Three Human Dynamics Factors that Lead to M&A Success

While Mergers & Acquisitions (M&A) continue at a dizzying pace, the success rates have proven to be inconsistent.1 The cost of this inconsistency is often significant and avoidable.

To improve the chances of success, dealmakers have increased their focus on traditional areas of growth– financial due diligence, market analysis, regulatory review, and technical integration. While this focus has undoubtedly contributed to more thoughtful transaction logic, improved pre-transaction diligence, and strengthened post-transaction integration – many acquisitions still fail to deliver deal goals and longer-term business results.

Research from the Journal of Innovation Studies2 points to human dynamics as the driving force behind deal risks and unrealized value creation. These dynamics range from cultural impediments and organizational politics to communication deficiencies and changes to standard policies and procedures. On the surface, none of these factors appear overly challenging or complex. But in an age when burnout, turnover, and mental health are key strategic issues, dealmakers and leaders must prioritize their workforce during any period of transition.

Without proper attention to the most important and unique variable in any company’s operating model – its people – specific integration strategies and organizational goals are less successful for even the most astute acquirer. And the best time to tackle this variable is during the due diligence process.

Integration roadmaps have begun to address and prioritize human dynamics by including workstreams focused on people and culture considerations.

Integration roadmaps have begun to address and prioritize human dynamics by including workstreams focused on people and culture considerations. But typically, these well-intended efforts are under-resourced and lack the right focus.

DHG offers a better, easier way to systematically address the workforce variables that challenge M&A success – one that leverages behavioral science and directs data to empower leaders who can drive value.

M&A represent the ultimate in business change. From the “simple” change of a company name to challenging the unwritten norms of behavior inside organizations.

If acquirers are to realize intended transaction value, they must understand and practically address a target company’s aptitude and capability for successfully managing through change long past a deal closing. And if they do, their people can move from a cost saving goal to a revenue synergy catalyst – the ultimate value creation lever.

DHG believes there are three human factors that help or hinder successful deals.

1 Factor One: Culture – Merging and optimizing two distinctly different operating styles is critical for long-term success. To do this, buyers and sellers need to understand the key elements and material differences of organizational culture that drive the spoken and unspoken norms that power alignment, performance, behavior, and retention at each organization.
2 Factor Two: Management – How leaders and managers respond to change within a merger is of paramount importance to value creation. From new decision-making protocols to communication standards, each person and team respond uniquely. Different than personality type, change agility and response styles illuminate the patterns, strengths, and weaknesses people use to manage and lead through transitions. Organizations can properly diagnose the support their managers require to successfully navigate the significant change that accompanies any transaction and drive management alignment.
3 Factor Three: Readiness – Any transaction is supported or challenged by the environment in which it is inserted. Like the impact of weather on an outdoor activity, understanding change readiness is critical to tactical and strategic decision-making post-transaction. No environment has escaped the impact of COVID-19. For that reason, understanding burnout, change fatigue and organizational confidence in the future have become critical leading indicators for turnover, absenteeism and productivity declines as organizations continue to journey through and beyond the pandemic. With these leading indicators in mind, acquirers have a clear view of the environmental catalysts that meaningfully contribute to M&A success– and the tactical and strategic steps required to respond.

These three factors should be addressed, monitored, and remediated like any other investment metrics in an M&A playbook – and with the same focus and intensity.

M&A activity is forecasted to continue or even accelerate its rapid pace3 in 2022. In an era marked by the great resignation4 and the changing nature of the workforce5, the human dynamics behind M&A success have never been more important or critical to long-term deal success and value creation. When acquirers understand an organization’s culture of change, its management’s response styles, and overall change readiness they can develop and implement informed, sound strategies – ones that optimize success.

References:

[1] HBR 2016 – M&A: The One Thing You Need to Get Right. https://hbr.org/2016/06/ma-the-one-thing-you-need-to-get-right

[2] Journal of Innovation Studies 2016 - https://www.researchgate.net/publication/305406845_Mergers_and_Acquisitions_failure_rates_and_perspectives_on_why_they_fail

[3] Gartner - Gartner Says Global Tech Provider M&A Activity Will Surpass 2018 Highs by 2022- https://www.gartner.com/en/newsroom/press-releases/2021-05-24-gartner-says-global-tech-provider-mergers-and-acquisitions-activity-will-surpass-2018-highs-by-2022

[4] NPR - https://www.npr.org/2021/06/24/1007914455/as-the-pandemic-recedes-millions-of-workers-are-saying-i-quit

[5] The Atlantic - https://www.theatlantic.com/ideas/archive/2020/08/just-small-shift-remote-work-could-change-everything/614980/

ABOUT THE AUTHORS

Scott Spohn
Partner, DHG Healthcare
Scott.Spohn@dhg.com
Ben Redman
Managing Partner, Transaction Advisory
Ben.Redman@dhg.com

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