Metrics on M&A Success are Miserable.
“The vast majority of all mergers and acquisitions fail to meet their stated business objectives, and those are usually the most conservative ones that have been approved for public consumption.” So said Robert Lamb during a Corporate Strategy course a dozen years ago at NYU’s Stern School of Business. Lamb would know: Bright guy. Wrote a book on it. Actually he’s written 20 books.
At the time, Professor Lamb quantified that failure rate at nearly—if memory serves—85%. I remember thinking “WTF? Why bother at all?”
M&A activity is complex, painstaking and difficult.
Cynics may say the reason behind all M&A activity is to line the pockets of top executives and first-in-line investors. Or for ego. Or panic. There might be some truth to all of that (here’s an article that explores those motivations) and plenty of people have tried to offer suggestions.
However, one might argue that low success rates represent the best that can be done in such monumentally complex and risky endeavors. The fact is that buying another company and integrating its people, processes and technology is just plain difficult. On the high failure rate, one writer commented “when you consider the range of business, IT and cultural factors that occur during the average merger or acquisition it is not that surprising.”
Much of the drudgery can be automated away.
One company created a software platform to help it improve the process. CircleUp, an online crowdfunding platform has brought scale and efficiency to investment deal screening activity. The tool, called the “Classifier,” makes human analysts more effective by prescreening investments. “The result,” writes Christopher Mims, “is much higher deal flow. Fewer than 10 analysts collectively evaluate 500 potential deals a month. By comparison, a typical private-equity firm evaluates fewer than 500 deals in a year.”
Transform your evaluation process to maximize returns.
Anything that automates away “production-oriented” office work – akin to the way that automation took out repetitive tasks in the manufacturing world—helps us address the challenge of human latency (the reality that no matter how fast we make any server or system, our governments and companies are still led by people. And, people are often the slowest step in any real system).
Michael Miron, our Managing Director for Business Development welcomes the innovation represented by the Classifier and sees the implications, “There will be lower costs and greater capacity to screen deals. This will force lower cost structures on venture firms to the extent they continue to devote human resources to these activities.”
Just as CircleUp has improved the initial part of deal screening activity, Trefis is bringing efficiency and effectiveness to other parts of M&A deal flow. In fact, the Trefis Mergers and Acquisitions Solution goes deeper than just the screening activity; it helps free up resources so people can focus on higher value added activities, namely activities that involve collaborating and iterating around business forecasts.
“Trefis is really aimed at this,” Michael continues, “as we are automating tasks that are not really standardized,” namely the creation and analysis of “what-if” scenarios. The Trefis Mergers and Acquisitions Solution lets you evaluate the synergies and real drivers of value in any transaction. You can bring the deal teams together to surface assumptions and conduct “what-if” scenarios. Together your team can reach a better viewpoint based on shared beliefs that can be quantified.
“The benefits are realized in the more rapid digestion of key insights.” In fact, by not delaying a decision, Michael adds “your firm can take advantage of opportunities that may not be available had you waited for the usual fragmented process to prevail.”
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