Don't Be Another M&A Failure

Last Updated Oct 28, 2010 1:09 PM EDT


Most mergers and acquisitions don't work. One study, by KPMG, found that 83 percent of the deals studied did not boost shareholder value and 53% actually reduced it. Another study, by A.T. Kearney, found that the total return to shareholders on 115 global mergers was a negative 58%!

But if failure were inevitable, sooner or later these deals would stop. They don't because a few of them succeed. Steve Goodman has built three companies in Silicon Valley, each one venture backed and each one sold in an earn out. The CEO of Packet Trap Network, he's just sold that business to Quest Software. And everyone's still smiling. So what has he done to beat the odds?

Don't cut and run. "I stay with the companies I sell," Goodman says. "Integration into a public company tends to be slow and hard to navigate, so you mitigate it by keeping the team together. Not just the top management but especially the layer underneath -- the guys who really get things done. If the management team leaves, the chances of success reduce dramatically."

Get a budget. "Many public companies tell you that you'll, get access to their sales channel, but it almost never happens -- in part because the management team of the acquired company isn't strong at networking inside the new business; they don't know their way around, and nobody knows them. The sales and marketing organization of the acquirer isn't motivated to help you. You have no social or political capital -- and there's no compensation capital. If you want to get aligned with the sales guys; you have to motivate the sales team to put your product in their bag. As part of your deal, you have to get the budget to do that: to go out, meet with them and, if necessary, hire your own guy. And you have to do that in the first year. Don't expect the moon. Many companies think it will just work, but it doesn't because no one is pushing."

Secure sponsorship at a senior level. "This can only happen as the deal is being done. You have to keep your own P&L or you lose strategic value and presence. Then you have to focus on tactical accomplishments. Prove yourself early and often. Make sure you have -- and keep -- a sponsor at the executive level of the business who never stops taking an interest in your business. And make sure that he's taking an interest because you're winning."

All Goodman's advice seems, on one level, obvious and simple. But it isn't. Why? Because deal momentum and excitement means that most people are too optimistic and overlook the details that could make the deal succeed.

More M&A insight from Steve Goodman:

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.