The projected value of global mergers and acquisitions is on a significant upswing. In the first half of 2018, M&A deals soared past 2017 numbers from the same period — landing around the $2.5 trillion mark. Yes, staying independent certainly has its benefits, but the rise of M&As means that, at some point, executives in every industry need to ask themselves whether the value of a merger outweighs the value of independence.
M&As have a real impact on their surrounding landscape. For those on the periphery, M&As can force top talent out of the ranks and back into the job market, making them newly available for hire. Those knee-deep in the M&A process, on the other hand, need to learn to successfully navigate the nuances of integrating two potentially disparate companies through a strategic mix of planning and communication, especially if they want to keep their best players on board.
However, just because mergers mean change that doesn’t mean they need to cause permanent disruption for you and your team.
It’s All About Fit
I’ve seen nearly seamless M&A transitions, and I’ve seen deals fraught with issues from the get-go.
When Keurig Green Mountain merged with Dr Pepper Snapple Group last year to create Keurig Dr Pepper, both parties had a positive rollout. Keurig CEO Bob Gamgort and CFO Ozan Dokmecioglu retained their C-suite positions in the newly formed KDP, while Dr Pepper Snapple CEO and President Larry Young took a role with the KDP board of directors to help direct the transition.
Key players on both sides of the aisle found a happy balance, where each still held part of the reins in the merger. The newly formed organization continues to innovate: In July 2019, the company released its first corporate responsibility report, showcasing its ambitious vision for the future.
Unfortunately, the same can’t be said for the high-profile $35 billion Omnicom-Publicis merger that never came to pass. The merger between U.S.-based ad giant Omnicom and France-based Publicis fell through in 2014 due to a clash of corporate cultures. The partnership could have formed the largest ad agency in the world; instead, an inability to find balance amid strong culture-based disagreements caused the deal to fall through.
Nevertheless, many brands find M&As beneficial, especially if they find partners that fuel their momentum. That’s what occurred when Facebook purchased Instagram. At the time, the $1 billion purchase might have seemed unwise — given that Instagram had only 30 million users and didn’t produce any revenue.
It wasn’t exactly a money-making machine yet, but today, Instagram has more than 1 billion users and brings in billions in ad revenue. As it turned out, the merger was a great example of forecasting future value and leveraging two like-minded platforms with complementary customer bases.
Merging the Right Way
If you’re set on remaining flexible and avoiding the pressure to produce for another stakeholder, you may not want to take the M&A route. But know that the benefits of merging with the right partner could surpass the downsides.
When Sotheby’s International Realty was acquired by Realogy, it grew from $4.2 billion in 2004 to over $112 billion in global sales volume by 2018. Our growth was accelerated by becoming part of something bigger. If you have decided a merger is your best option for growth, there are a few key practices to help you see the most benefit.
- Compare apples to apples. Rather than going down the path of assuming a strategic alignment and customer need, validate that you’re making the right decision and looking for strong partners. During your research, investigate other similarly sized companies that have merged with or acquired a complementary business to see what their experiences have been.
Are there tactics you can adopt for your own business? Hurdles you can anticipate? You’re not the first to undergo an M&A, so take advantage of lessons other companies have had to learn the hard way.
- Consider qualitative factors. Beyond fiscal details, unearth all you can about your potential partner, from hiring practices to cultural norms. A bad culture fit could be just as damaging in a partnership as missed revenue projections, so be sure you and your potential partner align at every level. The Omnicom-Publicis merger uncovered corporate culture and complexity hurdles that kept the deal from going through, illustrating how the success of an M&A depends on qualitative metrics as much as it does financial.
How does the other organization communicate? How transparent is it in its business dealings? Is it focused on changing the future or preserving the past? Does the merger allow your company to do something it couldn’t before? Ensure the strengths and weaknesses of both companies complement each other à la Facebook marrying big-company power with startup agility by acquiring Instagram. Ask yourself whether both sides can contribute and what each party stands to gain.
- Bring your team into the process early. Are you seriously contemplating merging with a company? Have team members sign nondisclosure agreements; then, talk as a group about the M&A possibilities. Share what you’ve learned and explain your rationale.
At this stage, transparency is the name of the game. The more communicative you are upfront, the simpler it will be for everyone to present consistent messaging. Making your team feel involved is critical for stability as you undergo significant changes. A major element of integration preplanning and M&A business continuity is agreeing on decisive mission statements and early communications.
Integrating large groups of people has its challenges. The merging of two companies tends to push all parties outside their comfort zones and disrupts the status quo. But with solid groundwork in place and a clear, aligned vision for the future, a smooth M&A is possible.
Written by Philip A. White.
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