Merger & Acquisition Success: Putting the pieces together

Angelica Carr, CEO @ Aim Business Coaching
Startup Grad School Stage
Ascent Conference 2020

[00:00:01] Hello and welcome. It’s really good to have you here. I’m Angelica Carr of A Business Coaching.

[00:00:08] And today I’m here to give you the eight strategic pieces you need for your merger or acquisition success. And I’ll start off with a scene you may know well.

[00:00:25] Working from home, worrying about people and the health of the global economy, perhaps your own personal accounts and at the same time trying to boost your team’s keeping the productivity up and just trying to keep sane.

[00:00:44] So when the focus is on all this short term pressure, one understandable question is where in this pandemic do M&A deals fit in? And yes, covid also hit hard on M&A activity. We had a decade of record high global deal making. There was a seven year drop in the first quarter of this year. And here we see the first half of this year. There’s a bit of optimism in the beginning. And then covid started to really spread in March and April. Lots of deals collapsed than many were put on hold. And then we see then a slight increase at the end of the six months. And then in July, we began to see signs of M&A recovery, the number of deals signed in July and some of the key regions in the world. And then you see some of the deals announced globally since the beginning of the pandemic. Many of them are megadeals, meaning a merger or acquisition valued at five billion or more. Some of these deals are still pending. So plenty is still happening. And here are some reasons behind deal making now. So, for example, we have low interest rates and of course, inevitably in a crisis market, companies, especially start ups, are more vulnerable, struggling to survive and buyers going bargain hunting.

[00:02:31] And the key in a crisis is the power to transform. And remember that, yes, the instability in the crisis brings a lot of challenges, so much pain, but also opportunities. So is it now business as usual for M&A now? And I’ll show you how things have changed. We know that mergers are already very high risk, that complex often destroying value instead of creating value. And even before covid, there was a deal failure rate of about 80 percent for realizing expected shareholder value. Yes, mergers and acquisitions can be Mercilus, but they can also help ease the impact of the pandemic. The global economy needs them to recover. Companies need them for transformation and for long term growth.

[00:03:40] Today, I’m offering you a strategic toolkit for M&A and it’s in the shape of a jigsaw, each piece increasing the odds of success. And as we begin to put the pieces together, I show you how both buyers and sellers need to adjust to the impact of the crisis and also why we need to update that whole deal process.

[00:04:09] So let’s start building. The first piece in our jigsaw is to position, so as you move a company from crisis mode to plan for what’s next. Positioning yourself and adapting is key. These are some of the areas we’re seeing big shifts in. Many of them were, of course, already happening and are now being accelerated by covid. We’re now looking at a market that is ultra competitive and the next couple of years at least are likely to be very slow, but also very volatile. And the customer that’s emerging from the pandemic is definitely not the same as before. We have different attitudes, different behavior, and we’re already seeing some fundamental shifts in values. We’re not just more cautious about spending, but also about hygiene, safety, travel, and we expect to be able to do everything from our own home.

[00:05:28] And as a result, we have, of course, seen many industries close to collapse.

[00:05:35] For example, car sales, aviation, hospitality and some sectors soar. So we have cost effective automation. Big corporations are really quickly buying up artificial intelligence startups, for example, and it’s often because they need that talent, the skills for them to scale up fast, fewer of us humans, so that the performance and profit can increase, but also for health and safety to protect us like we see in telehealth and tech, etc.. So now consider all these changes in the market, in the whole society and in the customer and ask yourself three questions. Does my company reflect these changes? Does that vision fit the needs of that new customer emerging from the pandemic and mainly where do we need to make changes? And for many companies, M&A can be a very powerful strategy to boost this transformation for both buyers and sellers. And for you, Founders’, remember to keep that integrity, don’t change your product or service to suit your buyer, but you change it because that new customer needs it. And also ask yourself. What is my startup stop to exist? What would the impact be? And it had to be big.

[00:07:20] The next the next piece is closely linked to the first and it’s predict we can get better at predicting these trends evolving at this amazing speed. And our thinking needs to speed up to predicting, for example, M&A deal matches with a really curious open mind set, imagining the assets you need that would increase profit and growth for your company and also to help us predict. And there’s no way around this. Most of us need to embrace working more efficiently with data in M&A, using data analytics to keep on top of market trends, learning more about competition in different regions, different industries, different asset classes to learn more about the opportunities and risks of Celeron via and through the whole of the M&A process to help monitor that deal flow. Also predicting in terms of proactively anticipate and plan for what’s next in your merger, and that includes very early on in the deal process, working with risk scenarios, predicting obstacles and planning their solutions. So in a merger, for example, around operations, disruption in supply chains, which we’ve seen a lot of in this crisis, and in merging corporate or national culture, in integration or both of those, and in the integration phase, predicting by learning. And this is so important from lessons in past M&A or from other firms deals, because there are so many repeated patterns and pitfalls you can predict.

