M&A due diligence is becoming more sophisticated, with an increased focus on cultural integration and leadership capability, according to an expert in the area.
2015 will see a number of important trends in the M&A space, according to boutique merger & acquisition consulting firm Potentious, which predicted there will be a new focus on the quantifiable impact of leadership in successful over the coming year.
2014 was the revival year that many M&A advisers and consultants hoped to experience since the financial crisis of 2008, said Potentious CEO Keith Dunbar, who noted that 2015 also has the promise to continue this resurgence with a number of M&A predictions for the coming year.
1. Acquirers with leaders possessing the “act with integrity/build trust” capability, and at the right levels, will realise financial objectives. The basis of any relationship is trust; relationships between acquirers and targets aren’t any different. This foundational leadership capability will continue to separate acquirers that succeed from those that fail, and be increasingly recognised in 2015 as vitally important to these deals, said Dunbar.
2. Leadership due diligence will progressively be considered as important as cultural due diligence. In the past, organisational culture was acknowledged as a critical part of the due diligence process, however, leadership was not because it had not been quantified into an actionable M&A leadership framework, according to Dunbar, who said that in 2015, the examination of leadership during M&A due diligence will become more readily adopted.
3. Collective leadership capability will increasingly become the new measure of leadership in M&As. M&A due diligence has historically concentrated on the review of the skills of only particular executives at acquirers and targets – not as a collective whole. This mindset will change in 2015 as companies will more readily accept the concept of measuring the collective leadership capability of both organisations, said Dunbar.
4. Investment banks and private equity groups will want to know about the collective leadership capability of their investments. Investment banks and PEGs invest large amounts of capital into M&As. In 2015, these financial groups will begin to adopt an actionable mergers and acquisitions leadership framework to identify the leadership skills that drive and predict M&A success to realise intended returns on their capital investments, according to Dunbar.
5. Collective leadership capability insights in M&As will identify risks, and provide steps to mitigate those risks. The measurement of collective leadership capability will cause risks in both acquirers and targets to rise to the surface. This foresight will allow acquirers in 2015 to mitigate those risks via the implementation of a specific leadership integration plan, said Dunbar.
6. Leadership will be spoken of and discussed in specific and quantifiable terms, instead general and unquantifiable terms. The quantifiable data “vacuum” of the past was primarily driven by the lack of a proven and actionable mergers and acquisitions leadership framework, which caused discussions around leadership to be very broad and very general.
7. Human resources will a have a place at the table during the M&A due diligence and integration phases. HR will be the keeper of the data that can inform companies if they possess the right collective leadership capability to enable successful M&As. HR will be in possession of the critical intelligence that C-level executives will need to help make good informed M&A decisions in 2015, Dunbar said.
8. M&As will not fail due to leaders’ financial or business skills, but due to their “soft” skills. Financial or business skills of leaders don’t determine M&A success – the collective leadership capability of acquirers and targets (and at the right levels) to build relationships, influence others, and motivate others does, according to Potentious research. These three leadership skills will predict M&A success this year.
9. Enlightened C-level executives who leverage collective leadership capability knowledge and foresight in M&As will have a distinct competitive advantage. Leveraging collective leadership capability insights will position business executives and their companies with a greater competitive advantage—as either acquirers or targets—when compared to other C-level executives who don’t embrace the criticality of collective leadership capability, Dunbar said.