In recent years, we have analyzed over 100 mergers, acquisitions, and divestiture deals of at least $500 million in size to determine the differences between the most and least successful deals. We discovered the following best practices:
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Winning is not about price; it's about smart integrationFor every poor idea (e.g., Quaker acquiring Snapple without understanding the implications of its distribution system), or pricing mistake (e.g., Disney paying $5.3 billion for Fox Family Channel), there are 10 accurately priced, good ideas that go bad due to sloppy integration. In fact, statistically there is no correlation between deal premium and success, indicating that in the deal, marketplace prices on average are fair.
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Winners are clear about their reason for doing a dealThey are after scale economies, scarce talent or some unique combination of resources.
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Winners design their merger integration activities to support the intended resultThere is no one best set of integration activities; they vary according to the intent of the deal. For instance, Bank of America, looking to add value by reducing redundant costs, may act quite differently during integration than Cisco Systems, who may be looking to accelerate the marketplace success of acquired talent and technologies.
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Winners understand the necessary activities for their kind of deal and what capabilities will be required to support them |
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They are relentless in building a detailed integration plan, filling any skill gaps they might have, and executing according to that plan.
The most successful deals were not stand alone deals but one in a series of serial acquisitions by a parent companyFor example, Bank of America gobbled up over 30 banks in the 10 years preceding our study; CSC cobbled together over 35 small consulting firms to build a commercial business; and at one point, Cisco Systems had a goal of one acquisition per month. The defining factor was that the winners developed a very effective set of practices, processes, and people that allowed them to predictably integrate deal after deal. We call this approach a "Merger Factory" and think creating such a factory is the cornerstone for companies hoping to grow through acquisition. We found the alternative approach of betting the company on one blockbuster deal, such as ATT/NCR or Daimler/Chrysler, to be far too risky.
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Successful companies have a proactive plan for cultural integrationThe plan may differ according to the intent of the deal (e.g., Copper Industries forced acquired companies into its culture, while CSC used its many acquisitions to build a stronger commercial market culture). For winners, there is always a clear cultural plan and it is executed well. Unsuccessful companies in our study tended to ignore cultural issues or assume they would work themselves out. They don't. |
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