Skip to main content

How To Ensure Merger And Acquisition Success

 

“Our book will be of considerable interest to corporate executives and directors, who will likely be involved in M&As during their careers,” share the authors of the new book, The M&A Failure Trap: Why Most Mergers and Acquisitions Fail And How The Few Succeed. 

They add, the book is also essential reading for: 

  • Investors and shareholders asked to vote on merger proposals.
  • Investors who are considering investment in the acquiring company.
  • Business professionals in general.
  • Economists.
  • Business school and university instructors.
  • Students of business and economics interested in business restructuring and acquisition. 

And I contend, it is revealing reading for anyone interested in one of the most important and consequential economic events – business acquisitions. 

The M&A Failure Trap serves as the very blueprint to help top-level management and interested parties make better choices about their organization, avoiding the pitfalls that have led many companies to ruin. 

Another reason to learn more about acquisitions – the good, the bad and the ugly – is because as the authors, Baruch Lev and Feng Gu explain, according to new original research of over 40,000 real-life, around the world acquisitions spanning 40-plus years, a staggering 70-75% of M&A deals fail to meet expectations, and this failure rate is still rising. 

Lev and Gu, a team of distinguished accounting and finance scholars, deliver a startlingly insightful discussion of corporate acquisitions and they uncover the major reasons for merger success and failure.


They explain what to consider before deciding to acquire. When to consider internal development in lieu of acquiring. And when is the best time to make an acquisition. 


Most important, to help executives put research into action, the authors created a 40-variable Acquisition Success Model, aimed at identifying the drivers of merger success and failure. They then condense this large model to an easy-to-use 10-factor Scorecard designed to predict the likelihood of a prospective merger success. 

Be sure to also pay particular attention to Chapter 8, where the authors explore integration, the Achille’s heal of M&As. In that Chapter they share the eight major challenges to successful acquisition integrations and explain why they are challenges: 

  1. The target (company being acquired) is a foreign entity (a cross-border acquisition).
  2. The target's products are "potentially related" to the buyer.
  3. A nontech company acquires a tech company.
  4. The target's founders continue to manage it after acquisition.
  5. Overly optimistic, pre-acquisition promises of "synergy" are made.
  6. The target has been poorly performing with outdated technology.
  7. A successful integration is expensive and time-consuming.
  8. Large targets pose significant integration challenges.

Finally, Lev and Gu offer the following advice for helping to ensure a more successful acquisition experience: 

  • Compensate executives not on acquisitions per se, but on successful acquisitions.
  • Explore alternatives (e.g., internal development of patents or customer base), joint ventures/partnerships, and reorganizations, before rushing to acquire.
  • Avoid the “wisdom of the crowds,” like buying in a recession, or purchasing when all your competitors do. These, as we show, are recipes for disasters.
  • Avoid large targets, large debt financing, and high acquisition premia. These doom acquisitions.
  • Don’t overpromise unrealistic synergies (cost savings), illusory growth targets, and share-price rises. They will bite you later.
  • Conduct a thorough, objective target search and due diligence. These will prevent unpleasant surprises at the integration phase. 
___

Lev is a professor emeritus at NYU Stern School of Business, where he has taught and conducted research on mergers and acquisitions for decades. He worked formerly at UC Berkeley and the University of Chicago. His work has been widely cited in academic and professional circles (over 63,000 Google Scholar citations), and he is a leading authority on corporate finance and valuation. 

Gu is a professor of accounting at the University at Buffalo and has extensive experience in analyzing the financial aspects of corporate acquisitions. His research focuses on the economic consequences of corporate decisions and has been published in top-tier academic journals. 

Thank you to the book’s publisher for sending me an advance copy of the book.


