Breaking the Case for Seemingly Great M&A

Consider buying your dream car, only to find it doesn’t fit in your garage. Mergers and Acquisitions (M&A) are high-stakes decisions requiring thorough evaluation. In M&A, that ‘garage’ could be a variety of unseen issues, like low morale, unscalable technology or poor asset utilisation due to lacklustre preventative maintenance. Sellers often omit such details, leaving companies to discover these problems post-acquisition. Perhaps surprisingly, this is where an executive search and leadership advisory firm can come in.

An insider’s unfiltered perspective

Beyond talent acquisition, global executive firms like TRANSEARCH International can leverage our deep industry networks to reveal hidden challenges in a potential acquisition. We have the means to connect companies with former senior managers, employees, or independent experts to break apart the case on an M&A and uncover risks that financial reports may miss.

The problem with traditional due diligence

M&A and BD teams typically focus on numbers: financial metrics, synergies and operational integration. However, many acquisitions fail due to hidden risks, such as toxic company culture or management dysfunction, not poor financial modelling. Research indicates success rates are mixed, with multiple studies showing that 70%-90% of M&As fail or underperform._1,2,3,4

Engaging an Executive Search and Leadership Advisory firm is essential for due diligence

Unlike typical advisors, executive search firms offer a people-focused perspective, gained from decades of interaction with senior leadership and boards across industries. This makes us an important independent voice in the M&A process.

For example, a Managing Director, feeling uncertain despite positive reports from his advisors, sought my assistance to locate a past senior employee of the target company for a contrarian view. This was a very capital-intensive business. One aspect of this due diligence was to fully understand a heavy mobile equipment profile. An unbiased perspective helped uncover hidden risks, allowing for a more realistic evaluation of the deal.

The virtue of scepticism

Executive Search and Leadership Advisory firms introduce a healthy level of scepticism and assessment, ensuring companies don’t fall for the rosy picture painted by sellers or advisors. The aim isn’t to sabotage the deal but to create a realistic and intuitive evaluation. Many acquisitions experience internal disruption because the acquiring company doesn’t fully understand the target’s internal dynamics. Seeking candid, unbiased insights pre-acquisition helps avoid costly post-acquisition problems.

What Executive Search firms like TRANSEARCH International can help reveal

1. Cultural Incompatibility: Acquisitions often fail due to cultural misalignment, which may not be revealed until after the deal closes. We can uncover whether the target company’s culture fosters innovation, or is plagued by toxicity and resistance to change, through a culture audit. Our culture assessment tools powered by Orxestra® provide a unique perspective regarding culture, performance, leadership and team ‘fit’.
2. Talent Mapping: How insightful would it be to have a report on the target organisation structure from the CEO down three or four levels? We can provide visuals on employee tenure, qualifications, responsibilities, and internal and external relationships.
3. Management Dysfunction: Financials overlook the human element. We can reveal hidden dysfunctions in leadership – centralised decision-making, internal conflicts, or weak leadership – that could derail the integration.
4. Operational Weaknesses: While due diligence teams analyse operational metrics, we connect with the people. Theemployee insiders who can identify inefficiencies, scaling issues, past or present internal investigations or regulatory hurdles that may not be immediately obvious.
5. Market Realities: TRANSEARCH International through our global industry connections, can provide a wider perspective on the target company’s market position and reputation using market mapping, offering insights beyond what financial data shows.

The cost of not knowing

Overlooking internal issues during an M&A can lead to wasted resources and damaged reputations. Incorporating these five levels of due diligence is essential for a successful acquisition. If your advisors and vendor only present the positives, what else is there to know? Who will be your Contrarian for the deal that seems too good to be true?

If you would like to learn more about TRANSEARCH International’s competitor analysis insights advisory service, which provides a unique perspective in M&A regarding culture, performance and leadership, please contact me or connect with me on LinkedIn.

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Research References

1. “Opposing positions in M&A research: culture, integration and performance”, Emerald Insight, Opposing positions in M&A research: culture, integration and performance | Emerald Insight, accessed 15 November 2023.
2. “The Impact of Culture on Mergers and Acquisitions: A Third of a Century of Research” Emerald Insight, The Impact of Culture on Mergers and Acquisitions: A Third of a Century of Research | Emerald Insight, accessed 20 November 2023.
3. “Is Speed of Integration really a Success Factor of Mergers and Acquisitions? : An Analysis of the Role of Internal and External Relatedness,” Semantic Scholar, Is Speed of Integration really a Success Factor of Mergers and Acquisitions? : An Analysis of the Role of Internal and External Relatedness | Semantic Scholar, accessed 25 November 2023.
4. “Don’t Make This Common M&A Mistake,” Harvard Business Review, Don’t Make This Common M&A Mistake (hbr.org), accessed 25 October 2023.