Key Factors for a Successful Merger And Acquisition

Key Factors for a Successful Merger And Acquisition

Integrating two companies can be challenging, and there is always the potential for things to go wrong. 

Mergers and acquisitions (M&A) are common activities in the business world. Mergers happen when two companies join together to become one. This is done to increase market share, gain entry into new markets, lower operational expenses, enhance revenues and improve profit margins. Acquisitions happen when one company buys another company. Similar to mergers, the objectives for acquisitions are to gain new customers, products or market share. The fundamental goal is to create a better competitive advantage by combining resources with other firms.

In today’s competitive business environment, M&A activity is rising. An increasing number of companies are choosing to grow through M&A as opposed to organic growth. According to research from WTW’s Quarterly Deal Performance Monitor (QDPM), the number of completed M&A valued at more than US$100 million in the first quarter of 2022 has surpassed the same period in 2021. Factors driving such impressive performance include “historically low interest rates, increased market confidence, abundant capital and the pursuit of transformative deals”. This is a sign that the global M&A market is on the rebound after a pandemic-induced slowdown in 2020. Despite this uptick in activity, the success rate of M&A transactions is still far from guaranteed.

According to Harvard Business Review, between 70 percent and 90 percent of M&A fail, and the reason is always people. M&A frequently go south due to the loss of key personnel, clashing teams or a lack of motivation among employees. In other words, when two companies come together, it’s not just the business side that needs to mesh—the people side does too. So if you’re looking to make a deal happen, be sure to pay attention to the human element and the business side of things. Here are a few other key factors to keep in mind to ensure a successful merger or acquisition:

Put your customer first

There are no two ways about it; M&A are tricky businesses. You also have to try and keep everyone happy—including your customers. A 2019 report from PricewaterhouseCoopers found that 80 percent of customers worldwide agreed that “companies should focus on customer experience during the M&A transition.” In other words, if you’re looking to make a successful merger or acquisition, you need to think about the impact on your customers. How will they be affected by the change? Will they have a positive experience? Or will they be left feeling frustrated and dissatisfied? 

By keeping the lines of communication open and listening to feedback, businesses can ensure that their customers feel valued and appreciated. After all, happy customers are the key to a successful business.

Create synergies

The joining of two companies should give rise to values greater than the sum of each party’s value. This concept is called synergy, which drives M&A activities. For example, a merger between two firms might create efficiencies in production or allow for greater economies of scale. Likewise, an acquisition might give a company access to new markets or valuable resources. Synergies can be broadly categorized as:

  • Revenue synergy—to sell more products and/or services
  • Cost synergy—to cut overall expenses (e.g. reducing duplicating posts, lowering rental expenses, renegotiating supplier terms).
  • Financial synergy—to enhance bargaining power, thus achieving lower cost of capital

Through researching and identifying the synergy you are looking for carefully, you can make sure that the merger or acquisition is actually bringing forth more benefits to your business.

Communicate, communicate, communicate

Communication is the key to success in any business merger or acquisition. From the initial stages of due diligence through integration, both parties need to be clear and concise in their communication to avoid misunderstandings and delays. This means being clear about what each party expects from the other and setting up a system that will allow for timely and effective communication. 

Once a deal is agreed upon, it is important to keep all stakeholders informed of developments and any changes that may occur. This will help to ensure a smooth transition and avoid any surprises during or after the merger or acquisition process.

Consider the cultural impact

When two companies merge or one company acquires another, there is always the potential for a cultural clash. With any two groups of people, there are bound to be differences in values, beliefs and attitudes. If these differences are not addressed early on, they can quickly lead to tension and conflict. According to Aon Hewitt, 58 percent of organizations had no particular way to evaluate and integrate culture into a deal. As a result, many M&A end up being cultural disasters. 

Recognizing and dealing with misaligned cultures by taking a structured, analytical approach can prevent culture clashes on the way to value-generating integration.

A successful merger or acquisition can bring great benefits to a company, but it is crucial to approach the process with caution. Do your homework and make sure that both companies are a good fit. 

Header image courtesy of Pexels

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