In many cases, today’s middle-market deals are executed to either grow revenue or as a reaction to industry consolidation resulting from competitive pressures. The market is hot for such transactions, with 20% of middle-market companies each year executing some sort of M&A activity.
However, last year a global advisory firm reported 70% of transactions failing to reach revenue targets. Harvard Business Review reports a 70-90% failure rate. According to a National Center for Middle Market report, seven out of 10 middle-market companies who have made acquisitions in the last three years do not consider them absolutely integral to their strategy, even though one out of five will engage in such activity this year.
So why aren’t these transactions successful? Due diligence within deals is certainly a priority for C-suite executives and private equity investors before and during the transaction. But what about after? The actual measurement of success for these transactions is often targeted revenue growth — sometimes expecting up to 25% growth — or cost synergies. Those measures will depend heavily on the buyer’s experience with integration planning and execution.
The fact is most teams responsible for integrating businesses have little to no experience doing so. Pairing minimal M&A experience with a high reliance on execution means traditional due diligence in a middle-market transaction is not enough. Buyers must consider the full deal lifecycle, placing great emphasis on execution and integration.
The most successful transaction teams will consider the following elements that together result in a holistic approach to integration planning and execution, regardless of the industry:
Executing well on a strategic, defined integration plan can make or break an acquisition. Focusing on integration planning and execution should be one of the top priorities for management teams, especially as middle-market companies continue to be candidates for growing M&A activity.
Contact Jim Boland at jboland@cohenconsulting.com or a member of your service team for further discussion.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.