The four vital spirits in mergers and acquisitions

Mergers & Acquisitions: Forward Corporate Finance

Though they form a major part of the transaction process, there are soft skills at play too, where the true success of any deal is likely to hinge on the spirit of the parties involved.

Entrepreneurial spirit, animal spirit, cultural spirit and human spirit are common themes through any deal and their value to a successful transaction cannot be underestimated.

Entrepreneurial spirit

Most of our SME clients, whether they are on the buy side or sell side of a transaction, are excellent at spotting risks and turning them into opportunities. And maintaining their spirit through the course of a deal is crucial. The moment those entrepreneurs start placing more emphasis on the negative parts of a deal, the more likely that deal is going to implode.

Animal spirit

We seem to be missing some of this important spirit in our macro-economy at the moment, as there is a lack of confidence around the future growth prospects for UK plc. Confident risk-taking through M&A activities, undertaken by key decision makers at buyers and sellers alike, drives deal activity. This then invariably rubs off on others who seek to keep pace with their peers.

Cultural spirit

An extremely important area of any transaction comes down to the people involved in both the buyer and the seller organisations: whether their respective management team values align and whether they have similar aspirational goals.

A ‘grow at all costs’ corporate and competitive culture is unlikely to mix well with a philanthropic business set up to do good for the benefit of its local community.

Human spirit

Once a deal is complete the really hard work starts. Post merger-integration of the two businesses and two sets of people is an emotional process – just as much (if not more) than a structural process. 

Positive emotions from leaders across the combined group will inspire motivation, commitment, togetherness and morale. A negative focus on cost cutting, redundancies and forcing process to change without stakeholder buy-in are all likely to lead to the loss of the core management team, as ultimately their spirit will walk out of the door to a competitor.

The ingredients for success

We find that the most successful M&A strategy is not just about data, financial engineering and legals. It is about merging the right minds and the right spirits.

By fostering an entrepreneurial spirit, leveraging animal spirits, protecting the cultural spirit and nurturing the human spirit of the people in the respective businesses, you are much more likely to deliver on a successful M&A strategy.