According to Fortune Magazine global M&A volume in 2010 is up 24% from the same period last year, and August had the highest level of announced deals since July 2008. So what better time than now to look at both traditional and new M&A strategies, and identify the best strategy for your firm. With nearly three-quarters of M&A’s destroying value selecting the best strategy is one of the most important decisions an organization can make.
The traditional M&A Approach: Western companies often believe that a M&A needs to be integrated quickly to maintain momentum in order to realize synergies. Key Points:
- Deliver change in the first 100 days while people are expecting it.
- Setting up strong governance for the effort early.
- M&A should be directed by the people who are most likely to lead the organization forward post-integration.
- For more see Accenture’s Tom Hurd on Beating the Odds to Achieve M&A Success.
Lighter Approach to M&A: Recent Asian M&A efforts have involved only limited functional integration and focused instead on the capture of synergies in areas such as procurement, with an overwhelming emphasis on business stability. An additional 10 percent attempted no functional integration whatsoever. Key Points:
- Limited early integration activity and disruption to the acquired organization.
- Only focuses on areas well suited to economies of scale.
- Keep key executive/management intact to run the organization while acquirer weights options (limited early governance).
- Focuses on few key performance indicators, and relies on targets current talent for operations (no micro-management from afar).
- For more information see entire McKinsey Quarterly article (you may need a free subscription to read full text).
So which method is better – it depends on the situation. If you’re acquiring an organization with strong performance the lighter approach would be ideal. You don’t want to make changes to a well functioning organization until you know it won’t have a negative impact on performance. If you are acquiring because the organization is under-performing (and your organization is high performing with good practices), then I think you need to make those changes rapidly as any delay would result in hemorrhaging both capital and human capital (due to turnover from uncertainty). No matter which approach you use, you also need to have three things in any M&A (or restructuring):
- Clear direction and decisions (but don’t focus on minutia).
- Leadership support.
- Enough resources (both human and financial).
- Good change management techniques (maybe based in neuroscience).
Additionally these same basic themes can be useful to HR professionals preparing for an internal reorganization . The performance of a division/department entering reorganization can help you determine your overall approach to the reorganization.
Lastly, what method does your firm use? Let me know, as well as anything you found useful.
Tyler Totman
twitter: @FAPhoenix