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...

Business And Life Lessons From Entrepreneur Miguel Leal

What I like most about Miguel Leal ’s memoir, aside from its overall compelling and inspiring information, are the business and life lessons he shares.  Those lessons are found throughout his recently released memoir, The House That Cheese Built . The book is a quintessential American dream story from a Mexican entrepreneur who shares the tale of building a multi-million-dollar business from scratch, complete with both success and failure, and always a vision of hope.  Leal came to the U.S. penniless as a teenager, speaking almost no English; he literally slept in the boiler room of a Wisconsin cheese factory for months before he was caught. Through hard work, grit, and ingenuity Leal would go on to launch his own business. He is widely credited with introducing Mexican cheeses to the U.S. market and grew his company to a multimillion-dollar success story that defined an industry. Yet, like many successful entrepreneurs, Leal’s great successes were matched by a variety of ...

The Phoenix Encounter Method For Leaders

“All businesses sooner or later face the need to reconstruct their future,” explain the authors of the new book, The Phoenix Encounter Method . “They will need to destroy part or all of the incumbent business model in order to build their breakthrough, future-ready organization.” Therefore, this book shares a new method of leadership thinking – the Phoenix Encounter – relevant to all organizations in today’s ever-changing environment. Readers will learn how to proactively bridge the gap between perceiving a threat and doing something about it. Written by three INSEAD professors ( Ian C. Woodward , V. “Paddy” Padmanabhan , Sameer Hasija ) and Rum Charan , you’ll learn the steps needed to create a wider range of options to: Defend your organization Fortify its core business Build specific renewal initiatives The steps are grounded in transformation that includes these three elements : The Phoenix Attitude : a set of mindsets, habits, and behaviors that allows a leader to ...

How To Find Your Balance Point

A few years ago,  Brian Tracy , along with  Christina Stein , published,  Find Your Balance Point . "The desire for peace of mind and the idea of living a balanced life are central to your happiness and well-being. When you start to live your life in balance with the very best person you could possibly be, you will enjoy the happiness you deserve and experience harmony among all the elements that make up a successful life for you, as you define it," explain the authors. The book teaches you  how to identify you balance point, move to it at will, and automatically return to it whenever you want . "You need to establish your balance point before you can set and achieve the goals that are important to you," explains Tracy. The starting point is to develop absolute clarity about who you are and what matters to you. This means you much be clear about your  values . Then, chapter by chapter, Tracy and Stein take you through: Creating your vision and ...

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...

The 10 Essential Elements Of Dignity

In their book, Millennials Who Manage , authors Chip Espinoza and Joel Schwarzbart , quote Donna Hicks 's explanation about how dignity is different from respect . Dignity is different from respect in that it is not based on how people perform, what they can do for us, or their likability. Dignity is a feeling of inherent value and worth. Therefore, Espinoza and Schwarzbart recommend that leaders treat those they are leading with dignity and follow Hick's 10 Essential Elements of Dignity : Acceptance of Identity - Approach people as being neither inferior nor superior to you. Assume that others have integrity. Inclusion - Make others feel that they belong, whatever the relationship. Safety - Put people at ease at two levels: physically, so they feel safe from bodily harm, and psychologically, so they feel safe from being humiliated. Acknowledgment - Give people your full attention by listening, hearing, validating, and responding to their concerns, feelin...

Leader's Playbook For Perpetual Innovation

  For over twenty years, Dr. Behnam Tabrizi has taught organizational transformation at Stanford University in its Executive Program, which he also directs. And now he’s written, Going on Offense: A Leader’s Playbook for Perpetual Innovation .  In a seven-year study, Tabrizi found that companies that focus their energy on building a supportive, purpose-driven culture that keeps people on edge, and boldly adapts to new environments are the companies that truly excel.  “Most companies pray for one innovation to skyrocket their growth. But the secret to success for the most innovative and agile companies is not just one good idea, rather a dedication to perpetual innovation and relentless experimentation that pulses through an organization, top to bottom,” explains Tabrizi.  His new book provides an insider view into the drivers of success and challenges in 26 organizations—including industry giants like Apple, Tesla, Amazon, Microsoft, and Starbucks—along with a...

How To Conduct A Successful Post-Merger Integration

  Most business leaders think that mergers fail because of bad strategy or overpaying. But according to former senior partner at McKinsey and Harvard Business School’s David Fubini , that’s not where deals break down. They fail in what comes during and after integration.   More specifically, “Integration is what makes or breaks the success of a deal. Not design, not financing, not due diligence, not negotiations of structure,” says Fubini. “Because no matter how expertly you manage these elements, if you can’t bring all the pieces together, all your efforts might as well have been an academic exercise."   Fortunately, in his new book, Post-Merger Integration: Building The Mindset, Skills, And Discipline Needed For Deal Success , Fubini (along with Patrick Sanguineti ) offers a behind-the-scenes look at how deals actually succeed and where they go wrong. And he shows leaders how to develop an Integration Mindset that will enable you to navigate the complex, nuanced reality...

10 Disciplines To Help You Stay Sharp And Energetic

The new book, Shine , is a transformative guide that illustrates how looking inward is the key to unlocking true entrepreneurial freedom. Certainly, Shine is a book for entrepreneurs, however, it is bound to benefit any business leader.   “Entrepreneurs often have a burning need to succeed. But that same relentless brilliance that propels you in your career can take a toll on your teams, personal relationships, and even your health,” explain author Gino Wickman and coauthor Rob Dube . “Our book will help you strike a crucial balance between those inner and outer worlds while taking your success to new heights.” In  Shine , Gino shares 10 disciplines to help you stay sharp and energetic without burning out. The 10 Disciplines teach you how they can lay a foundation that creates space in your busy life for you to consistently and optimally perform and achieve your inner peace.   “I have helped tens of thousands of entrepreneurs achieve significant business succ...

Find The Truth In The Middle

If you're a parent of two children you already know that when the two are fighting and child #1 tells you what happened, you then ask child #2 what happened, and most often  the truth is somewhere in the middle  of what the two children have told you. Surprisingly, many managers, even when they are parents, don't use this parenting "discovery" skill in the workplace. Instead, they often listen to only one side of a situation. Whether it is because of lack of interest or lack of time, they don't proactively seek out the other side of the story. The unfortunate result is those managers form incorrect perceptions that can often lead to poor decisions and/or directives. So, the next time two employees are at odds, or when one department complains about another department within your organization,  take the time to listen to all sides of the situation to discover the truth that's in the middle .