Worst situation ever for PMI
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What are the worst situations that a PMI can find itself and how to solve it? Let’s imagine for example that the DD haven’t been done properly and the acquire discover some discrepancies and financials challenges. How the acquire can react ?
I only have heard of worst cases never experienced it myself. One situation was that DD was insufficient and only discovered after the fact that the manufacturing site and product for a Ph1/2 trial could not be used. This was a major setback both financially and even more from a timeline perspective.
I’ve worked in M&A approximately 10 years performing DD & integration planning (typically pass off the high-level integration plan to a PM).
Worst situation examples:
1. Post-Close, plus 6 mos., the senior leaders of the acquired company leave. This outcome can be driven by not assessing the risks of hiring a cutting-edge Silicon Valley thought-leaders to join a (I’m being a bit brutal) stodgy Fortune 100 company and dealing with all the “red tape”, capped salaries, etc. They acquired leadership have HUGE expectations of uncapped earnings… and suddenly they’re in a company which has “tons” of processes, requirements, etc. In this specific case, we were able to lock up the IP, but the exit of the thought leaders was a big Negative.
How would I’ve done it differently? a.) kept them independent b.) better managed expectations of earnings potential (pay for performance) c.) managed corporate people who essentially say “it’s my way or the highway.
2. A Cybersecurity breach -or- incident Post-Close. Typically, post-Close, there is a window of time, especially when there’s a public announcement, when the target may be at enhanced risk from a Cybersecurity perspective when acquired by a major firm. Without going into detail,… there is risk if there’s a public announcement of an acquisition, but the target may have some cybersecurity risks. Secondly, in the case of carve-out, and when a transition services agreement is implemented with the parent company, the acquired company, and potentially the acquirer can be placed at risk based upon the cybersecurity incident against the selling parent company.
Similarly, my worst PMI situation was the exit of key talent 9 months in. The owners and the key talent were different. The deal locked in the owners, who were not providing the new IP and were not the pr4imary client contacts. All the effort was on making the owners happy. This small firm was brought into a structured environment with defined roles and suddenly the key talent had to justify their time and focus on revenue. The DD completely missed the cultural integration piece and need to engage the key talent for continued success. The key staff left and took clients with them. It took three years for the profit center to recover.
This is insightful, thanks for sharing! Key learnings (reflecting similar themes from other threads) include ensuring a comprehensive DD process capable of identifying both critical operational details as well as complex people and culture change issues and what plans can be implemented to manage them. Miss either or both, and the deal’s value story can quickly turn into a sad tale.
I concur with Mike’s insights regarding the departure of senior leadership during post-merger integration (PMI). While the loss of such leaders can disrupt the integration process and delay synergy realization, it’s essential to recognize that other senior leaders may bring valuable skills and perspectives that can benefit the merged entity.
However, discovering financial or operational discrepancies post-close poses an even more significant challenge. Such issues necessitate revising integration plans and allocating additional resources to address them, leading to increased costs and extended timelines. Moreover, these discrepancies can erode trust among stakeholders, potentially resulting in employee departures and further destabilizing the organization. (In a not properly done DD, you will miss something certainly)
Therefore, while the exit of senior leadership is detrimental, uncovering unforeseen financial or operational issues post-merger can have more severe implications for the success of the integration.
From my perspective a worst case scenario in case of a insufficient DD is that the safety and environmental conditions are not checked properly. Especially in the EU it can cause high additional costs if a plant does not have the correct, required standards.
We had, once, a very shitty situation in a PMI.
The key people were leaving after receiving their nice checks (poorly thought through) and after closing, we (our company) realized that the product bought was requiring way more development than expecting, way more…
What saved the day (a bit) were the milestones the Finance had introduced so the overall value of the deal decreased drastically.
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