Most pre-due diligence M&A process asks the obvious questions: does the purchase make sense, can we afford it, and can we buy it? Typically, once the answer to these questions has satisfied the buyer, then the parties move into the due diligence process. However, traditional due diligence takes a backward flow approach to the valuation of a company. This is certainly important to help the buyer make a decision, however, it is not the only aspect that will help the merger become a roaring success, hence, we continue to see failures rates in the 65 to 75%.
When we consider how failure rates continue to run up into the 70th percentile then it is not rocket science to see that something is still going drastically wrong. So I beg the question: What if we paid as much attention to a forward thinking approach, by helping companies understand how the product, service, culture and people will merger during the due diligence phase?
Many of you reading this article may believe that this is already addressed. If this is the case then I must ask you, at what stage in the process is this addressed, are the people working on the integration phase part of the due diligence team, or is it handed over once the deal is done? Can your data and culture evaluation identify the management, leadership and people who are ready for change, engaged, resilient, agile and supportive of the deal? Or is there an assumption place on the skills, talent, and attitude of staff? and are current client relations part of the evaluation process?
When these questions are answered during the due diligence phase, it adds an additional value to the deal, as a company will know the potential obstacles that may hinder success based on the talent, attitude, and skills of the workforce and how this may impact client experience and ongoing revenues.
Accenture survey identified that planning and executing the integration process was the most important aspect of M&A success, yet this element is considered a secondary process during the due diligence phase, with regulatory issues, tax/insurance, employment contracts, litigation, technology/IP and financials placed as the priority.
Forbes ‘The Root Cause Of Every Merger’s Success Or Failure’ highlighted that a ‘successful approach is to pick one culture as the host culture and merge the other culture into it’. Academics and industry experts have cited time and time again that culture is the major cause of merger failures. Yet the due diligence process and post-integration process fails to act on this in a timely manner or if at all.
By identifying the ‘cultural capabilities’ of both entities, the communication and planning process can begin at the very start of the deal, reducing the uncertainty that the people and clients may feel when they are left in the dark, making up their own stories as they are not sure what is really going on.
ICOM4 provides 12 to 24-month pre and post-culture due diligence data and integration plans, that identify, how the current skills and attitudes of the workforce impact a companies ability to execute strategic goals, and what needs to be in place to build successful cultures. We work alongside forward-thinking law firms, to integrate this evaluation and integration process as part of the due diligence phase.
I hope that this article has raised some questions in ‘how M&A can be more successful’ and would love to hear your views.
Tanya Harris, is a smart data analytics entrepreneur and sought after speaker. As Founder and CEO of ICOM4, she developed an analytics company that shows a company how the priorities, skills and behaviors of their workforce actually impacts the profits of their business and their ability to executive strategies and drive change.