Three common barriers to M&A success in the technology sector — and how to avoid them

Nearly seven in 10 merger and acquisition (M&A) deals fail to enhance value, according to information gathered from MNP clients. This should be a major wake-up call for the Canadian technology sector, which invested more than $12 billion over nearly 500 transactions in 2020.

What’s the reason behind this potential shortfall? More importantly, how can acquiring and target businesses improve their odds of M&A success?

Preparation is paramount

The first 100 days after a deal closes are a period of great uncertainty and instability. Businesses need to prepare a detailed integration plan prior to entering this phase. This should include a strong vision for what they want to achieve, line of sight on the major challenges ahead, and ensuring the proper integration governance is in place.

While its impossible to plan for every challenge or opportunity that will invariably arise, taking proactive steps to ensure the businesses are integration ready in advance of the deal can help minimize the risk during the initial instability period. 

People and culture are rarely plug and play

Human capital is one of the greatest assets on offer in a M&A scenario. An acquiring firm may expect to gain access to some of the best coders, analysts, or developers in the industry. But it’s unrealistic to expect that all resources will understand their place and what is expected of them in the new organization.

People often feel tentative, skeptical, even resistant to change and uncertainty. This can lead to significant declines in engagement and productivity at a time when both organizations need to be at their best. An effective integration plan must therefore include a detailed communications plan to address the questions that will frequently arise throughout the transition, and be responsive to the challenges people will encounter.    

How secure is my future?

Many employees will be understandably nervous about their job security, and most will struggle to perform at their best until they have certainty about their future. These anxieties and related productivity impacts will compound the longer they’re allowed to linger so management communication speed is of the essence.  Organizational changes should occur as soon as possible after deal closes, both for exiting and retained staff. It will take time for the new organization to operate effectively and delaying organizational change may increase the risk of value creation target delays.

Enabling technologies needs to enable a seamless transition

Bringing the organizations onto a shared technology architecture is mission critical for a seamless and fully integrated business unit. Technology transformations and onboarding processes need to occur rapidly, and with as few hiccups as possible to avoid further destabilizing operations.

However, it’s often only once the deal closes the finer details come into view and transition teams can fully grasp the challenges ahead. Even with a solid foundation, there’s no guarantee of a smooth transition from one set of systems to another. A clear go-forward technology plan is vital to ensure the migration proceeds efficiently, employees can continue to do their jobs effectively, and deal value grows as a result.

How dedicated integration management helps

Operations teams will be even busier than normal preserving confidence and continuity in their respective businesses throughout the integration process. Minimizing disruption to team members or the end user in the first 100 days after a deal closes is paramount. Operations management should be involved in the planning and delivery of integration activities as they will be accountable for the new organization’s performance ­— but dedicated integration management is highly recommended, especially in the pre-close and post-close stabilization period.

Appoint an Integration Management Office

An integration management office (IMO) brings together skilled advisors from a range of disciplines to help coordinate and navigate the complexities ahead, including:

• Public relations professionals to develop and consult on messaging
• Human resource and organization designers to coordinate the people and process design
• Technology experts to support platform integration and mitigate cyber security concerns
• Project managers to coordinate people and monitor process

These resources bring extensive experience navigating complex post-M&A environments and provide an immediate injection of short-term manpower to help smooth the path forward. MNP offers this service to our clients and there are many benefits to having a third party, specialized consulting team to augment the Operations team during the integration. There are often high levels of emotion in a transaction which consultants, who are typically perceived as neutral, can help mitigate.

Add temporary support to the executive team

Appointing a temporary Vice-President, Integration, can help keep key executives apprised and engaged in the process without unduly burdening their already significant workloads. This individual is leadership’s eyes and ears, helping to develop and guide the change management strategy and coordinate the necessary people and steps to create a cohesive and unified entity.

Improve value creation probability

Of the seven in 10 mergers that fail to add value, nearly two thirds have a completely neutral impact. Given the time and money invested in finding the right target — not to mention the mental and emotional effort of negotiating and executing the deal — a null result can almost feel more disappointing than an objective setback.

A proactive approach to integration planning and methodical project delivery over the first 100 days delivers the efficiency, financial, and operational excellence a transaction needs to succeed. But even more, it helps to create the right conditions for people, products, and systems to thrive in newly formed organizations. Collectively, these outcomes increase the likelihood of successfully achieving the value creation objectives by dedicating resources and leadership focus to set the best course from the onset.

To learn more about pre- and post-merger integration support, contact Graeme Wedge, Senior Manager, Advisory, at [email protected].