May 2017 Newsletter: Common pitfalls to avoid in M&As

May 04, 2017 | Evelyn Chow
 
 
STRATEGIC HR, M&A, LEADERSHIP DEVELOPMENT, HUMAN CAPITAL TRANSFORMATION
 
E-Newsletter | May 2017

M&A-1.jpg

 

If you are a business leader seeking that extra competitive edge in a global market, stronger capitalization, or significant customer acquisition to grow your company, you may be considering a merger or acquisition (M&A). Just last year alone (2016), 800 M&A transactions worth SGD$125 billion were recorded in Singapore [1].

 
While M&As can be an attractive option, like most complex business moves, they come with both potential gains and dangerous minefields. Although M&A records have been steadily increasing, some of the world's largest companies such as Microsoft and Google have also lost billions of dollars in failed acquisitions [2]. A focus on avoiding common pitfalls in M&A should be your first consideration as you consider the M&A option. We provide some of our insights on ways that failure can be avoided through careful consideration.

 

Express clear goals and expectations


If you are in a growth mode and your goal is faster growth, be mindful that seeking to be a partner in an M&A may be premature. Due diligence is a critical part of the entire assessment and decision process.
  • "Growth" is not specific; bigger isn't always better [3]. Define what you expect to gain from a merger or acquisition.
  • As part of your goal-setting, be clear about the expectations you have for the M&A. Executives of SMEs in particular, who seek to merge with a larger organisation, benefit by working out in detail, ahead of contract signing, what management support, capital, and other resources will be available.

Speaking of expectations, aligning time frames will go a long way toward avoiding frustration. Your smaller organisation may be used to quicker business moves than a company with a larger organization chart and more management layers can accomplish effectively. 

Skill retention risks 

Perhaps your organisation requires special skillsets in which another organisation excels. If outsourcing will not suffice, a merger or acquisition may be the right option.

  • On the other hand, note the risks involved: if the M&A communications and contracts are mishandled, employees may exit the com- pany when they learn about the newly formed company.
  • Expectations about retaining talent are key to a successful M&A - including when the goal is financial or customer gains. Why? Estimates for any gains to be made by either partner generally include an analysis of the current level of production, current profits, and current customers, all of which occurred with the current team of employees. Change that team and the rest of the assets may change as well.

Our recent article on "Strategic Shifting for Success: Talent Management for SMEs" outlines best practice communication strategies to ensure that your talent remains loyal and motivated. It is critical to ensure you have a strong human capital strategy to prevent any disruption to current client commitments, and very importantly, to be able to identify and retain key employees. The HR team or Consultant should work closely with the Business Leaders to develop and implement such a strategy. An experienced M&A integration team (consisting of HR, finance, legal and a senior Business Leader as a minimum) can assist by drafting an agreement that addresses the issue of retaining talent as well as the accompanying investments and commitments required to drive such a plan. 

Adjust your focus to what you give (not what you will get) 

For the M&A to succeed, you need to offer the potential partner company an ingredient currently absent for the partner to achieve a competitive edge. An acquirer can improve its target's competitiveness in four ways: by being a smarter provider of growth capital; by providing better managerial oversight; by transferring valuable skills; and by sharing valuable capabilities [4]. Offering one or more of those ingredients will result in a win-win M&A in which both parties come out ahead. 

 



A final caution 

Many M&As fail each year - in fact, as many as 70 to 90 percent. With a clear goal and appropriate expectations, a proper focus on what your organisation can offer towards gaining that competitive edge, excellent talent management, a thorough due diligence, and a well thought through integration plan, you can avoid the pitfalls of your M&A and become a stronger, more sustainable and competitive organisation.

 Look out for our upcoming article: "The Importance of Cultural Intelligence for Successful M&A"!

 


 [1] http://www.straitstimes.com/business/companies-markets/ma-growth-helps-make-spore-the-deals-capital-of-region

[2] https://hbr.org/2016/06/ma-the-one-thing-you-need-to-get-right

[3] http://www.accountingweb.com/practice/growth/common-ma-roadblocks-your-firm-can-avoid

[4] https://hbr.org/2016/06/ma-the-one-thing-you-need-to-get-right