A company knows it needs a strategic acquisition; it has a target in mind and it’s thinking ahead. Should the deal happen, leaders are prepared to execute a lengthy, complex integration process.
Unfortunately, successful deals often require a different sort of forethought. According to a new report from PwC, a model for how the enlarged company will operate may be one of the last things the company addresses. And, the report suggests, it’s a key reason why only 32% of acquisitions fully achieve all prioritized deal objectives.
“Too often acquirers jump from deal thesis to integration plan and treat the target operating model as something that emerges during execution,” wrote PwC, which surveyed 530 C-suite executives and senior dealmakers at large companies who were involved in an M&A transaction within the past three years.
“That skipped step is where the value leaks,” the report continued. “It is the small set of choices that decide how the combined company will run to deliver the thesis and protect what made the target worth buying.”
A common trait of “successful acquirers” — survey participants who reported being completely successful in achieving all identified deal-thesis objectives — was the practice of defining the key elements of a target operating model before the deal closed.
For example, 60% of successful acquirers defined the envisioned operating approach to the company’s people and organizational structure, compared with 47% of “limited-success” acquirers.
The same pattern held for other key aspects of a target operating model, including commercial/go-to-market model; product/service roadmap; core operations/business capabilities; tax and legal-entity structure; technology and AI roadmap; and support/G&A functions.
In each of those six cases, successful acquirers were 12 to 16 percentage points more likely to make pre-close definitions. In a couple of instances, the value gap was even wider. The biggest gap, 71% vs. 44%, was in revenue-acceleration transactions.
Every successful acquisition “requires a deliberate answer to what the combination must change to deliver the thesis,” PwC advised. “For one deal, the answer may be to combine two sales forces. For another, it may be to preserve the target’s product and engineering model while integrating finance, data governance, and selected infrastructure.”
Meanwhile, the survey results identified “organization design and decision rights” as the leading people-related challenge, cited by 56% of respondents. Next were culture alignment and people-related change management, with 52% each, followed by vision/leadership alignment, retention of critical talent, and right-sized workforce (50%, 46% and 42%, respectively).
