Merger activity declined sharply in 2023. Economic uncertainty around interest rates and a concern about a looming recession applied the brakes on dealmakers. As 2024 opens our forecast (shared by Deloitte and others) indicates a rebound. Since M&A is a viable growth strategy actively seeking transactions makes sense. However, here is the rub:
The odds of M&A success are not high
Our research suggests only 1/3 achieve the goals anticipated in the deal thesis. Recent analysis reported in the Wall Street Journal nudges the odds upward to 50%. Given the expense to find and negotiate a deal, the disruption to buyer and seller organizations, does it make sense to pursue a strategy equivalent to a coin toss?
The good news: over the many years we’ve been advising clients, and having recently delivered a successful merger, here are four principles designed to beat the odds:
M&A is a learned competence. Those who have done multiple transactions have far higher success rates. Salesforce is an active acquirer with a well-designed M&A process. Their high success rate is no surprise. The corollary: If you are new to the game make sure you engage an experienced advisor.
Capture learning from each transaction and share. This is how to build competence. Some do informally, sharing stories (Corning) others create detailed documents (the habit for tech companies).
Work on the post-transaction plan early and often. Hint: If you are discussing the term sheet and have not begun to discuss merger integration that’s a bad signal. With our client, FabSuite, we quickly eliminated other contenders and focused on Trimble who initiated the merger integration conversation with its letter of intent (LOI).
Perform a post-transaction audit once the dust settles to assess what is working and what is not. This activity is a major contributor to #2 above. It builds competence. We did this when we merged the firm I founded, Braxton Associates, into what is now Deloitte Consulting and more recently after our client, IMDF, merged with Healthwise.
In our experience, those who adopt these principles switch the odds from a 50/50-coin toss to the 90% range proving that M&A can be a viable growth strategy.
Sage Partner Thomas Doorley III contributed this Sage Advice.