Challenging the Traditional Measure of Success in M&A

  • Insight • 
  • 22 June 2023

Gerard Belicha

Traditional M&A Success Metrics: Falling Short  

What is the measure of success in Mergers and Acquisitions (M&A)? For many in the industry, the perception is that it’s as straightforward as closing a deal. However, a closer look at the numbers paints a rather grim picture of the reality of it.  

According to a 2020 article in the Harvard Business Review, an alarming 70-90% of M&A deals fail to meet expectations. BCG’s “Why Deals Fail” publication offers a slightly more “optimistic” figure – 53%. So, why is there a discrepancy between perceived success and reality? The answer, I believe, lies in the industry’s flawed definition of what constitutes success in M&A. 

Understanding Success in M&A 

During my tenure at Citigroup, where deal origination was my primary role, the celebration that followed the closing of a deal was a common scene. It’s understandable. Dealmakers – including those in private equity funds and corporates alike – are essentially hired to close deals. Indeed, the process of closing a deal is a resource-intensive endeavor, as I’ve explored in my previous article. But should success be solely defined by the act of “closing”? Does this tunnel vision not risk overshadowing other critically important considerations? 

Reimagining Success: Having the Courage to Walk Away 

Let’s consider these two points:  

Firstly, isn’t the decision to walk away from a sub-optimal deal as crucial, if not more, than closing any deal? Turning down a deal that doesn’t quite measure up requires foresight, industry knowledge, and courage – attributes that are integral to a successful M&A professional. Secondly, prior to embarking on or closing a deal (or indeed, abandoning it), can the dealmaker confidently assert that they have explored the entire market, engaged with all actionable sellers, and scrutinized every aspect of the prospective deal? If these conditions are not met, the resulting deal could be less than optimal, making the “closing” less of a success and dare I say, one of the 53-90% of underperforming deals in the market.   

Naturally, the ensuing questions then become: How can one ensure they’re not overlooking a potentially superior deal? And, just as importantly, is a dealmaker equally recognized and rewarded for having the prudence to dig deeper to find the answer ahead of time, and the courage to walk away from that sub-optimal deal? The answers to these questions could redefine the measure of success in M&A.  

Where To Go From Here? 

Evolving how corporations reward their M&A teams will require a fundamental shift, starting by redefining what constitutes success for these professionals. And as we know, changing deeply rooted practices is a long journey that will first only be undertaken by the more visionary firms, with others subsequently following suit. 

Whilst such a transformational journey is well beyond Finquest’s remit, our unique position enables us to support firms that recognize that no M&A transaction should ever be undertaken without thoroughly scouting the market for all other relevant, actionable targets. This principle has been the cornerstone of our service to acquisitive corporates and private equity firms managing nearly USD 2 trillion in Assets Under Management.  

The M&A landscape today is highly competitive with more and more capital chasing fewer available deals. Boards and Investment Committees will keep raising the bar before sanctioning a deal, one key component being whether the proposed deal truly is the best one available. This expanded definition cultivates the right behaviors that will underpin long-term value creation and sustainable growth.  

Ultimately, in the world of M&A (whether in Private Equity or Corporate Development) the best measure of success is not the sheer quantity of deals closed, but the quality, strategic fit, and enduring value created by the deals that are executed on.  

Embracing the Future of M&A with Finquest 

I am certain that most of you will now agree with me that success in M&A must be defined by more than just closing deals. It must be about closing the right ones, having first mapped out the relevant universe of actionable targets and – when needed – having the courage to walk away.   

So, are you ready to redefine success in M&A? Connect with us today to start sourcing deals that are worth not just closing but celebrating.  

You can reach me at [email protected]