There are reports every day in the financial press on mergers and acquisitions in SMEs and major corporations. After all, acquisitions are a way of boosting and solidifying your company’s competitive position. But they can also create problems. Bringing a newly merged entity safely into harbor requires a favorable climate composed of critical success factors. Professor Eddy Laveren (AMS and University of Antwerp) and master student Lennert Verstreken conducted research into the factors behind successful mergers and acquisitions and came up with 15 success factors for mergers or acquisitions.
The fusion or acquisition process can be subdivided into two parts. The first part concerns the start of negotiations between both companies (the pre-transaction process). The second part is the execution of the transaction and the start of the implementation (the post-transaction process). Various factors influence both parts of the process. Regardless of the individual case, macroeconomic factors can also have a bearing.
Pre-transaction success factors
1. The right partner
Step one is choosing a suitable partner: The wrong choice of partner can lead to difficult negotiations and loss of information, and occasionally to nothing happening at all.
2. Trust between the parties
Mutual trust between the management of both parties ensures that negotiations run smoothly, leading to a higher chance of the deal being brought to a favorable conclusion.
3. Due diligence en good valuation
In addition to the factors mentioned above, the quality of the valuation after thorough due diligence is important. Due diligence in mergers and acquisitions is an in-depth study of the history, mission, values, culture and financial reports of an organization and is necessary to obtain an adequate valuation. Poor valuation can result in an inflated price, which will make the merger or acquisition look like a failure in hindsight, however smoothly the integration proceeds.
4. Experience from previous mergers and acquisitions
Experience from previous mergers and acquisitions can play a huge role, according to some economists, while others contend that it has no effect whatsoever. What really matters is that the management team learns from previous experiences – experience alone doesn’t increase the chance of success. A previous failed acquisition, for example, can make management wary of providing a new partner with information in a fresh set of negotiations. Denying the other party the chance to form a clear view of the acquisition can leave them confused.
5. Communication before the execution of the merger or acquisition
A high-quality management team and trustworthy consultants play a large role in this: They guide the process and furthermore ensure that communication within the company remains open and honest. Stressed-out employees, distracted by the uncertainty of an impending merger, can cause the company’s performance to plummet. As a manager, you have to inspire confidence, in your employees as well as between yourself and the other party.
Post-transaction success factors
6. Quality of the plan
Naturally, everything starts with a structured, detailed plan of action: The organization chooses how the target will be implemented and this needs to happen according to a comprehensive plan backed by compelling logic.
7. Execution of the plan
The most crucial factor in the post-transaction phase is the “high quality of the execution of the implementation policy.” Once a consensus about the right strategy is reached, it is, of course, vital that the practice reflects the plan as closely as possible: Poor communication creates confusion among the executors. Change management and a sound cost estimate during the process enable changes to be made efficiently.
8. Swiftness of integration
The swiftness of the integration is important because it promotes trust in both parties. However, it shouldn’t be too hasty – this can backfire.
9. Communication during the implementation
The most important factor for maintaining trust during this complex process is once again communication, primarily from the management. Coherently conveying the integration plan to your employees ensures that it is implemented smoothly.
10. Strategic fit
Additionally, you have to pay attention to how the strategy of the target aligns itself with that of the initiator: If the target has complementary assets and strategies, few adjustments are required, but if this isn’t the case, the integrated company needs to undergo changes to ensure a strategic fit.
11. Organizational fit
An organizational fit is obtained by ensuring that parallel structures in the two organizations are unified efficiently. With two companies operating in the same industry, this will most likely develop more easily than when different sectors are involved. Even so, in this case it’s often possible to unite departments like human resource management and marketing.
12. Cultural fit
A cultural fit isn’t always self-evident. Research shows that the geographic location of the parties has very little impact – which is beneficial for international mergers or acquisitions. But bringing together different national or, on a smaller scale, corporate cultures, can result in a lot of miscommunication. Here, especially, thought-through management is a must.
13. Calculation and realization of synergies
Potential synergies are often the motivation behind an acquisition: When one organization takes over another, operational costs can be lowered because the organizations complement each other, leading to significant gains. Ensure the feasibility of the planned synergies by estimating them carefully and following through on your strategy.
Macroeconomic success factors
14. Legislation enabling the merger or acquisition
National or international legislation can enable or obstruct mergers, given its influence on financial reporting and international property. Mergers and acquisitions involving organizations with a significant market share are often controlled by the legislative power. This can have a huge effect on the success of the merger or acquisition.
15. State of the economy
Although mergers are highly company-specific, it’s clear that the economic climate has an influence. Favorable legislation and a healthy economic climate inspire confidence in both parties, which increases the chance of success.
Abortive attempts at mergers and acquisitions can cost companies lots of time and money. In a worst- case scenario, business-sensitive information is exchanged, which puts the company at risk. With experienced teachers and practical case studies, AMS’s “Business Acquisitions and Sales” course offers sound guidance. This program enables participants to recognize the various potential bottlenecks and risks of mergers and acquisitions from the viewpoints of both the seller and the buyer.
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