Merger & Acquisition: Promises vs. Reality

Imagine this scenario:

The Visionary Products’ shareholder meeting ends with the unanimous approval of the NimbleBrands acquisition. 

This one is a no-brainer: there is clear alignment on vison, the product lines are complementary, and there is redundancy in internal organization and functions. Visionary’s leadership promises synergistic growth to the board and shareholders, but there is reason for concern: studies have shown that between 70 and 90% of mergers and acquisitions do not achieve their promised value. The threat of the “Leaky Bucket” looms.

What is the Leaky Bucket?

The “M&A Leaky Bucket” is the unexpected and often unexplained erosion of promised sales and profits over the course of an integration. The leaks are caused by a variety of factors, but often center around the high-pressure rush to results.  

Some of the most common contributing factors include the following:

1.    Inadequate due diligence

The due diligence phase is short, and because of confidentiality and resource scarcity, teams are typically very small and at a senior level. That means that the people who know the reality of the business are often not even consulted. Due diligence on the target side is also problematic unless you know the right questions to ask. The challenge is understanding if that 20% growth rate is real, or if it has been propped up by short term decisions to increase attractiveness for acquisition.

2.    Unrealistic benefit expectations

Pressure to get a deal done means the financials must work. Corporations typically have standard deal metrics that must be achieved to get board buy-off. These metrics can push the deal team to commit to financials that are a stretch at best. In addition, leaders can be overconfident in their own company’s capability and may underestimate the capability of a company being acquired, especially if that company is smaller and perceived as less sophisticated.

3.    Technical transitions are not mapped in enough detail

Technical transition is the most difficult part of the integration for executives to get their arms around, which often leads to underestimating costs. An IT leader in the midst of an integration recently provided a fitting example:

“When both companies have the same enterprise software, leaders incorrectly assume that integration will be less complex and inexpensive… In reality, underlying deeper issues such as data and interfaces drive the cost and timeline.”  

Technical transition applies to non-IT factors as well. Aligning on business processes, compliance responsibilities, and even physical space is complex, time consuming, and expensive.

4.    Focusing on integration tasks, not the benefits

Leadership often makes the mistake of thinking they can get a jump start during the integration program via proactive planning. They set up an integration team, develop plans, verify that risks and issues are mapped, and insist on a rapid escalation process. But the problem is, this often comes at the expense of focusing on the actual M&A benefits. To ensure that sales and profits aren’t leaking, you need to identify value drivers and map them to metrics, work out which KPIs are leading indicators of success, plan for all eventualities and react quickly to situations that arise during the process.

5.    Insufficient or ineffective change management

Change management is the art and science of equipping the organization with what it needs to navigate from the current state to the ultimate vision. If leaders move too rapidly from strategy to execution, the organization may not receive clear communication, knowledge, plans, and tools. The result is that individuals are not completely engaged in the process of change and results suffer.

6.    Insufficient integration resources

The biggest challenge of staffing an integration initiative is that the most important potential team members are critical to running the day-to-day business as well. Why? Because they best understand business operations and processes and know the informal communication networks that help get things done. In a resource-constrained environment, integration responsibilities may be given to employees with less capability than required, or key employees are required to straddle both integration and operational roles. This choice creates strain and fails to set top employees up for success in either role.  

7.    Not enough attention on the culture

One of the key missing elements in integration is culture alignment. Cultural differences are often not adequately addressed in the pre-deal M&A analysis. In addition, lack of clarity on which company’s strategies, processes, and systems will win the day can cause tremendous amounts of frustration and inefficiency. This is exacerbated as people feel the pressure of potential job loss or role changes.

Not surprisingly, the M&A “Leaky Bucket” is a challenge to corporations around the world. Proactively addressing these common causes can make a major impact on integration success.

Does the Leaky Bucket or any of the reasons for it sound familiar? Would you like to not only be able to ‘plug the holes’ of the bucket, but also add additional value into the bucket? For a jump start on understanding the value drivers of your integration, Aspirant offers a Value Maximization workshop for leadership teams. Connect with us for more information…


Mike McClaine

Written by Mike McClaine

Mike is Aspirant's president, and a proven strategic leader in creating corporate visions and achieving their full value. He has delivered results across a spectrum of corporate and consulting leadership roles, and understands what organizations truly need to expedite change and deliver value faster. Mike’s unique combination of business experience in Strategy, Marketing, Operations, Supply Chain, Business Transformation, Technology, Capability Building and Culture Change enables him to provide a broadly informed viewpoint when solving enterprise problems or striving to take advantage of market opportunities. He serves as a key leader to bring the vision of Aspirant to life for clients across North America and the globe.

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