What are the primary motivations of a company to consider an M&A transaction?The primary motivations for M&A tend to revolve around improving the financial performance of a company. There are several avenues by which this can be achieved through M&A. Most common are reduction of fixed costs through economy of scale (i.e. removing duplicate departments and operations), economy of scope, increased revenue or market share, cross-selling of the merged companies’ products and synergy (i.e. improved purchasing economies due to larger order sizes and bulk-buying discounts).
What role does the board of a business play in an M&A transaction?
In an M&A transaction, the board’s key roles are risk oversight, diligence and responsibility for the final decision.
A board can safely delegate a lot of day-to-day business to its management team, but it must always stay on top of the company’s strategic direction. This includes retaining an active role in any major non-routine decisions, such as mergers and takeovers.
Management will often provide a wealth of research and information prior to a merger, and they will naturally be excited and keen to see the process through. It’s essential for the board to take a dispassionate view of this information, and make the ultimate assessment of the risks and benefits before proceeding.
How can employee turnover be prevented after an M&A deal?
The key to retaining staff following an M&A deal is empathy and understanding.
M&A deals can be deeply unsettling for staff, particularly those at middle management level and below, and especially if they’ve been around for a while. They’ll likely feel out of the loop, uncertain about the future, and worried that the working culture they’ve become used to will now disappear.
Preventing staff turnover therefore requires clear, reassuring communication, and it’s vital for the new owners to earn employees’ trust. Make sure employees know that you value their experience and insight into the business, consult them on any changes, and consider offering a financial incentive to stay.
How is the success (or failure) of an M&A deal measured and evaluated?
M&A transactions can be undertaken for a number of different reasons, such as the elimination of competition, the acquisition of a company’s products, assets or expertise, or gaining access to an established customer base. To judge the true success of a deal, it’s vital to evaluate whether those original aims have been met.
In terms of measurement, an accountancy approach offers a clear, objective measure of the performance of the new business. It’s also useful to get the personal views of management and staff, to see whether they’ve become more productive, or encountered problems with the integration of procedures and cultures.
How long after an M&A deal should its success be evaluated?
Evaluation of an M&A deal should start right away, but a final conclusion will take time.
M&A deals are inevitably based on certain assumptions and predictions, and these will be subject to various timescales. By starting the evaluation process immediately, you may be able to identify and fix some problems before it’s too late.
In the short term, evaluating the success of integrating two different cultures, management structures, IT systems and procedures can start from day one. Setting key target milestones for the first days, weeks and months can be useful.
In the long term, however, it may take months or even years before operating costs have stabilised, efficiencies have been realised and projected growth has occurred.