The value and volume of mergers and acquisitions (M&A) have reached their highest levels in recent years: 2021 saw the highest M&A deal value in history, reaching nearly $6 trillion. However, while M&A activity is ever-present in business today, it is still a fact that between 70% and 90% of all mergers and acquisitions fail. How can CFOs effectively lead their people through and realise the full value of a merger?
Due diligence, building the investment case and deal structure are essential facts needed to build a successful M&A, but what role do ‘soft skills’ have in improving the quality, success and delivery of mergers? Serge Thieriet, CFO of Howden Broking argues that, in M&A “the quality of human relationships … are not up for debate”. With pwc reporting the positive value of M&A during a downturn, now is the time to invest in strategic soft skills to power your next M&A activity.
Be open and build relationships from day one
Researchers from Oxford Brookes University found that “communications in the pre-deal stage of M&A are likely to influence subsequent post-acquisition management issues”.
Thieriet agrees, saying that in his experience, strong and open negotiation from the outset leads to positive dialogue.
“When you are negotiating a price there is always tension,” he says. “If the tensions prove to be too big, it will be damaging for relationships. Investing a lot of time, as early as possible, in building that relationship allows you to understand potential fractures.”
By mapping points of friction that may arise in the relationship between acquirer and acquired, CFOs can have a realistic view of potential risks in the relationship, and therefore how best to navigate them.
Whether it’s building relationships, surfacing gaps or understanding early that the merger is unlikely to succeed, CFOs should from day one invest in people, relationships and communication to increase the likelihood of success.
“Investing in the relationship with the team that works for the business that you want to buy will always pay off,” says Thieriet.
Be adaptable to navigate volatile times
Increasing economic uncertainty and its effects on stock prices are likely to continue, with risks from global events such as war and climate change creating volatility. These constant changes and continuing uncertainties affect both the bottom line and take their toll on staff’s mental health. All of which pose risks to the success of any M&A deal.
Adaptability to change and new information is a key soft skill, linked to an open mindset, reactivity to change and an increased ability to take on new information – EY found that 150 C-Suite leaders consider it a key skill for leadership success.
In M&A, this is key because, as Thieriet says, “almost nothing goes as planned … I’m yet to see an investment case that tracks smoothly”.
When market changes happen, you’ll be glad to have invested in building relationships and open lines of communication. This starts with the investment case, and ensuring those variables are sound.
Then, says Thieriet, “look for the macro factors”. Maintaining a vision on the strategic end-goal, and not getting distracted by the small details, increases the potential to deliver. Take the long view.
Prioritise systems integrations for deal success
According to management consultant Bain & Company, 70% of process and systems integrations fail in the beginning of a merger, not in the end.
“Inadequate IT integration hypothesis and execution are the top reasons for that failure,” it says, where said hypothesis is needed “to help a company determine whether to choose one set of systems, a mix of both systems or completely separate systems”.
In his experience of working through M&As, Thieriet says impatience to get the deal done is one of the reasons such vital steps can be overlooked or poorly executed, and can lead to lack of understanding of a company’s existing systems and needs.
During a complex and key carve-out M&A, Thieriet says the counter CFO told him “your General Ledger system is way too expensive – it’s never going to happen”.
“I said okay, fine,” says Thieriet. “A year down the line, they are pushing me to deliver the implementation of our chosen general ledger system.”
However, despite that oversight, the strong relationships that had been built early on in the M&A had created an environment of trust where all parties were at least adaptable and open to changing their positions for the most successful outcome.
Understand the impact of change on morale
Our brains are wired to prefer stability, so M&A activities will always induce stress. “Even those who say they like change struggle when they’re being told that they need to change something in reality.” says Thieriet.
Clarity of communication to help minimise stress is key. CFOs should be collaborating effectively with their CHRO and CCO, and, where appropriate, Chief Transformation Officer to communicate the ‘why’ and the ‘how’ of the merger.
When there is quality engagement, says Thieriet, “people tend to see more often than not where we’re coming from”.
Remembering that every business transaction affects people is vital not only for employee wellbeing, but also for the attraction and retention of talent: according to McKinsey, retaining critical talent and ensuring the right people are in key roles are essential to a successful merger.
For Thieriet, successfully navigating this risk of talent attrition means keeping change to a minimum and trusting people’s expertise, allowing them to continue in their day-to-day roles without unnecessary interference.
Ultimately, to deliver financial success, CFOs cannot afford to ignore valuing each human affected by the merger.
“M&A is more of an art than a science because you’re talking about human relationships,” he says. “And that’s where it becomes more difficult to have tangible benefits. It’s the quality of the relationship that makes the M&A successful.”
Your Soft-Skill Checklist when preparing for M&A, by Serge Thieriet, CFO of Howden Broking
- Open lines of communication early; there will always be bumps on the road. When they happen, over communicate and be as transparent as possible.
- Risk over communicating
- Be upfront about the purpose of the merger
- Know which win-win advantages you can communicate
- Ensure the accuracy of micro, factual, due diligence information
- Examine parts of the M&A that are intrusive; are your relationships sufficiently agile to support complex negotiations and drive success?
- Start with defining the macro factors – especially in these volatile times – and then the micro factors that are part of some of the variables that you decided on within your investment case.