[00:09:25] It’s about becoming aware of these, because if that happens, we understand and anticipate all those unexpected wins get a bit easier to deal with. So, for example, in attrition, as we see here, if you don’t have a good enough integration strategy, you’ll see a big loss of key people and often with these same two peaks in the integration phase and where do they go to your competition? Third piece is set to shed a big part of change now is shedding. It’s time to shed what we don’t absolutely need and then shed someone in a crisis. It’s extremely important for any company to keep assessing your portfolio and your strategy, shedding by divesting stressed assets to raise that capital and by shedding pending acquisition deals, for example, that are still too expensive to keep even after really negotiating. We saw a lot of this in the first months of covid. And cutting costs by turning to automation, getting rid of office space, for example, most companies I talk to these days seem to look at homeworking as something that’s here to stay for many of their stuff. And in a merger, also, be quick to shed any duplicated functions, system process, shedding a bit of the hierarchy of your company because dealmaking needs a lot more fluidity for that fast decision making. And of course, in a crisis even more so and in integration, this is very close to me getting rid of any uncertainty as quickly as possible. I’ll show you why in a minute. And the fourth piece is value. So you imagine all the changes happening now, so many unknowns, the economy in turmoil, different and more fluctuating demand. And it’s easy to see why all of this has changed the valuation scene in M&A. It’s not very much a buyer’s market, much more competition, lower valuations. Funders have less appetite for risk. There’s more focus on creating long term value, not just the quick sale. So now you need both the traditional M&A valuation and you need some new thinking. So the core questions are still crucial. Is the value added, the synergies of the deal big enough to outweigh costs and risks fundamental? And there are three questions for the board to keep coming back to in the Pribyl face. Why? Why do we want this deal with X company and why now? What are the synergies and value expected? And how do we create this value? How do we capture these synergies? I always recommend non-executive directors on your board, but especially in M&A, to challenge assumptions, the valuation and the strategy that you’re drawing up. And also, there’s so much more information available now, but the time frame is tight, so a lot less time to assess all this data. So update your valuation tools, adapt to a data driven approach for your due diligence. And this also give you a competitive gain when you’re later in the bidding process. Also now, when we’re trying to cut costs in most areas, it’s a good strategy for executives to get better at understanding the whole valuation process becoming more self in M&A. It’s no longer about bankers delivering that black box with a valuation for your M&A, but about you being engaged from the very beginning of the deal. Bankers provide fantastic expertize, often a lot of manpower you don’t have, but you should be able to compare independent valuation with your own, including your own assessment of opportunities and risks. But a crisis also pushes us to go beyond numbers and to succeed. Now you need so much more than just that usual package to make you attractive to a buyer. One thing covid has demonstrated is that how a business adapts to change and uncertainty has huge impact on performance. So we’ve seen some amazing innovation and really inspiring collaboration. And if you’re a founder, you should know that an acquirer is very likely to ask you, how did your target engage? How did you engage with all the stakeholders in the crisis? So the employees, the customers, the shareholders, suppliers. And how quickly did you make adjustments to the new market and how creative or innovative were you in the repositioning and during the crisis? If you followed snowflakes share value explosion, you may have heard their leader, Frank Sluman, say a stock is worth exactly what somebody wants to pay for it. It’s like talking about the weather. It is what it is. Tomorrow’s another day. We’ll see what that brings. Fifth piece is to accelerate so important and speed up to reduce risk and boost that resilience, not just in a crisis, always quick response to that volatile demand. And as the market recovers, eventually and generally deals get messy when delayed. So speed up by making those tough decisions quickly and communicate them both in the billing period. And then, of course, in the integration of people and functions and by quickly including culture in your due diligence, because if differences are managed until they can kill your deal. In the most infamous example of this Daimler Chrysler merger, culture clashes destroyed 30 billion dollars in shareholder value. Piece number six to prepare. So speeding up at the same time as planning efficiency, it’s a tricky balance to invest in Murgia training for the three main groups on the margin. And right in the beginning, don’t wait until the merger is heading in the wrong direction. And these three groups will have very different perspectives on the merger or acquisition, senior management integration management team employees. So when senior management working on what needs to be in place before launching the merger or the acquisition. And if you have gone through a