Where value is really lost

Many M&A processes are built around the transaction itself: strategy, valuation, financing, negotiations and closing.

What often receives less attention is what comes next: integration.

Research and, more importantly, practical experience consistently show that culture and leadership are among the key determinants of post-closing success. The financial and strategic rationale for a deal can be sound – and value can still be lost if key people leave, decisions stall or the two organisations fail to come together.

For Peter Drage, CEO of MD Strategy Group, the period after signing is therefore at least as important to the economic outcome as the transaction itself.

“An M&A process does not end with the signature. In many ways, that is where the decisive phase begins – the point at which you find out whether the value expected from the transaction can actually be realised.”

This link between M&A and leadership was also at the heart of a recent episode of the IN CONTROL Leadership Podcast, hosted by Peter Drage and Torsten Philipp, with Joerg Theis. Among other roles, Theis was responsible for integrating Austrian automation specialist B&R – a family-shaped hidden champion – into the ABB Group.

People before process

For Theis, successful integration is first and foremost about people.

“For me, 80 percent of the work is about people: bringing them along, enabling them and aligning them behind clear, shared objectives. The remaining 20 percent is the work that simply has to get done.”

Yet many integration plans start the other way around. IT systems, reporting lines, processes and legal structures come first; culture and people are addressed later.

For smaller and often family-shaped businesses, that sequence can be problematic. Culture is not an abstract soft factor. It is part of the operating system of the company.

“Especially in smaller companies, culture is the glue that holds everything together – it is the backbone of the organisation.”

The implication for buyers is simple: understand first, standardise second.

“The key is to understand the culture and decide how much of it should be preserved. What is worth protecting? Where does the value come from? And where can elements of the larger group genuinely add something?”

That is where good integration creates opportunity. A mid-sized company often brings customer proximity, speed and entrepreneurial drive. A larger group can add global structures, market access and the ability to scale. Theis describes the objective as bringing together “the best of both worlds”.

Peter Drage puts it this way:

“A good integration is not about one organisation replacing the other. It is about understanding which strengths need to be preserved and where the new structure can create genuine additional value.”

Resistance is information

One thing is often misread during integration: resistance.

When employees question change, it is easy to interpret that as an unwillingness to adapt. Theis sees it differently:

“If you encounter resistance, that can actually be a positive signal. It should make you ask: Am I communicating clearly enough? Do I have the right arguments? Do I need to go another round to bring people with me?”

Resistance is not automatically rejection. It is information – about where trust is missing, where decisions are not yet understood or where relevant concerns have not been addressed. In an integration, that information is valuable.

The cost of the irreplaceable CEO

Another risk rarely appears directly on the balance sheet, yet it matters enormously to a buyer:

How dependent is the business on a single individual?

Theis has seen this pattern repeatedly in mid-sized companies:

“In many mid-sized companies, you see a pyramid with the CEO at the top – sometimes almost a god-like figure. Everything is decided there, everything runs through that person. These are often outstanding, highly entrepreneurial leaders. The downside is that the functions below them can be underdeveloped.”

When decision-making, knowledge and responsibility are heavily concentrated in the owner or CEO, a vacuum emerges as soon as that person is no longer available.

For a buyer, this raises practical questions: Who owns the customer relationships? Who makes operating decisions? Who keeps key employees engaged? Who can actually run the business once the former owner steps away?

Such risks can influence both valuation and deal structure – for example through transition arrangements, earn-outs or retention mechanisms. The more sustainable answer, however, is to build a strong second and third leadership layer.

“As a leader, you have to understand that at some point you need to give up being the hero.”

The instinct that often led to promotion – solving problems quickly and personally – can become a bottleneck once the real job is to enable others to take responsibility.

“The stronger you build the second and third leadership layers, the more resilient the company becomes. People take ownership, drive their own areas and solve problems without having to escalate every decision.”

For owners considering a sale or succession in the coming years, this leads to a simple question:

Which decisions today still depend entirely on the CEO – and who would make them if that desk were empty for six months?

Peter Drage:

“Key-person risk, leadership depth and corporate culture are not issues that should first be discussed after closing. They belong in the preparation for a transaction.”

Integration is transformation

An acquisition almost never means that the target will simply continue unchanged. There is usually an investment thesis behind the deal: growth, internationalisation, scale, new technologies, market access, synergies – or a combination of these.

Integration is therefore always a form of transformation.

Using the European automotive industry as an example, Joerg Theis describes just how fundamentally markets are changing:

“Automotive is changing radically. The critical point is that companies have to change with it. Focusing only on what has worked in the past is the wrong response.”

For companies, this comes down to three priorities:

Use the pressure to change

Crises create a sense of urgency. They force companies to reassess their portfolio, capabilities and organisation.

Enter new markets and rethink business models

Transformation may mean more than taking an existing product into a new market. It can also mean changing the business model itself – for example, moving from selling a product to selling performance, service and availability.

Apply existing capabilities to new problems

Automotive suppliers in particular have capabilities in precision manufacturing, automation, power electronics, software and thermal management that are highly relevant beyond the automotive sector.

The decisive point is that strategy alone is not enough. People need to be enabled, structures adapted and responsibility redistributed.

A buyer should not only assess what it is buying, but also whether the organisation is capable of delivering the investment thesis after the deal.

What this means for M&A

Culture is not a soft factor in M&A. It affects speed, decision-making, employee retention and the ability to change – and therefore the economic outcome of the transaction.

The same applies to leadership depth and key-person risk.

The terms of a deal tell you what you are buying. They do not tell you how much of that value will still be there three years later – or whether the new owner will have been able to create additional value.

Buyers should therefore look beyond the traditional financial, commercial, technology and contractual risks. They should also ask:

Where MD Strategy Group comes in

This is exactly where MD Strategy Group’s M&A advisory work begins.

Our objective is not simply to support a transaction through to closing, but to identify early the factors that will influence value afterwards: leadership, organisation, technology, market position and dependence on key individuals.

Successful M&A does not end with a signed agreement. It creates the conditions for a good transaction to become a stronger business.

That is why leadership is not a topic alongside strategy, business development or M&A for us. It is part of all three.

For the same reason, the IN CONTROL Leadership Podcast explores how leaders guide organisations through growth, integration and transformation.

The conversation with Joerg Theis illustrates the point very clearly:

“The success of a transaction is not proven at closing. It is proven by how much of the identified value is still there eighteen months later – and how much new value has been created in the meantime.”

IN CONTROL Leadership Podcast — hosted by Peter Drage & Torsten Philipp. Listen: www.incontrol-podcast.com