Comments

Popular posts from this blog

Coach Campbell's Leadership Principles And Winning Approach

Trillion Dollar Coach  is about  Bill Campbell , someone you likely never heard of, who coached several of the biggest names in Silicon Valley during a 16-year tenure, and who’s behind-the-scene wisdom helped created over a trillion dollars in market value. Authored by  Eric Schmidt ,  Jonathan Rosenberg , and  Alan Eagle , they share that from Steve Jobs and Dick Costolo to Larry Page and Sundar Pichai, these big names in Silicon Valley give credit to Campbell for much of their success. Campbell, who died in 2016, started his career as a football coach at Boston College and Columbia then switched to business in 1979. As leaders at Google for more than a decade, Schmidt, Rosenberg, and Eagle had the benefit of experiencing Campbell’s executive coaching firsthand. In addition, for the book, the authors interviewed over 80 people with whom Campbell also worked. Through stories from those interviews, Trillion Dollar Coach features specific strategies and action ste...

Flashback: Best New Leadership Book Of 2014

  Flashback to this post from early 2015 : After reading nearly 40 books about leadership released this year, my pick for the very best new leadership book of 2014 is,  The Front-Line Leader: Building a High-Performance Organization from the Ground Up , by  Chris Van Gorder . This book is my top choice because it : Covers the issues most important to today's workplace leaders Provides "real-world" and practical everyday steps you can take Gives you  specific  techniques and tactics Tells powerful, life-experience stories Capsulizes "Take Action" to do’s for you at the end of each chapter Reveals how to create a culture of accountability that creates a high-performing organization with a competitive advantage And,  most important, because the entire premise of the book  is: People come first! Today, Van Gorder is the  President and CEO at Scripps Health , one of America’s foremost health systems with 14,000 employees and 2,600 affiliated physicians...

How To Survive And Then Reset To Ultimately Thrive

“Uncertainty is here to stay. Rather than seeing it as an obstacle to overcome, integrate it into your strategic approach to invigorate your high-growth potential and outperform competition under any market condition,” explains Rebecca Homkes , author of the new book, Survive, Reset, Thrive .   “Most books aren’t honest enough about how hard it is to reset ,” adds Homkes. Yet, resetting and leaning into change is essential. “If you are ready to embrace change as a central element of your growth strategy, this book is for you.” Homkes’ book is a timely, comprehensive, and essential read for business leaders looking to take the next step toward ensuring high growth for their companies. The book brings together more than 15 years of Homkes working directly with high-growth companies of all sizes and across a wide variety of industries.   Survive, Reset, Thrive (SRT) is a practical and innovative interconnected three-mode approach :   Survive : Stabilizing ...

The Science Of Dream Teams

Why do some teams succeed while others stumble? Because hiring, developing and engaging talent requires careful decisions that are too easy to get wrong without data. In The Science of Dream Teams: How Talent Optimization Can Drive Engagement, Productivity, and Happiness , author Mike Zani introduces the science of “ talent optimization ,” a new discipline that’s a far more reliable way to manage your employees than your gut instincts.  “ Proper talent optimization lifts morale, builds teams, and turbocharges productivity ,” explains Zani.  With simple steps, Zani (a former US Olympic sailing team coach) shows how companies of any size can collect and analyze voluntary data about their employees to purposefully align a company’s business and talent strategies.  The book explores how CEOs and management teams can collect and use data to: Build effective teams of highly sought-after professionals while optimizing costs. Create a company culture based on coaching versus ...

Jim Collins On What Makes A Great Company

Inc. magazine’s June 2012 issue features a compelling article about author and leadership expert Jim Collins , who has studied leadership for 25 years and penned four best-selling books. Two of the most powerful takeaways from the article for me are Collin’s definition of a great company : “To be great, a company has to make a distinctive impact. I define that by a test:  If your company disappeared, would it leave a gaping hole that could not easily be filled by another enterprise on the planet? Now, that doesn’t mean the company has to be big…just that if it went away, people would feel a gaping hole, and no one could easily come in and fill it.” The second takeaway is the list of 12 questions that Collins says leaders much grapple with if they truly want to excel .  Three of those 12 are these, the first two I tend to think don’t get asked often enough: How can we increase our return on luck ?  What could kill us, and how can we protect our flanks ?  ...

