Is Your M&A Activity Creating Value…or Destroying It?

Growth through acquisition is a common strategy for many businesses and investors in today’s fast-paced, competitive market. Leaders see it as a rapid path to new customers, new capabilities and new strategies, and a way to remove competitors. Investors see it as an easier path to adding enterprise value.  

But it’s a path strewn with nasty landmines: politics, distraction, talent drain, and market uncertainty can all contribute to the M&A failure rate of 70-90% referenced in study after study. When these landmines go off, they can destroy value rather than creating it. How? By impacting an organization’s most valuable assets: brand and culture… the “intangibles” that make up more than 50% of average valuation at exit and more than 80% of the value of today’s entire S&P.

Knowing where these landmines lay is the first step in reducing the M&A risk and ensuring your deal adds performance and enhances value rather than destroying it. Here are five places where a misstep can spell disaster along the M&A path:

  1. Brand & Purpose Story:  Any merger or acquisition has the potential to change the market’s impression of who you are and what you stand for. Make sure there is absolute clarity about why this deal makes sense, not just from a strategy and financial standpoint, but from an identity and belief standpoint. Be sure to answer the question, “How are we better able to meet this purpose together?” Skip the B.S. mission, vision and values exercise, and instead define your new blended Purpose, Way and Impact (PWI) statements. The PWI model is more likely to align employees and generate public buy-in and investor support.
     
  2. Culture Character: Everyone knows “culture fit” can make or break a merger. The problem is quantifying this intangible. Leaders and dealmakers look at “core values” but when every company makes bland claims like “Integrity,” it’s easy to be fooled into thinking there’s a fit. Better to consider – and measure – the personality or character of each company's culture by doing a CultureTalk™  archetypal assessment that can identify potential for conflict at any level or department of the combined organization.
     
  3. Employee Engagement: Nothing undermines employee engagement and productivity like a merger integration. A study by AON Hewitt showed that even when a merger has no significant impact on people’s jobs, the number of actively disengaged employees can increase 23%!  These people aren’t just ambivalent: their attitudes and emotions affect those of co-workers and customers, undermining brand, culture and valuation.  Leaders need to nip this in the bud with relentless listening and feedback, involving all employees in integration decisions and activities, and implementing centralized engagement hubs like RewardGateway with peer recognition and communications that reinforce the brand and culture. 
     
  4. Competitor Response: M&A integration creates all sorts of distractions that competitors can take advantage of: customer uncertainty, proposal delays, poaching of talent, etc. Don’t be caught off guard. Identify which competitors are best positioned to capitalize on the situation and scenario-plan how they are likely to react.  Identify the customers, prospects and employees that will be most at risk and prepare communications and activities specific to each as soon as a deal is announced.
     
  5. Employer Brand: Finally, keep an eye on your employer brand. It can be the "canary in the coal mine" of a failing integration. Popular employer review sites like Indeed and Glassdoor put your culture out there for all to see, and many companies will experience a spike in negative reviews after a merger. Rather than ignore these platforms, embrace them as a way to authentically engage employees as you move through the integration process. Encourage and empower them to share their honest thoughts and to do it fairly. And let them know you’ll be listening. Assign a team to monitor and reply to every post, demonstrating to staff and prospective hires that no company or merger is perfect, but that you take their concerns seriously and are committed to a positive outcome.

These are just a few of the ways mergers and acquisitions can destroy – rather than increase – company valuation. M&A will always be an alluring path to growth, but leaders and dealmakers need to be on the lookout for these land mines before they step onto the battlefield.

 

Considering a merger or acquisition?  Make sure you’re prepared by reading our white paper on driving exit valuation through brand and culture and downloading our DIY assessments to measure the health of your culture and the strength of your purpose.