Since 1987, we have witnessed with astonishment how the vast majority of operations end up being a failure, but no one acknowledges it. The matter becomes blurred, and attempts are made to give it a positive spin by emphasizing certain qualitative values that have been contributed.
Moreover, numerous studies, such as the one from Harvard Business Review in 2016, KPMG in 2019, and one conducted by Closa in 2001, indicate that approximately 70-90% of M&A transactions do not meet their objectives. These numbers reflect the inherent complexity of combining two separate entities with different cultures, systems, and expectations.
The critical factors for the success of a process are:
- Effective Leadership: Leadership plays a crucial role in guiding both the acquiring and acquired companies through the process. Strong and understanding leadership can make a significant difference in integration and overall success. Some companies do not introduce the team that will later execute the operations, as they may have a different approach and not support the acquisition. Each company must be consistent with its internal culture.
- Adequate Due Diligence: Effective due diligence is crucial. It should focus not only on financial health but also on cultural and strategic compatibility. Although this field has been professionalized, there are still few reasons for concern.
- Integration Planning: Successful integration is key to long-term success. This includes aligning operational systems, corporate cultures, and strategies. Companies that meticulously plan integration generally have more success, an area where significant progress has also been made.
- Clarity in Objectives and Expectations: Clearly defining the objectives and expectations of an acquisition helps guide the process and evaluate its success. Failures often occur when objectives are unclear or expectations are unrealistic.
- Proceeding in the Acquisition Process and Contract Negotiation: This is a crucial and often overlooked aspect that prevents or at least limits damage caused by the previous factors. The idiosyncrasy of processes does not allow for standardization, and having a reliable and expert advisor, understood as a physical person who accompanies, is fundamental. Approaches like good cop, bad cop; expressing mistrust or doubts, and helping define new negotiation strategies are qualitative and vital aspects.
- Price and Guarantees: This is the most crucial point. The buyer often has an unconscious point of arrogance (as the Greeks called it, hubris), and everyone around is interested in the operation. Knowing when to say no and wait requires aligned long-term interests—buying when no one else wants to and selling when everyone wants to buy.
In the world of services, some aspects are parametrizable, while others are not. In this sense, successful companies have specific advisors for each case.
Since 1987, Closa Capital has successfully concluded more than 750 operations thanks to its extensive sectoral experience and a deep international network that provides access to any place in the world through local representation in over 50 countries.
Having experienced and talented individuals is the result of structuring a high-performance team where each member has the necessary seniority and support structure for each project.
Article written by Josep Mª R. Vinaixa, Associate at Closa Capital.
