Investors today are pushing for more value from M&A deals, but most companies will fail to achieve the full potential or mergers and acquisitions due to overestimated or under-delivered synergies. Jason Heinrich, a partner with Bain's Mergers & Acquisitions practice, discusses three paths that companies can follow to turn mergers into a catalyst for bolder change.
Read the transcript below.
JASON HEINRICH: M&A activity is robust, with deal volumes at record levels. Our research has found that over a 10-year period, companies that engaged in regular M&A achieved about 4.8% total shareholder return, while inactive companies achieved about 3.3%.
Investors today are encouraging executives to drive even more value from the deal, but we know from our own research that most companies fail. Overestimating synergies or under-delivering on synergies is one of the most common sources of deal failure.
In our experience, winners are using M&A as a catalyst for bolder change. They are taking that short window of opportunity to drive new performance improvement opportunities and developing a plan to achieve the company's full potential.
They frame the integration through a full-potential lens and plan to achieve that vision over three distinct phases—planning, integration and optimization. They sequence and time those activities to maximize value and minimize stress within the organization. And they use aggressive benchmarks to set bold targets, not just to be average, but to achieve or even lead the industry's top quartile.
We've identified three distinct archetypes or pathways to full potential. The first we call full-potential optimization, or when companies pursue a broad-based and accelerated full-potential effort. They integrate and optimize operations in tandem, taking that short window of opportunity. Companies that are pursuing a capability-led breakthrough focus on the handful of capabilities that will maximize long-term value for the deal.
And other companies follow a staged optimization pathway, or sequence opportunities as those opportunities come up. The risk, however, is missing opportunities, especially as the daily routines take over. So we counsel our companies to consider the value at stake, the degree of difficulty of implementation and the risk to customer disruption when choosing which pathway to take.
Read the Bain Brief: Maximizing Your Merger's Potential