Frank Roe
Mergers and acquisitions (M&A) have long been a driving force for companies seeking exponential growth, gaining market share and creating shareholder value. History has shown that well-executed M&A strategies can be transformative and yield impressive results.
For instance, Disney’s acquisition of Pixar in 2006 revitalized the animation giant’s fortunes, though market analysts were skeptical of this move when it was announced. In a conversation with CNBC 15 years later, Bob Iger stated it was perhaps the best acquisition decision during his time at Disney. “It put us on the path to achieving what I wanted to achieve, which is scale when it comes to storytelling,” were his exact words.
But the Disney-Pixar marriage isn’t the only one that proved to be a massive growth engine. Facebook’s purchase of Instagram in 2012 allowed the social media behemoth to dominate the photo-sharing space. There are many such examples in the history of businesses around the world.
But all’s not rosy in the world of M&A. It is a complex and substantially risky decision, not for the faint-hearted. It is essential to approach the decision and process with diligence and forethought.
Over the years, with experience navigating the complicated world of M&A, including eight acquisitions in just the past few years, I have built five indispensable elements to consider for a successful mergers and acquisitions journey.
Be watchful of revenue synergies
One of the critical drivers of a successful acquisition is the ability to achieve revenue synergies. However, what’s more important is not to assume this synergy will automatically occur just because it seems feasible.
Making a decision about consolidated revenue potential after the M&A involves carefully analyzing the potential for growth and gaining clear visibility into how to maximize synergy. Consider acquiring companies with high sales velocity and exponential growth potential to maximize success. Analyze the target’s product offerings, customer base and sales channels to identify cross-selling, upselling and market expansion opportunities.
For instance, in 2015, PayPal acquired Braintree, a payments company that owned the mobile payment service, Venmo. It was a strategic and wise move at a time when digital payments were just taking off across the globe. Now in 2023, PayPal is relying on Venmo to drive the adoption and usage of the company’s digital payments services. The two operations are expected to converge by next year. This acquisition has enabled PayPal to tap into the growing peer-to-peer payments market and strengthen its revenue streams.
Don’t let refactoring throw cold water on your go-to-market strategy
Tech CEOs often make the mistake of assuming that a product will seamlessly integrate into their existing tech stack, especially in a tuck-in acquisition. However, this may not always be the case.
Before making your decision about the acquisition, take the time to evaluate the target company’s go-to-market (GTM) strategy and the ease of finding, buying and deploying their products. Focus on creating a new integrated version in the future to give yourself a longer runway to iron out any issues. This allows customers and employees to see a roadmap for future success.
When Salesforce acquired Tableau in 2019, it was a significant deal that enabled Salesforce to diversify into the booming analytics space. The company carefully integrated the data visualization tool into its existing CRM platform, empowering Salesforce customers to benefit from enhanced analytics capabilities while avoiding disruptions to their day-to-day usage.
A disciplined approach prevents emotional decisions and sets the stage for a smoother integration.
M&A is not just a numbers game; get the people equation right from the start
After the financial aspects of an acquisition are off the table, the real work of cultural integration and leadership development begins. That’s the more challenging part, in my view.
During the due diligence process, identify potential culture clashes and areas where strong leadership can make a difference. Consider if and how the acquired company’s founders, leadership and vision can fit into your culture. Plan for possible career paths and ensure they feel supported during the transition. Focus on shared values not retrospective force fitting.
Culture skepticism in the Disney deal resulted similar to when Microsoft acquired LinkedIn in 2016. With diametrically diverse cultures, skeptics were uncertain if LinkedIn could continue to operate independently and retain its culture and voice within the Microsoft empire. However, seven years into this deal, it is apparent that LinkedIn has retained much of its autonomy, operating as an independent business. I am confident this took concerted efforts by both parties in this deal.
Every acquisition may not be a swipe right
The M&A deals that make headlines long after the acquisition process is completed are almost always the most successful ones. But I wish I had a penny for every time I heard about a deal that failed at worst and fell through at best, despite looking great on paper. It is essential to know about the failures and keep the reasons for failure top of mind when going about your M&A due diligence.
Every deal can’t be a complete success, from product integration to people and other assets. Be selective. Adhere to criteria. And be willing to walk away if the deal starts to feel like too much of a compromise. You will prevent expensive mistakes.
HP’s acquisition of Autonomy in 2011 was fraught with challenges, including cultural clashes and financial discrepancies. Walking away may have been a wiser decision for HP at the time.
Learning from such experiences can save CEOs from emotionally wrought M&A decisions that can lead to massive write-downs in the future.
Size really does not matter
M&A is not a battle of size. It’s the playground of adults where strategy, logic and mathematical equations come to play, and it has little to do with the size and egos of the companies and leaders involved.
A well-executed acquisition creates a more extensive pipeline, better growth potential and a stronger market position. That should be the criteria; Human emotions can’t get in the way.
If this means that the acquirer is larger than the acquired company on day one, so be it. Years later, when the M&A becomes a growth engine for both parties involved, nobody will remember — or even care about — how it looked at the start of the marriage.
Consider Google’s acquisition of YouTube in 2006. At the time, YouTube was a relatively small company compared to Google’s size and scale. The acquisition has since transformed the online video landscape with YouTube, and subsequently Google, becoming the most dominant player in the market.
Visibility is the key to optimize M&A success
A successful M&A strategy hinges on a disciplined approach emphasizing revenue synergies, seamless integration, nurturing human capital, drawing insights from past experiences by gaining visibility behind your vision and embracing bold ambitions. When executed well, M&A can catalyze extraordinary growth and transformation, as evidenced by numerous trailblazing deals in history.
Remembering there’s no “secret formula” for M&A success is essential. Every deal is different and requires a nuanced approach and sufficient due diligence. When done right, businesses increase the likelihood of mergers that propel long-term success, unlock shared value and leave a mark on the industry.
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