Most PE backed portfolio company CEOs need to execute successful acquisition programs. Every VP of Corporate Development is trying to design a process that delivers value. Family offices are investing in a wide range of diversified assets including scaling by acquisition. Public company leadership teams rarely satisfy the market’s expectations without a successful M&A program. Yet failure to deliver value happens at an alarming rate, estimated at 70% to 90% according to all public research. Measuring the success of deals two years after closing is often a disappointing affair. And so often they unravel long before then.

Is there a silver bullet?

Research Uncovers Solutions:

The biggest reason why acquisitions fail to deliver value is offered by two key pieces of research:

 Research Project #1 – The Good, the Bad and the Ugly; A guide to M&A in distressed times from the M&A Research Centre (MARC) at Bayes Business School (formerly Cass) which covered 12,339 deals from 1988 to 2008. 

Takeaways from this research includes:

  • 2,652 of the target sample were distressed targets picked up cheaply, however even though acquisitions of distressed firms are viewed as value enhancing by the market ‐ no doubt driven by low valuations ‐ the integration process of a distressed target proves challenging for many acquirers. Integration strategies as well as execution planning emerge as even more important factors for deal success.
  • Buying cheap does not guarantee higher returns to shareholders; post-merger integration emerges as a key factor to deal success.
  • The acquirers of distressed and insolvent targets underperform when compared to acquirers of healthy targets.

Research Project #2 – Building M&A Integration Capabilities: How Serial Acquirers become Master Acquirers – Gates, Heimeriks, Zollo – 2006

Takeaways from this research includes:

  • The findings are based on survey data by 101 firms engaged in 2,447 integrations over the past decade and one dozen expert interviews. The conclusions are based using case examples of master M&A integration practices from six master acquirers IBM, Xerox, Home Depot, Dow Chemical, GE Capital Finance and SC Johnson.
  • Many firms have difficulty successfully integrating the target.
  • To counter the disappointing statistics, some firms like IBM and Xerox use M&A practices that capture learnings to improve M&A integrations. Comparing occasional with master acquirers, we find that those that make effective use of such M&A practices increase their chances of success by up to 24%.
  • Yet our insights suggest that it is not experience alone that counts. Rather we find is it the investment in post-integration learning that drives superior M&A integration performance. Master acquirers not only repeatedly rely on acquisitions as a way to grow, but also prove very dedicated to codify knowledge arising from previous acquisitions to build M&A integration capabilities.
  • The use of M&A practices has three main advantages: they help employees share prior experiences, foster transparency in the integration process, and build commitment towards integration success.
  • Dow Chemical established the M&A Expertise Center (the Center) in 2002 after its successful acquisition integration of Union Carbide in 2001. The Center also assists the business leader in establishing overall objectives for the acquisition and determining the value drivers (e.g., headcount reduction, purchasing synergies, new product launches, etc.) behind the synergies that will justify its price.

Practical Implications – A Post-Acquisition Integration Playbook Reimagined

Based  on our experience over the last 30 years and the significant volume of research, we believe to become a master acquirer, and to build integration muscle into your program, requires a set of processes that places integration thinking, planning, and execution at the top of the agenda.

Acquirers need to establish the key characteristics that drive successful acquisition programs. Here are a few from our successful campaigns over the years (validated by the research):

  • Let your operators get close to the action. Get them involved in some of the early meetings to really assess the target from an operational standpoint. Operators will confirm if a target’s products are really in your wheelhouse. Sales and distribution strategies can look great on a spreadsheet but an operator can visualize the challenges, the flaws and the costs.
  • Always be selling. The acquisition team should be clear on their story and why this target makes sense. This creates one voice of logic throughout the team and allows the Head of Corporate Development to onboard colleagues who are supporting the program to be briefed quickly. Not all acquisition team members have M&A as their full time role. It also inspires sellers that the acquirer is thinking about the long term vision not just on a transactional basis.
  • Robust checklists are available to the team at every step of the way to ensure that information is gathered in a logical way.
  • Valuation of a target is looked at in context taking into account the integration strategy and the likely synergistic benefits of that specific target.
  • The process is always improving through post-mortems after the deal closes and post-mortems after integration is complete.
  • Integration teams are driven by an IMO and populated by managers from both sides.

These are the values and mindsets that we have built into our recently published Post-Acquisition Integration Playbook. It explains how to create integration muscle into your program. It walks through each phase of the acquisition process to ensure you are adopting best practices within your program. By taking this approach you will transform your success rate and continually improve your process. Refresh your program and start achieving these results:

  1. Priority targets are aligned with your strategy and there is a credible path to integrating the target.
  2. Sellers find your vision compelling and endorse your integration strategy for the target.
  3. The perceived value of owning the target includes the post-acquisition costs and creates a robust business case.
  4. Buyer and seller are discussing integration much earlier in the process leading to clarity and belief on objectives for the deal.
  5. Due diligence is focused on validating the integration strategy and allows for adjustments long before the post close execution.
  6. The Integration Management Office (IMO) is set up for success with both sides agreeing practical future states of each department and deadlines that reflect patience.

Download our new playbook and stress-test your acquisition program.

TPP is buy-side investment banking reimagined. We create successful acquisition programs collaboratively with our clients. We seamlessly become an extension of your team and integrate at all levels to add deep mergers & acquisitions expertise into your business. Always ready for a conversation – 978 395 1155 or