According to most studies, between 70-90% of acquisitions fail, but our latest research on mid-market M&A suggests otherwise. Through the survey, we found that mergers rarely fail, but often fail to live up to their potential. The following findings and explore how to maximize value capture.
The survey polled c-level executives from private equity- or family-owned businesses.
Feedback received was primarily from acquiring company executives, and most deals involved private equity investors.
While 50% of integrations could have received a better ‘grade’, 90% of executives making acquisitions feel their recent mergers ‘succeeded’ to a high degree.
Cost synergy was the primary value driver for middle market deals, with revenue/scale synergies a close 2nd.
Executives expected more benefit from revenue vs. cost synergies, but revenue synergies were less likely to materialize.
This is supported by secondary research suggesting that revenue synergies proved harder to realize. Cost synergies are a main value driver of deals, so the fact that 70% of deals are realizing expected synergies in this area isn’t surprising. But acquirers are falling short on revenue synergies which suggests that revenue synergy estimates are inflated, or integration efforts are more focused on cost vs. revenue.
One of the largest cost-reduction opportunities in many mid-market deals ranked lowest amongst realized benefits.
Network consolidation was cited as the biggest skillset gap for internal resources supporting integration efforts, followed by sales and IT.
Unsurprisingly, a lack of strong integration process was cited as the most significant driver of PMI failure. Four of the top six drivers of ‘failure’ are planning and process driven. Success in M&A is often dependent on a structured merger process and plan, and the bandwidth to execute.
This too was supported by secondary research that found integration planning processes had a meaningful and direct impact on value creation.
When it comes to resourcing integration teams, the results were mixed; ~50% of executives engaged 3rd party consultants.
Overwhelmingly, when consultants were engaged, they helped capture unique value. 87% of executives were ‘satisfied’ with their decision to leverage outside consultants.
While internal resources often proved successful, 3rd party resources significantly improved integration success.
Where 3rd party consultants were used, 96% of executives agreed that consultants also alleviated risks.
M&A valuations are hitting record highs, but many integrations leave value on the table. A strategic approach to post merger integration can maximize enterprise value creation.