One year after many negotiations, expectations and doses of resilience, the day will finally come that will be marked as the beginning of a new era in the lives of two companies that have crossed the various phases of a process of acquisition and merger, or M&A. The day of closing this process usually reflects a sense of reward on the part of the entrepreneur. It is exactly at this moment that this entrepreneur can have the exact notion of the value built in years of work.
On the other hand, it brings a sense of victory to those who are acquiring the company. The buyer was a Pathfinder for being able to convince shareholders of the strategic value of the business and dribble other buyers. Everyone happy in a happy day. But reality is not quite. Unfortunately, it is on this day when the biggest problem of a relevant portion of the completed.
About 2/3 of negotiations involving acquisition and merger processes do not capture the expected value from the buyer’s point of view. This happens due to the absence of synergies naturally expected in this type transaction. Another problem is not to capture the value expected by the seller, because the performance goals are not achieved, so the Earn-out (contractual clause that is linking the payment of part of the purchase price of a company to the seller only when certain performance goals are made after purchase).
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But all this is not exactly new to those who are daily involved in fusion and acquisition processes or for those who have had some related experience in life. Why, then, is this problem not avoided? There are some reasons that persist, because the M&A process is already quite exhausting and complex by itself, so thinking about what will happen the day after the conclusion of the business is an exercise that many people are not prepared to do.
There is the “emotional rebound” factor of every transaction. The seller is learning not to be a controller, while the buyer is learning the rock path and if he had a lot of work before, now he has even more work. In addition, all M&A requires a future projection exercise, which naturally embodies a degree of variability. And draw a transaction that respects this is quite complex. There is a resistance to working with uncertainty and taking the risks that the process brings.
It is worth remembering that an M&A is a collective project, that is, it involves a team formed by buyer, seller, advisors and lawyers. When this process is completed, a relevant portion of the people involved in the transaction no longer is part of the daily life of the operation. Lawyers run to the next deal, as well as the advisors. These professionals play roles that naturally end with the completion of the business.
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Then the phase that includes the structuring of the entire transaction is super relevant. However, in many cases, it is based on the premise that the agreement associated with the business can anticipate any and all variation around it. This scenario, by definition, is a false premise. Mitigating these effects involves many facets, not always contemplated. They are basically seven large dimensions: strategy, governance, people, technology, processes, culture and finance.
To address these dimensions, it is necessary to act with operational depth. In addition to having an advisory component to build (and implement) an integration process that not only avoid variations, but anticipate and can adapt them to the new reality of the business. In practice, this is what we often call PMI (PMI MERGER INTEGRATION), a “business function” in which seller and buyer play a crucial role.
Broadly, it is necessary that the integration project is structured not only to capture the famous cost synergies. It should go beyond and look for real business and revenue synergies, acting in a systemic way. You need to create the conditions for both businesses to actually become one.
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If you are a seller, do not be afraid and/or fear of dealing with these topics before closing your transaction. The more energy it is invested in this, the more likely to have a more assertive scenario about the transaction and its result.
For the buyer, it is necessary to invest the necessary resources from the point of view of time, people and elements to address business integration as a function and not as a project. Surely this practice will favor positive results, also increasing confidence to adopt the M&S process as a valuable value generation strategy added.
