In Q1 2018, merger & acquisition activity rose to $120Bn in the UK, roughly double the level seen in the same period last year.
The trend looks set to continue, 65% of UK respondents to the EY Global Capital Confidence Barometer expect to pursue deals in the next 12 months.
So, what are the key factors that ensure success?
- Clarity of purpose: whether your goal is to diversify into new markets & industries/ get new clients or suppliers, to grow or for defensive reasons, it is important not to lose sight of that goal at any point in the process. The deals that succeed have that firmly in mind.
- Focus on competitive advantage: the merger should keep or enhance competitive advantage, either by increasing sales, reducing costs and making synergies.
- Having the right people, systems and processes in place to lead the bigger business: successful deals are where the right people are open to accepting new and innovative ways of doing things, rather than relying on their previous experience or on the way they have done things in the past.
- Ensure full understanding of the impact of integrating 2 workforces: otherwise there is a risk of alienating staff, creating conflict and tension. The fall out could lead to key employees going elsewhere. The perception of which organization is the more dominant one in the pecking order can also greatly influence employee motivation and their willingness to cooperate. Managing this perception well will smooth the process.
The EY Global survey found that in financial services, 40% of companies adopt creating a new “best of breed” operating model to transform their business, rather than making the target follow the acquirer’s operating model. A trend that looks set to continue.