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How to Navigate the Overcomplicated and Undervalued M&A Landscape

In a sluggish market, opportunities for synergy abound. But if you don't want your deal to fail in execution—like 80% of M&A—follow these six steps.

Mergers and acquisitions are two of the most valuable tools a company can leverage. They’re important for building scale, improving performance and fueling long-term, profitable growth. However, approximately 80% of M&A deals fail. So, how can executives defy this statistic and successfully execute M&A against all odds?

I’ve given this dilemma a lot of thought having participated in numerous M&A deals by virtue of my board positions at Raytheon, Bristol Myers Squibb and Nestle, in addition to my role as President and CEO of HARMAN, which was acquired by Samsung in 2017. In particular, I’ve learned a lot from helping navigate two of the biggest deals in recent U.S. history: the acquisition of Raytheon by United Technologies and Bristol-Myers Squibb’s acquisition of Celgene. I’d like to share six key learnings from my experiences that I like to call the “Paliwal Playbook,” which may be helpful to other executives considering M&A—a process that is often overcomplicated and undervalued.

1. Hone Your Strategy and Strategic Intent

The first step in any deal starts with a clear understanding of your company’s strategic intent and how a merger or acquisition fits into that corporate direction. Once you’ve established this plan, it’s critical to stay true to your mission by building an in-house team of experienced managers who can execute upon your M&A strategy and hold you accountable.

This isn’t as easy as one might think. M&A talent is rare, so you must keep your strategic intent front-of mind while selecting a team. Never lose sight of what you wish to achieve.

For example, HARMAN acquired Sympony Teleca Corporation (STC) in 2015 after we took an honest and comprehensive look at our strengths and weaknesses. At the time, HARMAN had strong base in engineering and manufacturing but was weak in cloud services. STC’s offerings allowed us to better address our customer needs and grow through higher margins. That said, once STC was identified as an acquisition target, the benefits of the deal weren’t immediately clear to everyone, which brings me to my second point…

2. Engage Your Board Early

A board of directors should be a key ally and a source of strategic advice. M&A should be more than just a passing reference at the annual retreat—the board must have a solid understanding of the opportunities you’re considering and when, where and why you’re seeking them. In fact, to avoid surprises, the best strategy is to introduce all “opinion makers”—like industry analysts and media—to the possibility of M&A long before a target is even in range.

It is the CEO’s responsibility to educate and answer hard questions so that the board and other stakeholders fully understand the intent behind the decision and have a chance to contribute additional ideas and feedback. Used strategically, your board will help sell the idea to other stakeholders so the deal can proceed quickly and decisively.

3. Choose the Right Advisors

In addition to welcoming direction from the board, a management team must have a highly skilled set of advisors to guide them. Lawyers, bankers, communications firms, government relations specialists, HR consultants and others are critical to the process.

Given the current geo-political climate, risks of the unknown due to trade policies and other variables can spook the board and management team. But a strong team of external experts can help model the deal based on different scenarios and sell the idea to the board.

4. Identify Key Talent to Drive Culture

Once your stakeholders are informed, your advisers are lined up and the deal is underway, your next mission is to identify the key leaders within the target organization that are going to drive the business forward and champion the deal. I’ve watched many companies parachute their own leaders into the management structure of an acquired business, only to see them fail quickly and publicly.

In my experience, the most valuable part of a deal is the technology and the people, but the latter often gets overlooked. Don’t underestimate the impact of culture on a business’s success. In the initial due diligence phase, companies must evaluate the leaders at an acquisition target, find the “star players” and try to retain them. After the deal, establish respected local leaders that are embracing the new corporate culture to obtain the necessary buy-in from employees and other stakeholders on the ground.

For example, the HARMAN and Samsung merger worked not only because the companies were aligned in their goals to drive and define the connected lifestyle, but also because of the effort that went into building a meaningful and seamless cultural exchange between the companies. Samsung has taken a page out of HARMAN’s diversity and inclusion playbook by contributing to events hosted by the HARMAN Women’s Network, HARMAN employees participate in the annual Samsung Day of Service and members of both companies sit on the HARMAN Board.

5. Understand and Prepare for Activist Interventions

I talked already about conditioning and aligning your audiences, but what to do if you have an activist investor? In the deal between Bristol Myers Squibb and Celgene, the biggest shareholder, Wellington, almost sunk the largest pharmaceutical acquisition of all time. They came out publicly criticizing the deal and strengthened the hand of activist hedge fund, Starboard, which had been canvassing shareholders to oppose the deal.

By understanding the motivations of the activist, we were able to talk to the top five investors about strategic options, including M&A, to ensure they understood why this deal was beneficial for the company’s growth in the long-term.

6. Have a Robust Communications Plan

At the end of the day, no matter how much both parties want the deal to succeed, many elements have to fall into place for the relationship to work. With so many variables, it’s easy to get thrown off course. It’s important to develop a synchronized but targeted set of messages and deliberate plan of attack to appeal to each key audience and to plan for unforeseen scenarios.

In the end, to execute a successful merger or acquisition, executives must evaluate the deal from multiple perspectives. They must think like a CEO, act responsibly as a board member, be as shrewd as an investor and have the empathy of an employee—all while acknowledging that success requires a balance of strategic planning, stakeholder engagement, external guidance, cultural assimilation and preparation for the unexpected.

M&A is not a “rush-to-the-finish-line” kind of activity. It’s more like running a marathon. Companies need to plan meticulously and prepare extensively before they approach the starting line, and, even then, striking the deal is just the beginning.


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