Mergers and acquisitions (M&A) are notoriously complex, and the stakes are incredibly high. While M&A activities can offer substantial benefits, the harsh reality is that only a small fraction—just 14%—of these deals are considered successful. What goes wrong? In this article, we'll explore the top five reasons M&A deals fail, with a particular focus on often-overlooked technology and IT integration plans.
1. Overlooking Technology and IT Integration
One of the biggest pitfalls in M&A is the underestimation of the importance of technology and IT in general. When two companies merge, integrating their IT systems is often more complicated than anticipated. Whether it's incompatible systems, data inconsistencies, or cybersecurity issues, technology can make or break an M&A deal. When carving-out IT from larger IT environments, the complexity increases significantly. Throw in small to medium-sized businesses and private equity firms without in-house IT skills, the complexity graduates to a level of chaos.
The Importance of an Experienced Technology Team
An experienced team of technology strategists can significantly minimise these risks. It starts with detailed discovery to understand the current state of both companies' IT landscapes, or during a divestment, understanding the carve-out perimeter. This phase sets the stage for a smooth integration, identifying potential roadblocks early on and helps the stakeholders on both sides, to manage risk effectively.
2. Lack of Detailed Discovery
A successful M&A deal begins with a thorough discovery phase. This involves understanding not just the financials but also the operational, cultural, and technological aspects of the companies involved.
The Role of Detailed Discovery
Detailed discovery helps to identify synergies and areas where conflicts may arise. It provides a roadmap for integration / carve-out and ensures that all potential issues are addressed before they become overwhelming problems during an already stressful period.
3. Inability to Share Future Strategic Goals
Another critical factor is the alignment of future strategic goals. When companies fail to clearly communicate and align on their vision for the future, the merger is doomed from the start.
Aligning Strategic Goals
Open communication channels and collaborative planning sessions can help ensure that both parties are on the same page. This alignment is crucial for a seamless integration and long-term success. The opportunity to transform technology services and solutions, frequently presents itself during a transaction. Not being able to benefit from the opportunity, impacts the return of the investment negatively.
4. Underestimating Cultural Differences
Cultural fit is just as important as strategic fit. When two companies with vastly different cultures merge, the clash can lead to significant operational challenges and employee dissatisfaction.
Bridging Cultural Gaps
Conducting cultural assessments and fostering an environment of mutual respect can bridge these gaps. Leadership plays a crucial role in setting the tone for a unified company culture.
5. Insufficient Investment in Integration
Corporate executives report spending more on M&A integration than ever before. According to a PWC survey, 56% of executives spend 6% or more of the deal value on integration, up from 38% in the prior survey in 2019. Among successful M&A organisations, this figure jumps to 78%.
Sustained Investment is Key
This trend suggests that sustained investment in integration is vital for success, especially in transformational deals. Experienced executives understand that allocating sufficient resources and attention to the integration phase can make the difference between a successful merger and a failed one.
Conclusion
M&A deals can be complex, but understanding the common pitfalls can significantly increase the odds of success. From technology integrations or separations to cultural alignment, every aspect requires careful planning and execution. By leveraging the expertise of seasoned professionals and committing to sustained investment in the integration phase, businesses can turn potential pitfalls into steppingstones for success.
By addressing these critical areas, business executives, M&A executives, corporate finance professionals, and private equity firms can better navigate the complexities of mergers and acquisitions. The path to a successful M&A deal may be challenging, but with the right preparation and investment, it's entirely achievable.
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Jakobus Koorts
| Chief Executive Officer, Numata
Jakobus Koorts is the co-founder and CEO of Numata, a leading global business technology services and solutions provider for SMEs, with offices in the United Kingdom, Ireland and South Africa. With 20 years of leadership experience at the helm of Numata, Jakobus specialises in business strategy and is responsible for designing and executing growth strategies across different global business units within Numata.
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