We are in a period of intense business model transformation. Many enterprises are looking to reflect new consumer and competitor realities—and they need to act fast. Mergers and acquisitions (M&A), and other transactions, offer one strategic path to rapid change, so it’s unsurprising that our research shows that 57 percent of business leaders anticipate an increase in deal activity in 2021 and 2022.
Deals, however, are not without their challenges. About half will not be completed, with an even higher number failing to deliver the promised value. There are many reasons for this, but Mercer research released in May reveals a striking fact: 47 percent of deals that fail do so primarily due to a lack of strategic planning and execution rigor related to people risks. All data within the aforementioned, Delivering the deal: The unrealized potential of people in deal value creation research report was sourced from PitchBook or was collected through a survey that captured the insights of over 750 experienced deal leaders from Fortune 1000 companies or private equity professionals.
People as a Revenue Driver, Not Just a Cost Center
The pandemic hammered home how crucial an agile and resilient workforce is to the bottom line, yet many businesses fail to translate the importance of people to deals. Why the disconnect?
Traditionally, when envisioning a deal’s cost and revenue synergies, most leaders think of people only on the cost side—forgetting that it’s people who will ultimately bring any new revenue-driving strategy to life.
For example, if your deal thesis depends on cross-selling the products of two merged companies to increase revenue, you must ensure you have salespeople with the right skill sets, incentives, and understanding of how they need to act differently to deliver your vision. Without this, nothing will change, and your plans for generating new revenue will suffer.
Based on our experience supporting nearly 1,400 deals per year worldwide, we have seen the effects of this people disconnect. For example:
These examples demonstrate the impact people have on delivering revenue-related deal value and the need to apply the same rigor to people as to other deal aspects. As one business leader told us in our research, “In a deal, people cannot be left to chance. Failure to address pain points in your people strategy can have catastrophic consequences.”
Here are five questions that boards should ask management during any M&A activity to avoid deal failure:
Robustly factoring in the people impact, from target identification to deal thesis formation to financial modeling and Q of E diligence and working with an experienced partner on deal execution can protect the bottom line and realize maximum value from your most important asset—your people.