Riskiest Days in M&A Integration

M&A Integration is fraught with risks

M&A integration are full of risks.Each stage of the M&A cycle from sourcing to Due Diligence to Valuation to signing and closing the deal is complex and risky.
At the same time, in this age of digital era where companies are looking to change their business models to compete effectively against disruptors, integrating an acquisition is far more risky and often determines the success or failure of the deal.
Even though every phase in M&A integration is risky, there are three phases which are career limiting, brand damaging risks that are often very difficult and nearly impossible to recover from.
The following three M&A lifecycle milestones are more often the riskiest days of a M&A transaction.

Day Zero in M&A integration

  • The Day zero is risky because it has an adverse effect on acquirer share price, market risk and competitor risk. In case of acquisitions which are earnings dilutive, the downward share prices of the acquirer persist far beyond announcement day.
  • This share price pressure can cause management teams of the acquirer to provide aggressive guidance on earnings for achieving deal value capture objectives.This can result in ambitious synergy targets which can lead to financial restatements.
  • The other major challenges that an acquirer can face is the attempted poaching of the target key accounts and talent from the competitors. The high uncertainty and anxiety on the minds of target employees on day zero provides a perfect scenario for competitors to launch an all out assault to acquire the best talent and key customer accounts.

Day 1 in M&A integration

  • Day1 is the day where the acquirer takes the operational control of the target company.Day1 typically occurs in the first day following legal closing.
  • The risks in the day zero or deal announcement were mostly due to external factors like how markets reacted to the acquisition and the competitors attempt to poach the target key customers and employees.
  • The risks in the Day1 are mostly internal which stems because of inherent organization risks, leadership credibility risks and high probability of incurrence of long term perceptions damage due to cultural differences between the target and acquirer.
  • Day1 often results in freeze in the target organization due to uncertainties caused by ambiguous communications, loosely defined transitional operating protocols followed by poor integration planning.The decision making and governance process needed to guide the newly acquired business to operational cut over is ineffective.

Operational cut over in M&A integration

  • The transition of operations from target company to acquirer needs to be seamless.When this does not happen, customers defect which would result in loss of revenues and failure to achieve the synergy targets.
  • This phase is risky because acquirers tend to take their eyes off the ball due to an internal only focus.This is the most crucial stage of the integration and lack of oversight here can destroy the deal value. The anticipated synergies benefits to be derived from this deal will vanish.

Conclusion

The riskiest days in the M&A integration does not result only in negative synergies. These are career limiting, brand damaging risks that are very difficult or nearly impossible to recover from.



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