The Five Critical Roles You Need To Build A Winning Team

  The new book, Team Players , by leadership expert and New York Times bestselling author, Mark Murphy , explains why a team needs more than strong leaders—it needs the right mix of five roles and talents to succeed.   In addition, Murphy reveals that the secret to extraordinary teams isn’t making everyone the same—it’s embracing and leveraging fundamental differences through those five distinct team roles. No amount of teambuilding, trust, or cohesion can overcome having the wrong mix of people in the room.   The five essential roles and talents are:   The Director assumes a leadership role within the team, guiding its direction and making important, difficult, and even unpopular decisions.   The Achiever immerses themselves in the details of accomplishing tasks and getting things done, with a keen eye for delivering error-free work.   The Stabilizer keeps the team on track with meticulous planning, processes and procedures, clear timelines, and organi...

Three Essential Parts Of A Mission Statement

A lot of companies struggle when creating their mission statement. Author  Peter F. Drucker  provides the following good advice in one of my favorite book's of his,  The Five Most Important Questions You Will Ever Ask About Your Organization : Every mission statement has to reflect three things : Opportunities Competence Commitment In other words, he explains: What is our purpose? Why do we do what we do? What, in the end, do we want to be remembered for? How well does your mission statement meet Drucker's recommended three requirements?

How To Join The Mission Generation

Whether you're a first-time job seeker, midlife pivoter, or legacy-minded leader, you're probably asking: Does my work matter? What am I really building? How can I keep contributing?   Fortunately, there is a new book that will help you learn how to build clarity as you go—clarity about what kind of work feels worth doing and how to align your time, energy, and effort accordingly.   This book is In The Mission Generation: Rewrite Success, Reclaim Your Purpose, Rebuild Our Future , written by venture capitalist, Stanford University lecturer, and CEO of the NobleReach Foundation Arun Gupta and strategic management expert and business professor Thomas J. Fewer, PhD .   “The Mission Generation isn't defined by age―it's bound by conviction. This book offers a new blueprint for every age and stage, one that doesn't force you to choose between making money and finding meaning,” explain the authors.   They also share the future of work isn’t about choosing between ...

How To Predict And Prevent Conflict At Work And At Home

T he book, How To Get Along With Anyone , by John Eliot and Jim Guinn , is the playbook for predicting and preventing conflict at work and at home.  As you read the book, you will discover how to defuse any heated conflict by learning which of the five conflict styles you are and how to resolve even the most sensitive dispute with this must-read guide.  Through decades of building and facilitating team chemistry for Fortune 500 companies, professional sports franchises, schools and government agencies, nonprofit organizations, and families, Eliot and Guinn have discovered people respond to conflict in one of these five ways:  Avoider : Uninterested in minor details; excels in solitary work with a knack for concentration.  Competitor : Always pushing the envelope; never rests on laurel and takes risks for achievement.  Analyzer : Evidence-based and methodical; patiently gathers information before acting.  Collaborator : A deeply caring individual, relying o...

How to Be a Leader – 9 Principles from Dale Carnegie

Today, I welcome thought-leader Nathan Magnuson as guest blogger... Nathan writes : This is it, your first day in a formal leadership role.   You’ve worked hard as an individual contributor at one or possibly several organizations.   Now management has finally seen fit to promote you into a position as one of their own: a supervisor.   You don’t care if your new team is only one person or ten, you’re just excited that now – finally – you will be in charge! Unfortunately the euphoria is short-lived.   Almost immediately, you are not only overwhelmed with the responsibilities of a team, but you quickly find that your team members are not as experienced or adroit as you.   Some aren’t even as committed.   You find yourself having to repeat yourself, send their work back for corrections, and staying late to fill the gap.   If something doesn’t change soon, you might just run yourself into the ground.   How did something that looked so easy ...