Everyone has heard the statistic that over 50% of buy-side M&A deals fail to meet their stated objectives. The reason is fairly straightforward: the M&A industry is geared towards “getting deals done” and not making deals successful.
Companies don’t engage in M&A simply to do a deal. Instead, the purpose of M&A is to achieve a corporate objective through which M&A is the means to achieve this goal. The M&A industry doesn’t talk about this type of success, because most experts don’t have the capability to see the bigger picture.
Eisbach Group was created to help companies make their deals successful and ensure that M&A deals meet their stated objectives. To achieve success, a new approach to M&A is required.
Below are the four keys to the Eisbach Group approach and to making your deals successful:
- Integrated Approach. A deal has five key stages. A company needs to understand the five stages and take an integrated approach to managing these stages. Too often, different experts handle the various deal stages, leading to a disjointed approach. By taking an integrated approach, companies can tailor their M&A activities towards achieving the stated objective, and not just getting the deal done. Also, an integrated approach reduces the risk of error by following a deliberate and connected process through all five stages of a deal.
- Deal Manager. To be successful, companies need a proper Deal Manager who understands what it takes to be successful and who can assist with specific tasks across the entire deal lifecycle. Normally, bankers manage the beginning of a deal, lawyers manage deal execution, and a project manager manages the integration process. The problem is that these people are managing the deal without a clear view on what it takes to make an M&A deal successful. A Deal Manager needs to drive the deal efforts towards achieving the stated objective. Also, the Deal Manager needs subject matter expertise across the deal stages so that the Deal Manager can understand when something is wrong or when someone is not performing, and can take corrective action.
- Focus on the 5th Stage: Value Creation. Value Creation is a separate stage in the M&A process, and is a concept that Eisbach Group coined. Understanding this fifth stage of M&A is fundamental to achieving success. In my experience, deals are won and lost in the twelve months after the deal is closed. This is where the deal needs to be driven towards achieving the stated objectives. Everything in the initial four stages could be done perfectly, but a deal can still fail. To make deal successful, Value Creation must be recognized as the fifth stage and managed as part of the M&A process.
- Pattern Recognition. Experience driven pattern recognition is an essential skill for M&A success. With enough M&A experience, you will start to recognize potential problems and will avoid making mistakes. These problems can occur anywhere in the deal cycle: there can be (1) M&A strategies that aren’t appropriate for your company; (2) acquisition targets in which the CEO micromanages every decision; (3) unsustainable business models; and (4) countless other potential problems. Associated with pattern recognition, you need to know where to look for potential problems. The private equity industry embraces the phrase “where there is smoke, there is fire” to mean that small discovered issues usually mean a larger underlying problem exists. To be successful with M&A, you need people with the experience to recognize patterns and potential problems. Your experts can’t just have experience in one aspect of the deal cycle; they need to have experience in each phase to fully recognize the patterns.
By embracing these four keys to M&A success, you can take control of the M&A process and start increasing the likelihood that your M&A deals will be successful. Your expectations of M&A advisors will shift from getting a deal done to helping you meet your strategic objectives.