meet strategic objectives. With this pressure, dealmakers are forced to design highly-efficient processes, sell them to key stakeholders across the organization, and refine them over time. 

These processes, and related corporate guidance, tools, and templates, and other know-how, are typically captured in the company’s “M&A Playbook.” This playbook also memorializes key learnings from prior deals and changes in corporate strategies, markets, laws, regulations, and other aspects of transactions. M&A Winners update their playbooks at least once per year.

 

Key points include:

  • Over investment in due diligence
  • Realistic operating and financial models
  • Authentic engagement

 

Read the full article, Reverse the Odds: Give Your M&A Transaction a 70 to 90 Percent Chance of Success, on ConsultSVP.com.