Top Ten Greatest Remaining Challenges in M&A

Mark Herndon headshot
By Mark Herndon
Chairman, M&A Leadership Council
Oct 19, 2016

Now the bad news! Last week we asked the question, “If your CEO or Chairman of the Board called you out of the blue and said, “We have to get better at M&A integration. What are the most important priority improvements we need to make to have the biggest impact on business results?”

Always the optimist, I chose to start with the good news, in this case a summary of the “top ten breakthrough practices or lessons learned that have enabled your company to be more consistently successful at integration.” (See Top Ten Breakthrough Practices). This week, however, it’s my duty to report the hard, cold facts of what’s not working. As a community of M&A professionals, we sure have some heavy lifting yet to do.

Another one of the open response questions on our recent survey, the State of M&A Integration Effectiveness™ 2014, asked “What are the greatest remaining obstacles or challenges, if any, that your company must overcome to be more consistently successful at integration?” Similar to the “breakthroughs” question, we got literally hundreds of responses. Some were one word punches to the gut… (“RESOURCES!”). Others were paragraph length short-stories detailing the in-depth frustration that so many integration leaders can immediately recognize and commiserate with. Still others were eerily similar to the “breakthrough” answers, reinforcing the conviction that true success with M&A integration can often be compared to holding a dozen ping pong balls underwater using only your hands…just when you think you have it all under control, something else pops to the surface. 

"As a community of M&A professionals, we sure have some heavy lifting yet to do"

Regardless of whether you’ve done one deal or 100, I think you’ll agree that the candor, clarity and insight that comes through this week’s downloadable resource, “Top Ten Greatest Remaining Challenges,” is enough to help set an extremely important series of internal M&A capability development objectives for 2015.

As was done with the data presented last week, we conducted a comprehensive content analysis of each answer and categorized each input based on the principal themes or comments. Each of the top ten categories on this week’s downloadable slides are ranked, from high to low, based on the total frequency of similar inputs. As you might suspect, many of the same themes or categories (or close proxies thereof) appeared on both the “greatest breakthroughs list” AND on the “greatest challenges list.” I have noted these in my commentary below with the corresponding ranking on the top breakthrough list indicated in parentheses.

Listed below are a synopsis of the key comments and highlights from the “Top Ten Greatest Remaining Challenges:"

#1. Resources / Conflicting Priorities
(Note: Resources also #1 on “Breakthrough” List)
Key comments included:  "We need more dedicated resources… It just doesn’t work if everybody has another day job in addition to integration…The right resources always have conflicting priorities... Function leaders only give us inexperienced resources resulting in delay, mistakes and additional resource drain to bring them up to speed… Leaders must understand that integration must take precedence in terms of priorities…We have to commit to dedicate and fund adequate resources, or else integration objectives get delayed or don’t get accomplished at all…We underestimated the experience curve required to get the skills in place.”  (Also see, Business Impact of Integration Project Staffing, and Smart-Sourcing Your Integration Staffing Requirements.)

#2. Integration Strategy Framework (e.g. “Game Day”)
While this priority did not appear on the “Breakthrough” list, our regression analysis indicates that this is the single most important M&A integration best practice driver of increased business results in the areas of realizing revenue synergy capture; preventing value erosion; and optimizing the pace of integration. (See: “Integration Practices That ‘Move the Needle’ on Results;” and Game Day Integration Strategy Summit, among others on similar topics in this blog series.)

Key comments included: “Executive management needs to better understand and define the end-state vision…Need to build understanding that one-size does not fit all types of deals, especially smaller targets…We must do a better job of identifying the acquired company’s capabilities and where the true synergies can come from.”

#3. Culture
In the last year alone, I can recall at least four other major studies that all listed culture as one of the key challenges that continue to perplex acquirers. Time to get this one nailed down!

Key comments included: “Cultural integration is by far the #1 greatest challenge…Always seems to be a battle of existing vs. new…We continue to struggle in recognizing and adapting to important cultural differences and doing something meaningful about them…How do we use integration to improve our own culture?...Internal, political obstacles and lack of leadership often prevent meaningful progress…We have to do a better job of working on the longer-tail issues including culture and leadership...We have no way to build empathy for the culture that has already made the target company successful.” (Also see the entire eight-part series of Merger Monday Insights dealing with culture starting on February 24, 2014, Pre-Deal Cultural Due Diligence).

#4. Disciplined, Documented, End-to-End M&A Process. (Also #2 on “Breakthrough” List)
This may sound like a consulting sales pitch, but I can’t help editorializing on this one. Survey comments and direct feedback clearly indicate that many organizations have done some really good work on individual functional playbooks, but not nearly enough concerted effort to define the overall M&A “framework,” or in other words, the full lifecycle process that shows specific phases, steps, requirements and dependencies, etc. needed throughout the organization on every deal. In fact, our counsel is not to build out playbooks until you have this fundamental requirement completed. Remember that the objective survey data also emphasized this finding with 60% of respondents indicating they had no end-to-end process framework or only somewhat of one.

Key comments included:  “Our due diligence and integration efforts are too siloed, resulting in inefficiency, rework and missed opportunities…We have a high-level model, but it lacks specific steps or instructions needed to actually guide actions…Knowing the overall ‘architecture’ of a deal and integration are extremely important…Our senior leaders have no idea what really has to happen after they announce a deal and go on to the next thing…We have to agree on more realistic timeframes required to achieve our objectives…We need a formal process that defines what happens in each step and how to transition or hand-off better between each major phase.”

#5. Integration Support Tools (Also #5 on “Breakthrough” List)

Key comments included: “Our playbooks are stuck in the past and no longer reflect what we’ve learned or how we really do it today…We have to do better at standardizing practices and documenting our best starting point for each deal…Can’t do it without the right tools and adequate training…No playbook…We have to do a better job of building a common understanding of the tools we have and how to implement or adopt them…Teams may have conflicting tools or fail to reflect cross-functional dependencies.”

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