Nearly 40 percent of buyers believe that the last company they acquired did not actually create any value for their own organisation.
A new report from PwC which questioned 600 corporate senior-level executives found that over half said they under-performed in comparison against their industry peers in the ensuing 24 months after an acquisition deal.
PwC noticed that the enterprises which had the most value created from the acquisition of another company were the ones who had done exhaustive work pre-deal to establish a value creation plan. While most company executives said that they had a value creation plan in place, only 34 percent had it in place on the day the deal closed.
Not having any plans established pre-deal creates an air of uncertainty, something that can have dramatic effect on the overall acquisition outcome.
Technology Companies Pose Great Risk
When acquiring a company, especially a technology company, business leaders should always keep in mind that it is not just made up of hardware and IP, but the flesh and bone components are critical to its success. The people who have been working on and with the product are the ones who deeply understand its hidden value and flaws.
The potential loss of human talent from an organisation can often be understated, not only do these people provide key insights to the company, but they are also part of its cultural web. The culture fostered within a work place may be one of the key reasons that the company is consistently innovative.
With start-ups, the damage caused by employee flight is compounded, as the core team may only consist of a hand full of members.
“Those looking to create value in their tech acquisition should plan not just for the potential cost of failing to retain tech talent, but incentivising the acquired talent to remain on-board and grow as part of the new organisation – rather than succumb to the temptation to jump ship predicated by the change in ownership,” writes PwC People in Deals Lead Sarah Moore.
In their research they found that over 80 percent of the deals that not only failed to create value, but actually lost a significant and measurable amount of value had also lost over 10 percent of the acquisitions key employees.
As Moore writes: “Let’s not forget, the technology being acquired as part of M&A is only as valuable as the people who go with it. These are the people who understand the technology, the people who created it; the people who live and breathe it.”