How To Increase The Odds Of M&A Success

Close the deal—build the dream team later.

In the private equity space that once common approach has become ineffective and problematic. Not having the right talent in place to execute on Day One is a risky proposition in today’s workplace climate, where both employees and customers are flight risks. Similarly, in corporate, assuming a dream team will remain in place during the course of a merger or acquisition is no longer a safe bet. The once evergreen pool of talent that afforded companies the luxury of losing some key players does not currently exist. The needs, priorities and concerns of multi-generational workforces further complicate how companies must communicate and lead effectively.

According to Deloitte’s The State of the Deal: M&A Trends 2020, despite the robust deal environment, there is a decline in the level of deal success across both private equity and corporate. Forty-six percent of respondents reported that half of their deals failed to live up to their expected value, up from 40% the year prior. Aside from external, market or economic forces, the biggest internal reasons cited for the failure to achieve the intended value are a blend of: “integration and execution gaps, talent issues, lack of clear M&A strategy, inadequate or faulty due diligence and failing to achieve culture alignment.”

A common factor among the internal causes is talent. M&A is not immune to the fact that the old methods of recruiting, retention and communication no longer work. In fact, the state of change during mergers or acquisitions puts them at greater risk for talent-related challenges.

Fortunately, these issues can be mitigated and improved with a proactive talent strategy that includes predictive analytics and a comprehensive communication strategy pre, during and post deal close.

The financial and operational impact of why change is needed — a view from the inside of private equity backed companies:

According to industry expert John Bova, VP of Private Equity for RPG, “Post deal close strategy alignment assumes the PE ownership and CXO tier of the acquired firm have aligned timelines and goals for transformation and will provide the data, reporting and governance requirements the PE fund demands. Often though, [only] after the first board meeting and potentially missed deadlines on 100-day planning do the costly gaps in planning, execution, talent and time emerge. The PE firm then must rapidly assess gaps and augment as part of transformation planning and execution. Next the reality sets in that certain executives and senior executives are not cut out for the role. Finally, the problem of time: If potentially year one of the ownership has been lost to achieve this understanding, then outsized exit results through operational improvement will be compromised if not lost completely.”

Follow the data to more successful deal outcomes

Billy Beane is the subject of the book and movie, Moneyball, about his early adoption of predictive analytics which brought the Oakland A’s to the 2002 Major League Baseball Playoffs with one of the lowest payrolls in the league. This data driven model was quickly followed by other MLB organizations, which continue to strategically build their winning teams with predictive data.

The concept of applying Moneyball principles to M&A may not be new, but it is today’s workplace climate that warrants a more science based approach to optimizing talent. Some current facts:

• Due diligence takes 30% longer than it did 10 years ago. (Deloitte)

• 53% of deal makers say digital tools accelerate and impact M&A transactions by providing needed additional insights. (Deloitte)

• 84% of this group agree that digital tools give buyers greater insight. (Deloitte)

• Only 47% of executives have the right tools to evaluate their team fit. (The State of Talent Optimization Report 2020)

• Execs say only 49% of last year’s hires were good hires. (The State of Talent Optimization Report 2020)

Bova offers how predictive analytics can help streamline this process, “What if the use of Human Capital Analytics at diligence could better predict fit, readiness for change and a value creation pivot to success? Diligence stage assessment would be the stage to begin this journey to assess talent, gaps and development of an organizational structure and growth strategy to meet a people strategy.

“While not a historically integrated part of the diligence process for acquisition, it may soon become as common or as necessary as the quality of earnings report. As long as executive talent is lacking for such complex roles, the PE-backed company may not have the talent to execute on Day One.”

Why now?

The irony is that M&A is all about change, yet the processes and some technology have not evolved to suit today’s workplace climate. Having a Human Capital expert on staff or on retainer for PE firms was largely unnecessary because there was an evergreen pool of talent and the “I know a guy” approach generally was effective enough to fill open roles. However, today’s business climate favors candidates. Employer review sites, employee engagement and how companies communicate and lead multi-generational employees are all key business drivers.

Employees and prospects alike may value different things, but what they agree upon is the need for transparency and trust. Given the job market, no one has to stay in stressful or uncertain environments. According to the 2020 YPO Global Pulse, 96% of CEOs rate building and maintaining trust with stakeholders as a high priority. Yet only 40% of them find it easy or somewhat easy to build trust with employees.

When leaders or companies do not know what to say or do not have major updates, as they might during the course of a deal, very often they default to saying nothing. That silence can be viewed through the lens of the employees as a lack of transparency and untrustworthy behavior.

In the past, such “need to know” drips of information were both expected and tolerated by employees during transformations, but not today. Virtually all levels of employees have options. Competitors are more than happy to lure high performers to their organizations. Successful change initiatives dictate a comprehensive strategic communication plan to support the desired goals and outcomes. In conjunction, next-level predictive data enables companies to tailor communication within teams, glean feedback about potential blind spots and capitalize on strengths.

A results driven new norm

With competition for people and funds at all-time high levels, why not gain a strategic and results-oriented advantage by taking a modern approach to human capital with three essential steps:

1. From the due diligence phase, leverage predictive data with tools capable of assessing strategic alignment and identifying strengths and cautions.

2. Align business strategy with a clear talent strategy, including leadership and culture fits, as well as tools to find the right talent faster.

3. Leaders must commit to supporting and executing a strategic communication plan that creates the narrative that employees want to embrace and follow, even during times of change.

To accelerate growth and shrink the valuation gap, take steps to ensure you have the right talent and strategy to execute—from Day One.