Although M&A deals are increasingly done for growth, only a third contribute any value, according to the most recent global survey commissioned by KMPG. Steve Bone gives his top 5 tips on how to ensure deals deliver on their expectations
1. Get the CTO on the top table
The KPMG survey revealed that given their time again the management teams would have done more due diligence and better planning. This need for good planning extends to R&D and it is vital that the CTO is involved right from the start of the acquisition process.
Often an acquisition arises when a small group of executives makes an offer for another organisation. This is normally financially driven by the desirability of the company’s client base and its product portfolio; this assessment is often done only on paper.
It would be hoped that the CTO is involved at the due diligence stage and be given an opportunity to assess the value of the technology being acquired as this impacts the valuation of the acquisition. But all too often the CTO is left to try and deliver the expected returns with little input on the merits of the acquisition.
2. Evaluate the product pipeline
Generally a deal is made because it looks a good financial transaction on paper and it is easy to forget that it is up to the CTO to drive the value downstream.
Due diligence, particularly in the pharmaceutical or FMCG market is vital. Issues can arise around the product stability. Have all the products in the portfolio been checked? Are they regulatory compliant? Are they likely to meet their delivery dates or has development been suspended pending the acquisition?
Acquisitions go ahead as it is thought one and one make more than two, but if you haven’t the pipeline to support that growth you can’t begin to meet the ambitions that have been raised for the merger.
3. Recognise the experts in the acquired company
Growth depends on synergy between the two organisations and this relies on the technology teams getting together and developing a mutual understanding and respect. Clearly the company doing the acquisition may not have experts in the product areas being acquired and some humility is required to recognise this. Learn from people and do not assume that you know everything.
Ideally this process should start as soon as you possibly can as this helps to build rapport between the two teams. It allows the team from the acquired company to input into the process and feel ownership; a sense that they are being welcomed in to the new family.
4. Be sensitive to cultural differences between R&D teams
The KPMG survey found that corporates who paid attention to the soft factors relating to a transaction were 26% more likely to have a successful deal, with culture and retention the top issues.
However, people need to be constantly reminded of this, because in the financial exuberance it is easy to overlook. After all companies are collections of individuals and if you don’t value the people and make them feel wanted, it is usually the best and the most employable that will walk.
This is particularly apparent in R&D focused businesses. Culturally there are differences between R&D departments and sensitivity is needed over issues such as the status that R&D has in the different companies, the time to market for products and their lifecycles.
Scientists in particular tend to be more introverted personalities and you need to allow them more time and opportunities to get to know each other. One tip is to give them the opportunity to present their work to each other, their enthusiasm then comes through and this helps to break the ice.
Allow plenty of time for each party to get to know and understand each other’s technology. You need to get them coming to the table as equal parties and you want to grow both sides of the business.
5. Bring in resource to drive through growth
If the worst happens and you realise that there isn’t the pipeline of products that was anticipated there are a number of measures that you can take.
The first is to increase the resource available, perhaps bring in some of your team for brainstorming and add extra scientific horsepower to the situation. Or you can start to go outside of the company and look for open innovation or external technology consultants.
An external technology consultant can help to find the synergies between the two product portfolios. By taking the strengths of both companies it is possible to come up with new opportunities in both areas or in completely innovative approaches that will become new growth platforms. Neutrality is an additional benefit of an external consultant.
Assuming that you want to do more that bolt the two companies together and strip out the duplication in the back office, you then come together to find different categories in the combined company and assess the relative priorities in the new company and how they will be resourced.
You can’t keep the status quo otherwise there would be no benefit in bringing the two together. You need to assess what is the least profitable activity and stop doing it. This needs to be handled sensitively as there will be perceived winners and losers and everyone needs to be aligned on the new priorities.
Lastly, you may need to deploy more resource to reposition the department and there is often a peak of cost before it starts to deliver a return on investment. Intellectually this is accepted but emotionally the senior management will want to charge forward and see results, so the CTO needs to manage expectations
In my experience unless you spend the time to build a technology strategy, to ensure the innovation pipelines are inline with the expected growth there is a risk that the financial targets will not be met – upfront planning ensures the value of the acquisition can be realised.
There is usually a good rationale for an acquisition, but do not neglect the cultural issues, building a high performing team is vital to ensure success.
KMPG report. ‘A new dawn: Good deals in challenging times’
The report discusses the results of the sixth global survey commissioned by KPMG to examine M&A deals throughout their life cycle—the way these deals were managed and the value they represented.