Why M&A success is elusive for some companies

Mergers and acquisitions remain a key strategy for company growth, but not all executives on the lookout for M&A opportunities think they’re successful in pulling off deals.

Two recent surveys highlight companies’ interest in M&A and the factors that led to some deals falling apart.

Growing complexity was one reason companies had mixed success in M&A, according to a PwC report. Deals are less about absorption and more “transformational”, which PwC defines as involving the acquisition of new markets, channels, products or operations in a way that is transformative to the integrated organisation.

Additionally, stakeholders are putting increasing pressure on companies to deliver value in deals, the PwC report said. Mixing that pressure with complexity means companies have more challenges in the integration process.

Forty-seven per cent of respondents in a Crowe Horwath survey said their companies maintained clarity and focus throughout the deal process, and just 12% said they were very efficient at executing M&A deals. Executives in the Crowe Horwath survey are hopeful about future mergers, but most said their companies’ previous deals did not achieve the intended financial goals and operational synergies.

“Given the high stakes involved, it should no longer be acceptable for companies to take a ‘fly by the seat of your pants’ approach to M&A execution,” Chris Nemeth, leader of M&A integration services at Crowe Horwath, said in a news release.

Sixty-three per cent of Crowe Horwath respondents said their organisations had pursued three or more deals in the past two years, and 27% have pursued one or two deals through the due-diligence stage. But they’re not always prepared to merge or acquire: 43% said their companies didn’t have adequate resources in place to address their current and expected pipeline of deals.

Post-deal difficulties

When deals are completed, challenges remain. The PwC report says the integration of information technology and systems (45%), operating procedures and business process (45%) and people (37%) represent the biggest challenges after a deal closes. Managing locations in multiple countries (23%) also is listed as a top challenge.

IT issues in particular seem to slow down post-M&A integration. Of the respondents who said that IT and systems were challenges, 79% reported experiencing moderate or significant delays as a direct result of IT difficulties, in trying to meet integration goals.

The PwC report, which used the responses of 106 executives from US companies with revenue of $1 billion or more, has three success factors for establishing integration momentum and delivering deal value:

• Early integration planning: PwC’s survey indicates that achieving deal goals happens more often when planning starts early.
• Speed of integration: Moving faster than the company’s normal operating pace led to greater success in achieving strategic, financial and operational goals.
• Sustained commitment to integration: Operational goals, the survey shows, are the hardest to achieve after a deal. More than two-thirds of the PwC respondents who achieved a high degree of deal success said their companies showed long-term commitment to the goal.

Related CGMA Magazine content:

“M&A in Your Future? Plan for Accounting Integration”: European finance executives who have taken part in M&A stress that planning is critical for the integration of accounting functions – before deal completion. About 40% of respondents in an EY survey said companies began planning the accounting integration after the deal was done.

“Five Ways to a Better Divestiture”: Strategic divestitures, as opposed to recent cash-grab asset sales, are foremost on the minds of global executives, an EY report shows.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.