A
ny time an explorer ventures into
unknown territory, he is usually
wise to contract
the services of an experienced guide,
acquire the most accurate map on
record, and have the most sophisticated communication equipment
available. It is also critical that each
member of the exploration team is
selected carefully and carries out the
responsibilities assigned. Those are
the essentials of survival whether
the exploration is of remote places
on earth, exploration of underwater
depths, or exploration of outer space.
The essentials are critical because
expeditions into the unknown are
high-risk ventures. Any poor leadership decision, unexpected hazard,
or breakdown in communication
carries serious consequences in an
unknown, unforgiving environment.
If the exploration team venturing
into a merger or acquisition ceases to
function as a team, what began as a
well-planned expedition into global
markets and increasing profitability
can rapidly deteriorate into confusion and disagreement about the best
way forward or back to a safer, more
predictable growth strategy.
Many M&A deals fit the characterization of “high-risk ventures” and
for good reason. The National Bureau of Economic Research reports
in the 20-year period between 1993
and 2013, acquisitive US businesses
destroyed $226 billion in value. 1)
For longer than a decade, branded
global advisory firms have reported
that 70-90 percent of acquisitive US
businesses fail to achieve their projected financial objectives. 2) Although this research does not carve
out the percentage of cross border
M&A deals included in the reported
statistics, it is clear that cross border
deals are represented in the total.
The consensus seems to be that there
are similarities between domestic
deals and cross border deals – allowing for the fact that cross border deals
are more complicated and therefore
represent a higher level of risk. That’s
a common sense conclusion. What
seems to be missing is a description
of the universal hazards an acquisitive
business is likely to encounter that
would lend clarity to the degree of
risk exposure encountered by electing one route over another. While
all of the research contributes to the
development of a useful map for
cross border M&A deals, for almost
all M&A deals, it seems that the maps
currently available tend to be highlevel, aerial maps when acquisition
teams are actually in need of more
practical maps showing the topography of the land and pointing out
natural and man-made roadblocks
that can delay or derail the business
strategy. In assessing the risk of any
deal, the decision-makers — just like
any experienced guide — need to be
aware of how long it could take to
travel the route, the obstacles in the
way, the cost of surmounting those
obstacles, and what challenges there
will be to holding the team together
while continuing to drive performance in less than optimal working
conditions created by a high-change
environment. A detailed integration
strategy map is required and that’s
very different than a list of projects to
be accomplished in the first 100 days
following deal close.
In recent years, various researchers
have begun to take note of the impact of “culture” on the success of
M&A deals. Unlike assessments of
financial risk and legal risk, there are
no established approaches to assessing the impact of culture on deal success. What is clear is that the impact
of culture is best understood in relation to business strategy. A strategy is
only as valuable as the ability and the
predisposition of the organization to
implement it. “Culture” dictates how
receptive or how resistant the workforce will be to implementing the
integration strategy. Cultural norms
— strong shared beliefs developed
over time about the way something
is done — can present formidable
roadblocks to the implementation
of strategy. Strategic M&A deals involving domestic businesses are frequently impacted by misalignment
of “business cultures”. Cross border
M&A deals are additionally impacted
by “national cultures” that may create conflict over which language will
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