Rhythm Blog | Mergers & Acquisitions

At our annual Rhythm Systems Breakthrough Conference in Charlotte this year, we had the opportunity to survey our audience of over 150 mid-market executives and ask the question, “What are the top 8 business challenges for mid-market companies?” The term “mid-market” refers to the size of a company based on its annual revenue, usually between $10 - $500 million. It may seem like a big swing to go from $10 million to $500 million, but not so big when you consider that only 3% of all companies ever make it past the $10 million mark.

So many Rhythm companies start off as what we consider “simple” companies. They are experiencing steady, but not explosive growth. They might only have the executive team using Rhythm. Some have a relatively flat structure with few locations and departments.

Mergers and Acquisitions are not for the faint of heart. Any CEO who has navigated those waters will tell you it is a tremendous challenge to blend cultures, systems, processes and teams successfully. The statistic is 70-90% of M&A's fail -- that's a scary number! Instead of focusing on that metric, let's talk about numbers we should be measuring around M&A.

Every M&A deal starts with an incredible amount of due diligence. Are the cultures and values compatible? Do the product lines and customer bases support each other? Do the numbers work and take us down a path of growth? Ultimately, if the deal goes through, benefits have been seen by both parties. Now, it's up to the newly-merged company to both preserve the current value of the organization and meet growth projections. It's a delicate balance.  

In my last blog, I shared Steve Hoffa from Alpha Guardian’s tips in 5 COO Insights to Keep Your Acquisitions Alive, which described a transition from two companies - Cannon and Stack-On  - as they evolved into one company with multiple brands: Alpha Guardian. During the interview process, a common theme emerged that deserves its own spotlight as it is the least predictive yet greatest weapon to bringing M&A to its glory or to its knees: the human factor.

When Cannon Safe started on this journey, they would attend M&A conferences with their proud plan in their fists. “What we learned from others who went before us was that they were really harping on the HR side of things - the people,” Steve explains. The executive team didn’t think it would be their story, however, Steve concurred that during the M&A:

“We learned the human aspect was the biggest concern and yielded the greatest focus. We had our comp plans in place but, that didn’t factor in the drama and emotions. The people component is everything! Especially when you’re keeping them.”

If I were a betting woman (only when Powerball is $500 million - I have standards), I would have wagered the people side of the M&A would have been then Cannon Safe’s greatest triumph. I learned that even companies with the strongest culture feel the impact as Steve explains:

“The M&A bent our tree.”

You just completed an acquisition, time to celebrate and break out the champagne. For some companies, acquiring businesses is one of their strategies to drive top line growth. Unfortunately for most companies, acquisitions fail to meet their objectives in the first year if at all. This can also be one of the most difficult ways to grow your business. That said, failure is not imminent if you do the right things to make the acquisition a success. One of these things is to focus on integrating the culture of the new company with the mothership. It sounds easy and straightforward, although integrating cultures is one of the biggest challenges and failure points after an acquisition. It takes a lot of time and effort to do it right. This is one reason that you should do your best to acquire companies that have good alignment with your Core Purpose and Core Values already.

It was my pleasure to present a webinar last week with our partners, ACG, SunTrust, and the National Center for the Middle Market, on a topic that keeps many of our clients up at night - how to maximize M&A as a growth strategy. As the exclusive research report provided by the National Center for the Middle Market shows, for many executives, M&A feels like a big risk. Few have experience acquiring a business or selling off part of their business, and the statistics are against them - depending on which study you read, somewhere between 50-90% of acquisitions fail. So, if you are considering mergers and acquisitions as part of your growth strategy, you have good reason to be cautious.  

However, there are some proven ways to increase your chances of success. We’ve seen these patterns play out several times with our clients over the last decade, and we want to share the National Center for Middle Market’s research and our insights into how you can beat the odds and succeed with your acquisition.  

It’s no wonder that  70-90% of mergers and acquisitions fail when you consider the complexities of the deal coupled with the sheer change management needed to quell the human factor. In a recent HBR article, How to Keep Your Team Focused and Productive During Uncertain Times, Amy Gallo shares “...employees who are concerned about their future are likely to be distracted and unproductive.”

There’s no room for distracted and unproductive employees if you’re trying to come out of the other end of an acquisition and hit a 30% growth goal. As you may have been able to gather from my previous blogs on Cannon Safe, I’ve never known them to back down from any challenge.

Depending on which study you read, somewhere between 50-90% of acquisitions fail to meet their objectives. According to Bain & Company, “many acquirers - perhaps most - leave huge amounts of value on the table in every deal.” They fail to successfully integrate the acquisition in three main areas: missed targets, loss of key people, and poor performance in the base business.

Failure to successfully integrate the deal you just spent months negotiating can impact more than your bottom line; the productivity, retention, and engagement costs can be significant to your company as well.

I recently wrote a blog highlighting the first differentiator for the webinar I presented for the Association for Corporate Growth (ACG).

To recap, the 3 differentiators are:

1. Set expectations and eliminate the drama
2. Align the companies so that you have one team and one system to integrate and scale your acquisition
3. Avoid the cultural chaos that creates confusion and paralyzes the organization

We are coming into that time of year where a lot of companies are gearing up or doing their annual planning to prepare for next year. In preparation for that, we are presenting a webinar in conjunction with the Association for Corporate Growth, ACG, to highlight some of the mistakes companies make and three very important lessons that can help you avoid those mistakes and the failure that accompanies them. Did you know that on average, only 50-60% of companies actually hit their annual performance targets? The stats are not very good, and even worse if you have just participated in a merger or acquisition. Team members involved in a merger or acquisition want to know two primary things: where is the company going, and what do you need me to do today?