merger, you recognize this blessing, everyone on the new board is being very polite, very flexible. Everyone wants a smooth deal. And this is when to sort out those key components of successful integration. Because six or eight months later, it’s a very different story in a major. Very little energy, a murder is exhausting for most. And in a financial crisis, even more so. So we have no egos, emerging power battles and people pick up on this very easily and very quickly. And it a lot of turbulence on the board at the top. It’s very hard to gain that trust. And that’s exactly what you need to win the people over in a merger to buy your vision. I just noticed here that I need more social distance in my slide. The second group is the integration management team. The same group of people is key from the beginning, from pre deal phase to post closure and working with them to create a detailed integration process, including and this is key accountability. Who exactly is responsible for what is the deal process and what are the methods for measuring success? And an ad hoc approach to this is so scarily common anemone employees working with them right after the deal announcement and why it’s so rare for the people who are the core of the merger to get any attention at all before they’re thrown into integration is just beyond me. One of the most rewarding parts of my M&A work is doing training for employees because there’s so much appreciation for any advice on what’s going on. I called one session how to turn your merger into an opportunity. It’s a lot about what to expect generally in a merger, getting involved, becoming a change agent, what type of questions they can ask and should ask management and answering questions like a very common one for managers. What do I say to my team when I myself have no answers? Piece number seven to communicate, I think of a merger like a sort of compressed version of a crisis, because both are very much about how well leaders deal with uncertainty and fear. And in both, it makes it extra hard to be a leader because you don’t often have the answers yourself. Communication is key to support, to encourage to connect with people. And in M&A, it starts with the announcement of the deal. So imagine the scenario. Staff from both sides, both companies, are there waiting for the new leadership to announce the merger. Their expectations, fear, curiosity, perhaps impatience, and even with all that preparation I talked about, there will be lots of answers leadership don’t have. But communicate at least the why, what, how and who, because often it’s not change that people resist. It’s that uncertainty. And throughout integration communicate really openly, frequently, leaving nothing to rumors, making sure the integration management team, together with the leadership, communicates the vision of the merger throughout the whole company, and that the vision is then kept alive by all the manager or the managers promoting that vision and the same clear, quick communication with clients. We’re also waiting for answers and listen to feedback and integration. Give people a platform to share their views, come up with ideas, raise concerns. An example is when HP acquired Compaq, the employee portal received 50000 hits on that day, one of integration. And the final piece of the jigsaw is integrate. We’ve seen how all the pieces affect integration and for success, culture needs to be right in the middle of your deal. Sometimes the merger is like two different spaces meeting for the first time. So in both domestic and cross-border deals, the ultra alert to those issues flagged in the culture due diligence and begin to work on solutions. Pre deal. Focusing on the few key traits that can break a deal and some of the big ones, so a management style customer service spending habits and have a clear strategy from, again, very early on on how to tackle the differences. And remember that it’s not always about fixing the differences, but also about managing the gaps. And then quickly get rid of that uncertainty that causes people to worry and to leave.

[00:23:37] And they worry about me, the me factor of your merger is enormous.

[00:23:45] So your vision for the new organization, we’ve all made these mistakes, talk about the expected profit, etc., and the vision. But that’s not their immediate concern. It’s more about is my job safe? Do I need to move? How does my role change? And this worry has huge effects on the value of the deal. I said, I’ll show you how to have a look at this example of productivity. So this is a loss of productivity. Employees spend two hours per day. So imagine that a quarter of a workday for each person and or the loss of productivity and profit. And remember that in a crisis, traits are magnified, everything is brought to surface. People are less resilient. They find it a lot harder to trust their vulnerable. So this pandemic will require a lot of economic restructuring and M&A can be a good way to speed up the transition between now and two, whatever that post state will be. Use these eight pieces to raise the chances of success in your merger or acquisition. It’s a very condensed toolkit, but I’ll be very happy to explore any piece or combination of pieces with even more detail. And I would love to hear from you. I’d love your M&A stories. I’d love your views and send me any questions you have. Let’s connect on LinkedIn or on the ascent portal. Grella wishing you every success. Thank you very much.

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