Becky Kaetzler

Culture is important in all deal types but particularly when you bring two large groups of people together. Then, the potential friction would be much more visible. And you need to understand the culture of both companies. It is not enough to say, is the target company compatible with us? You need to understand it in a more nuanced way. What are their ways of … [ Read more ]

Jocelyn Chao, Becky Kaetzler, Natashya Lalani, Laura Lynch

Designing, managing, and delivering a positive experience is especially important during the post-merger talent selection process—not only for employees offered positions but also for those not selected or who choose to leave. How the HR and integration teams treat the latter groups can have far-reaching effects on workplace morale and the company’s reputation as an employer of choice.

Jürgen Rothenbücher

Industries consolidate faster when the share of fixed costs is high. Slow-moving industries are those with few physical assets, such as restaurants, craftsmen, and medical care. Industries moving at a medium speed include automotive, aluminum, and food. Fast-moving industries have the lowest variable costs and high asset intensity, such as software, telecom equipment, and search engines.

Andy West, Jeff Rudnicki

You need to understand the sources [of M&A revenue synergies], and there are three places we can categorize. One is where you sell. That includes new channels, cross-selling to existing customers, geography expansion. Then there is how you sell. This is where the sales force effectiveness or channel coverage matters. Then there is what you sell. Is the deal bringing new products or new bundles … [ Read more ]

Erik Roth

A company needs to be really clear on why they’re acquiring something. If it’s an acqui-hire, then it’s the talent. If it’s a business-model acquisition, it’s the business, the technology, and the IP [intellectual property]. There are lots of different reasons. So first, be super clear on why you’re acquiring something. And then, I always like to say, there’s pitchers and catchers. The pitcher is … [ Read more ]

Oliver Engert, Max Floetotto, Greg Gryzwa, Milind Sachdeva, Patryk Strojny

At the start of a typical integration effort, the integration team uses the deal model and due-diligence results to identify opportunities and set synergy targets. But financial due diligence is seldom deep or exhaustive enough to provide a solid foundation for maximizing value because the effort focuses on justifying the deal, not on creating value (in other words, “figure out what to pay for the … [ Read more ]

Rebecca Doherty, Spring Liu, Andy West

Because there are often different owners throughout a company’s M&A process, it can be particularly tricky to put proper incentives in place for each one. So, incentives must balance the promotion of post-integration success with the successful execution of an individual’s role.

Marc Goedhart, Tim Koller, David Wessels

As an illustration of how executives get caught up in a short-term EPS focus, consider our experience with companies analyzing a prospective acquisition. The most frequent question managers ask is whether the transaction will dilute EPS over the first year or two. Given the popularity of EPS as a yardstick for company decisions, you might think that a predicted improvement in EPS would be an … [ Read more ]

Gerald Adolph

If people come to you with vague words like attractive market and synergy, best practices and all of these kinds of things that you cannot reduce to leverage and enhancement, chances are you’re being dragged into a bit of an acquisition trap that might not play out the way you want.

David Harding and Hugh MacArthur

Too many executives treat diligence as an audit to confirm what they think they know, rather than a solution to the problem of “I don’t know what I don’t know.” The focus on getting the deal done leads to reliance on conventional wisdom that flows from off-the-shelf information or standard industry research. In fact, diligence is a critical step to test and quantify what seems … [ Read more ]

Sydney Finkelstein

In the constant push to get everyone going in the same direction on the job—an admittedly critical component of leadership—we’ve fallen into the trap of valuing alignment over insight. What’s the point of having everyone rowing in perfect unison if you’re going the wrong way?

Michael Raynor, Mumtaz Ahmed

The conventional wisdom [on mergers and acquisitions] has crystallized into “buyer beware,” which is certainly not bad advice but not particularly helpful. (When would one ever think it is good not to beware?) Research on the topic is largely consistent with this view, observing that acquirers, on average, earn about the going rate of return on their investments but are subject to wide variation, sometimes … [ Read more ]

Michael Raynor, Ragu Gurumurthy and Mumtaz Ahmed with Jeff schulz and Rajiv Vaidyanathan

These [research] findings are in many ways consistent with both the conventional wisdom and the academic research on M&A. It is not uncommon to hear the refrain that acquisitions—especially larger ones—are systematically associated with lower profitability and lower shareholder returns for the acquiring firm. What we observe is that triple crown winners generate a mere 7 percent, on average, of their lifetime growth from M&A, … [ Read more ]

Steve Joiner and Trevear Thomas

The crux of due diligence is the need to mitigate overall transaction risk through the identification , quantification and substantiation of value drivers or value inhibitors, and to recognize the differences, if any, between these and what was the basis of anticipated deal value at the beginning of the process.

For every transaction, one can define a transaction value matrix, which frames the key sources … [ Read more ]

David Harding and Hugh MacArthur

Too many executives treat diligence as an audit to confirm what they think they know, rather than a solution to the problem of “I don’t know what I don’t know.”

David Harding and Hugh MacArthur

[In M&A] it’s essential to formulate a strong, well-articulated deal thesis in advance and to concentrate analysis on proving it from the bottom up. All deal theses should answer the question: “How will buying this business make my existing business more valuable?” If a potential transaction has strategic value, the assertion needs to be backed up with customer input, competitor insight, new industry data and … [ Read more ]

Warren Buffett

Many managements apparently were overexposed in impressionable childhood years to the story in which the imprisoned handsome prince is released from a toad’s body by a kiss from a beautiful princess. Consequently, they are certain their managerial kiss will do wonders for the pro…tability of Company T[arget]…We’ve observed many kisses but very few miracles. Nevertheless, many managerial princesses remain serenely confident about the future potency … [ Read more ]

Peter Skarzynski

Two large companies that join together are typically so focused on market domination or operational integration that they have no time to think about strategic innovation. Instead of creating entirely new business models, post-merger supersized companies prefer to use their new bulk to coast on the fumes of past glory and brand name. Mergers of equals often turn out to be mergers of the equally … [ Read more ]

Gary Hamel

To a large degree, jumbo-sized acquisitions are simply a response to the pressure CEOs feel to deliver above-average growth in revenue and earnings — a pressure that is more easily relieved via deal-making than through the arduous task of developing strategies that might rev up internal growth. This pressure is particularly acute when a company feels it has lost ground to a larger rival.

But while … [ Read more ]

Steve Rimmer, Barbara Kraft and Charles Wheeler, with Joy Gramolini

Values, by definition, are virtuous, noble benchmarks for behavior. You would be hard pressed to find two groups that disagreed with each other’s value statements. True cultural integration, however, requires a focus on both organizations’ actual behaviors-not on rhetoric surrounding their conceptual values.