Barriers to transaction based transformation

Transformative transactions can be challenging. While some companies are exceeding their own expectations in unlocking transformative value through transactions, others are not. PwC research found around one in five corporate leaders say their expectations weren’t met when using transactions to create value.

So, what’s preventing companies from realising value? Common value blockers include tech systems and data integration issues, and people and culture issues.

Value blocker #1: Tech systems and data integration issues

When it comes to technology, the number one dealbreaker is when IT strategy and business strategy are not on the same page. During a transaction, it’s vital to have a clear tech strategy or IT roadmap, and that roadmap must be closely aligned with the overall strategy of the organisation. 

Start with your rationale, or the ‘why’ of the deal, and then translate that rationale into work packages for implementation. Ask: Is technology underpinning our M&A objectives? What are we trying to achieve with this transaction, and is our technology strategy supporting that objective? (For instance, if you’re acquiring a business to secure new technologies and accelerate digital transformation, do you have the skills and capabilities to leverage those technologies?)

Watch for potential tripwires when managing technology systems and data integration during a transaction including:

1. Cultural resistance: When introducing technology changes, it’s common to encounter pushback from staff. (Especially when the changes impact employees’ daily routines, such as switching email providers.)
2. Overwhelm: It may be that comprehensive technology integration isn’t possible during a merger or acquisition and that smaller, more manageable change is your only option. Avoid overwhelm by setting clear statements (hypotheses) and targets which act as guardrails to direct focus and effort. Drive success by mapping out synergies and setting up a robust framework to monitor, track and govern achievement of these synergies so you know you’ve achieved what you set out to do.
3. Buyer’s remorse: Do your due diligence and understand exactly what you’re buying from a technology perspective before executing a deal (whether it’s buy side or sell side). This will help avoid integration headaches down the track. Ask: What are we getting? What are we not getting? And how does that fit with our existing systems? (Note: This includes technology capabilities as well as operating systems. For instance, do you have the specialist knowledge needed to sustain operations without disruption?)
4. Data unprepared for GenAI: Our research found many business and technology leaders are unprepared for emerging technology such as GenAI. A lack of awareness around data maturity and data centralisation can prove a serious stumbling block. From data warehousing solutions using cloud technology for scalability to API-enabled data integration tools, there’s several aspects to data centralisation. Step one, however, is to promote a culture of data-centricity. Communicate the value of accurate, reliable data and make data management an organisation-wide responsibility. After all, one of the major upsides to GenAI is the democratisation of data.
5. Strategic misalignment, or simply starting too late: Just as you can enhance diligence with AI solutions (e.g. document interrogation, data and analytics), effective due diligence will quickly distinguish between a target asset that’s undertaking true technology-driven transformation versus a business that’s just paying lip-service to data and technology. For genuine and significant ROI, start with the end in mind. Align your technology strategy to your broader business strategy, and then implement this strategy early–not just as you’re preparing to sell.

Value blocker #2: People and culture-related issues

Transformative transactions can rapidly add value, but managing people and culture-related issues is a long game, and there can be stumbling blocks along the way. Change management, for example, presents a potential pitfall. Our Creating Value Beyond the Deal study found that 82% of surveyed companies say significant value was destroyed in their latest acquisition after they lost more than 10% of key employees following the transaction.

When acquiring and retaining talent, and when developing workforce culture, be mindful of these people and culture-related barriers:

1. Valuation challenges: Dealmakers must give careful consideration to valuing intangible assets such as talent during the due diligence process. Other financial considerations include remuneration structures, so check your acqui-hire is truly cost-effective.
2. Culture clashes: It’s common to encounter challenges when integrating the cultures of two companies, including differences in values, purpose, communication, innovation, and work styles. Early due diligence, plus a comprehensive integration plan, will go a long way towards bridging the divides. 
3. Insufficient change management: A common misconception is that change management is a ‘set and forget’ procedure that doesn’t need to be revisited once a deal is complete. However, humans are highly subjective (occasionally irrational) beings, and just because you start with a change management and retention plan doesn’t mean it will be continuously embraced by staff, and systematically rolled out. Change management plans must remain a focus over a long period, and should include guidelines around ways of working, governance, decision-making and chains of command. These plans should also identify duplicated effort and inefficiencies, or your efforts to create value can be undermined.
4. Shifting legislative requirements: Be aware of legislative requirements, especially new or changing requirements. For instance, is the target organisation subject to (and compliant with) work health and safety requirements and/or Workplace Gender Equality Agency reporting? Similarly, from December 2023 Australian business have a positive duty to eliminate sex-based discrimination, harassment, hostility and victimisation in the workplace so check the target company complies.