The M&A Success Puzzle
Recently I was asked, “Who among the stakeholders receives the most benefit from the M&A transaction?” While there are many different groups of stakeholders within both of the parties to the transaction, each will have a different view or level of expectation regarding the benefits accruing to them.
The stakeholders of both the seller and the buyer may include: the executives, employees, clients, suppliers, vendors, intermediaries, as well as, investors, customers, lenders and creditors. Others may be indirectly affected such as local businesses, the media, Government regulators, and others with whom the acquired company interacted.
There are generally preconceived notions regarding the impact resulting from the M&A transaction for each of the stakeholder groups. Generally the seller’s investor’s benefit is limited to the net proceeds from the transaction. But the buyer may be open to paying for a portion of the proceeds to the selling shareholders with the acquirer Company’s stock. The recipients of these shares would then defer some of the taxes and receive the possible future appreciation in the stock of the combined entity. The selling shareholders may thereby achieve liquidity that was not otherwise available. And a strong pre-sale financial performance could have provided a premium on the valuation.
While certain stakeholder groups could be adversely affected by termination, relocation, consolidation or changes in operation practices, the benefit to others would depend on the seller’s business and financial situation. The seller could have had great performance or have experienced stagnation and financial decline. Possibly the seller was faced with great market position and potential, but lacked the ability to capitalize on it. In the latter circumstances, the stakeholders would benefit from a larger and stronger organization with access to capital and financing that the seller could not command.
Stakeholders, in their attempt to maximize their benefit, often have conflicts with the buyer and each other. Old customers resist change to the way they previously did business, or resist the adaptation of newer and more expensive technology. The seller’s employees may resist the buyer’s desire to merge or replace old policies, procedures and processes. The buyer’s employees may be concerned about their positions or foresee taking on more and different staff, products and support requirements. Suppliers and vendors may be realigned, resulting in more or less consideration.
Communication with all of the groups regarding the creation of value in the future and how the organization will function is imperative. Disclosing the multi-year strategic plan, how it will satisfy customers, and how people, processes and technology will lead to success is critical. The communication will stress how a successful integration will utilize the stakeholders of the combined entity to identify and maximize the benefit for all. Generally a larger buyer also leads to more employee and executive opportunity. All boats will rise.
The Integration Manager must take initiative to seek out stakeholders, communicate plans and anticipated results. He must also seek ideas and comments from all stakeholders and at all levels of the organizations.
Most successful integrations have outcomes that changed the buyer’s operations in a positive way. These transitional outcomes may lead to closing old and inefficient plants, maximizing specialty capability in the marketplace, and/or becoming a more flexible organization. Benefits may arise from creating new compensation models, implementing changes and improvements to buyer’s systems and processes, moving production closer to markets, and streamlining inventory physical management and systems.
Bringing in the various groups and making them integral to the integration process achieves a buy-in success for all.