Enabling Successful M&As Through Leadership Due Diligence

Mergers and Acquisitions (M&As) has always been a major strategy in support of corporate growth. The last seven years have seen a great resurgence in M&As as deals of worth $3 trillion took place at the highest level during this time period.  However, mergers and acquisitions is a major and risky undertaking even for the big corporates. According to a recent research, 70% of such deals fail to produce the desired results whereas 50% of them totally destroy the value of the stakeholders involved.

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Reasons for Mergers and Acquisitions:
Companies merge or acquire others due to many reasons. From standalone cost improvements to cross selling existing products, building new customer relationships, creating new products or developing a totally new business, different types of Mergers and Acquisitions can help business attain their goals.

For instance, Roll Ups are a type of M&A which aims at transferring core strengths to the target business. The acquiring party will pay lower costs of operating new business and leverage the brand strength of the company they acquire. Similarly, Strategic Growth Bet is the type of M&As which seeks to transfer skill to new or noncore business. In this case, the acquiring business has to pay higher costs of operation but it also gets in the position to strongly influence the market.

M&A Activity in 2014:
The M&A activity was highest in 2014 since 2007 with total inbound and outbound value of $3.5 trillion. In this regard, Australia, North and South America and best part of Asia were the most active regions. On the other hand, the M&A activity was slightly on the lower side in Japan, Middle East and Africa. However, M&As were fairly popular in Middle East, especially in UAE and Saudi Arabia, in 2014 as compared to 2013. The approximate value of inbound and outbound M&As in Middle East and Africa in 2014 was $50 billion.


Reasons Most M&As Fail:
Experts have listed 10 major reasons responsible for the failure of M&As and have further classified them into three parent reasons that are strategy, people and lack of due diligence. It is pertinent to not that most of the mergers or acquisitions fail due to the people controlling these deals. They are usually incompetent or have insufficient capability to look after complex matters like M&As. There also cultural integration issues in the organizations as well as unclear communication and synergy about ultimate goals they want to achieve through M&As.

Similarly, leaders don’t identify risk and liabilities associated with M&As during the process of due diligence. Similarly, integration and implementation usually take longer than originally expected. These facts also introduce us with a very unique perspective of M&As and why most of them miserably fail.

The Role of Leadership in Enabling Successful M&As:
As we have discussed above, people working in both acquiring and target organizations play a pivotal part in enabling successful M&As. In this regard, leadership of both the companies holds primary responsibility for analyzing all aspects of their respective businesses and determine whether the decision to sell or buy a company is going to yield desired results or not.

For instance, the leaders of acquiring company have to show different leadership traits necessary for making any M&A a successful venture. They have to focus on needs of not only their own customers but that of the target organization. Similarly, it is mandatory for them to develop and motivate the employees of both organizations in addition with letting them build relationships with each other. Most importantly, they must act with integrity in terms of allowing employees working in the target organization to settle into new working environment or give them enough time to find another job. Last but not the least, they themselves need to adapt and try their level best to run both organizations as one.

When it comes to target company, it is the mid-level managers and executives that are in better position to motivate and influence the employees and remove the uncertainty regarding their future. They can also enable employees of both organizations to develop better working relationship and facilitate them to work as one company with the passage of time.

Unfortunately, the higher executives or senior leaders always remain in the focus whenever an M&A takes place. The biggest problem with this approach is that most of them don’t have any experience with M&As and as a result, they fail to understand the delicacies associated with them. What they need to do is to shift their focus on developing leadership qualities which keep employees of both companies dedicated and motivated which is necessary for any organization to run smoothly.

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