Why management thinks they will beat the M&A odds?

This topic contains 6 replies, has 6 voices, and was last updated by  Melanie Edwards 1 year, 6 months ago.

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    Ingrid Holbik

    If the majority of M&A fail; why does management believe their odds of success are any higher?


    Ashley Sekeres

    That is a good question, I am curious as well as that seems to be case at my organization. I think with our individual case there is a lack of communication of what realistically we can do in the time frame we need to.


    Ingrid Holbik

    What is the right cadence of communication and who should it come from?


    Korath Wright

    Depending on the definition of success, performance can be judged in different ways. In economic terms the benchmark used is the amount that would otherwise be attainable at a market rate of return, or in another investment.

    Using this measure, of economic value rather than another forecasted amount, more mergers succeed than fail. However, managers aren’t betting they will be economically successful, they are betting they will meet and maybe even outperform their synergy goals and projections.

    Why do they think they will be able to achieve this performance?

    • Excitement / want to be a bigger company
    • Rosey estimates
    • Lack of detailed planning
    • Inadequate use of experts
    • Incentives

    Why wont they get there?

    • Strategic confusion
    • Overvaluation / paid too much
    • Unfocused or inadequate Due Diligence
    • Lack of integration planning
    • Not enough dedicated resources
    • Inadequate change management
    • Retention problems for key people
    • Culture problems → buyers curse, cultural fit
    • Gaps in team expertise
    • Communication planning problems

    Depending on the specifics of the situation, there are a great deal of other aspects that contribute to destroying or creating value in a merger. Due to conflicts inherent to organizations, a great deal are not able to achieve the synergy goals they set for themselves, or projections which are used to justify the M&A business case.


    Tanaquil Chantrill

    I think certain personality traits often found in executives and management contribute to the reasons they think their M&A deal will succeed despite the statistics and odds saying otherwise. Being optimistic and in some cases over-confident are two of these leadership traits and result in thinking that your organization will be different and overcome the odds. Korath made a good point about what “success” means in the context of an M&A deal because that also needs to be defined before assessing whether it was a success or not. Is success measured against the specific objectives of the organization for wanting to do the deal, or is it purely economical and realization of synergies?


    Lisa Fawns

    Korath and Tanaquil, valid points on what is success for any one particular M&A event and that is what success needs to be measured against just like any project would be. Are they looking to retain specific employees, is it for the R&D or existing product slate, is it entry into a new market or geographic area, or any mixture of objectives. Only when it is understood what success is can it be targeted and achieved.

    Once the success criteria is understood then detailed execution plans and Change Management plans can be put into place to help drive towards that goal. However, if the leader(s) of the M&A event are not willing to fight for the resources and time needed to execute appropriately it needs to be understood that some or all of the success criteria is at risk. I have seen instances where success criteria is ranked, if we don’t get some it is ok but we must get 1 or 2 of the goals achieved.

    Ingrid, as far as the right cadence for communications, this needs to be part of the Change Management plan, dependent on the M&A companies, their culture, the success criteria, any resistance or roadblocks anticipated or being experienced, and a few other factors the communications plan will be developed and executed. This plan need to targeted at all stakeholders including both organizations and the project team as well as tailored to the audience based on the success criteria and timeline.


    Melanie Edwards

    Probably because to get to a position where one can make these decisions, one needs a healthy self confidence, beating the odds is part of the day job.

    On a serious note, a lot of failure are down to lack of homework. Buying for geographical expansion or purely to be the “biggest” usually fail, yet a lot of acquisitions focus on this. Sometimes, there is a pride element. The DD shows the acquisition shouldn’t go ahead, yet, decision makers do not want to go back on their words / announcement to the Board and therefore will try to see it through.

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