Mergers and acquisitions on the rise: Three tips to making deals work

The Amazon and Whole Foods merger brought problems even Jeff Bezos couldn't see coming. Photo / Joe Raedle, Getty Images

THREE KEY FACTS

• A2 Milk said last month that it was still eyeing acquisitions.
• Craigs Investment Partners’ Mohandeep Singh in August said renewed M&A activity had helped to put some life back into the market.
• Some unsuccessful takeover attempts on the New Zealand market have included Eroad, Rakon, and Comvita.

The deflated mergers and acquisitions space is back on the rise in 2024, with deal-making ticking up in New Zealand.

Technology, healthcare, energy, and financial deals are prominent in the rising activity.

Investment bankers and legal eagles are eyeing the upswing.

And 79% of offshore investor respondents to a Simpson Grierson survey, released in October, expect M&A in New Zealand to increase moderately in the next 12 months, as opposed to just 60% last year.

Mergers and acquisitions run on cold, hard numbers - valuation, synergies, and who can afford to pay the most.

It’s the warmer human side that glues businesses together, both protecting and creating ongoing value – but surprisingly this is typically an afterthought or forgotten altogether.

The historical failure or under-performance rate of such transactions is 70-90%.

Financial metrics, strategy, spreadsheets, agility – they are all critical, but it’s the soft side of deals that decide their success.

I’ve been on the frontlines of this complex terrain as CEO, including through divesting a corporate start-up and leading a business through a sale process resulting in a $310 million exit for shareholders.

Here are three tips for deal-makers:

Firstly, build strong, aligned leadership. While M&A performance has improved, historical research shows many deals fail to achieve the value they set out to achieve.

To maximise value from the transaction, it’s critical to have the right combinations of governance and leadership both before and after the deal closes.

The merged leadership team should be 100% aligned and supported to lead the combined entity.

Some key questions include: Are leaders being supported through the intensity of the transaction? Is middle management part of the equation? Are high performers in the organisations being elevated into the leadership of the new entity? Are there influencers, change-agents and activities in place to be role-models and embed new behaviours?

Secondly, communicate the deal story extremely well.

Mergers and acquisitions include timelines and communications around the deal announcement to key stakeholders such as shareholders.

But employees are often overlooked, even though the fate the deal’s success rests on their shoulders.

In any change process, the ‘why’ must be understood, and must be clear and compelling.

With millions of dollars of value at stake, this applies even more to M&A.

Rhiannon McKinnon says it's natural for people to look at their leaders and copy behaviours. So the chief executive should actively consider what kind of culture to promote. Photo / Supplied

It’s vital to have a clear rationale and vision for what the combined entity can now achieve better together. If your team knows ‘why’ they are doing it, they will buy in and stay – talent retention is the critical first step in delivery.

Keep the message simple and clear and keep repeating it until everyone knows it, understands it, and can echo it back.

Consistent messaging builds trust with your team, which in turn builds speed of execution.

In addition, your employees are important advocates and their alignment, energy, and communications can make a meaningful impact on your customer retention and growth.

Thirdly, prioritise culture.

In any organisation, culture needs to support the strategy for it to succeed. This applies even more so in an M&A situation.

It’s well researched that many deals falter on culture.

Infamous examples of deal failure due to culture factors include AOL and Time Warner, Amazon and Whole Foods, Google and Nest.

The Harvard Business Review a year after the Amazon-Whole Foods merger wrote about “employees literally crying on the job over Amazon’s changes” and the two companies’ cultural incompatibility.

Cultural alignment is crucial. At the outset, the culture of the two organisations should be assessed and the right culture to support the vision should be identified.

Differences between the existing cultures and the new culture should be understood and the newly combined entity should actively build and promote the desired values and behaviours.

Organisational culture is complex, driven both by grassroots behaviours and top-down examples.

Of their many duties, I see the chief executive as chief culture officer. It is natural for people to look at their leaders and copy behaviours, the CEO should actively look to promote the behaviour that they want to see emulated across the combined entity.

A key takeaway from a McKinsey and Goldman Sachs M&A Conference in May 2024 was: “When you fail to focus on people in deals, the ‘soft stuff’ becomes hard, and the ‘hard stuff’ goes soft”.

Deal synergies start by existing only on paper.

Take heed from the experts and focus on people – they are the ones who actually realise the synergies. To lean on Peter Drucker’s often quoted wisdom: Culture really does eat strategy for breakfast.