Creating a Winning M&A Leadership Team

April 24, 2024 – What makes a merger or acquisition a success? It all starts with having the right leaders in place. Research shows that strong leaders predict M&A strategy success and specific competencies are associated with high-performing deals. The right leadership team is so critical because they have a big job on their hands: ensuring executive alignment, setting the cultural vision for the new company (Newco), and making timely and effective decisions, according to a just released report from Korn Ferry. “They define the strategy for Newco, inspire people to be part of something bigger, and maintain a laser-like focus on integration priorities,” the study said. “Through their communications, actions and behaviors, leaders set the standard for how work will get done in the new organization.”

“Choosing the right leadership team, of course, is easier said than done, especially when you find yourself with two of everything for many key leadership roles,” the Korn Ferry report said. “What’s more, in some cases, neither person may be the right choice for Newco. If not planned for intentionally, there’s a risk that selection decisions will be made via bartering or negotiation versus objective rigor.”

Korn Ferry offers tips on how to sidestep common mistakes and assemble a winning leadership team for day one readiness and beyond.

M&A Integration: Skills That Matters Most for Leadership Success 

Finding the right leaders is critical when two organizations come together. These leaders are being asked to simultaneously run an existing company and create a brand-new company while moving through a complex business climate characterized by crisis and disruption, according to the Korn Ferry report. The firm explains that they must be the ‘meaning makers,’ rallying employees from company A and company B around a compelling vision for Newco amid internal uncertainty and upheaval. It’s a tall order, and two skills rise above the others: adaptability and learning agility.

Leaders with a strong adaptability competency meet new challenges as they arise, thrive on change, and make sense of uncertainty. Unexpected events do not emotionally trigger them. Instead, they shift into solution mode, performing well regardless of circumstances. Similarly, leaders with strong learning agility have an innate sense of “knowing what to do” amidst uncertainty, coupled with an open and receptive mindset. Korn Ferry says that one component of learning agility is mental agility: the ability to embrace uncertainty and uncover novel ways of doing things—an essential skill for M&A success.

Related: M&A Dealmakers Intensify Focus On Founders’ Background Checks To Help Mitigate Risk

Learning agility also impacts the bottom line. Korn Ferry’s research shows that companies with the greatest rates of highly agile executives produced 25 percent higher profit margins than their peers–which helps your M&A to be successful.

Sherry Duda is a senior client partner leading Korn Ferry’s merger and acquisitions solution based in the firm’s Chicago office. She has over 20 years of performance transformation experience leading some of the world’s largest mega-merger, acquisition, divestiture and restructuring transactions. Her expertise includes top team alignment, operating model and functional redesign, brand culture integration, HR and talent strategy, organization communications, CEO and executive succession, and diversity, equity & inclusion strategy.

“Individuals with high adaptability and learning agility have the ‘X-factor’ that propels success,” said Sherry Duda, senior client partner and Korn Ferry’s M&A practice lead. “They have learned how to run the business and change the business at the same time. They can perform and transform.”

Choosing Newco’s Leadership: 3 Questions to Ask 

Mergers impose short, urgent timelines on leadership. With thousands of decisions to be made, it’s critical to fill governance positions as quickly as possible with the right leaders, according to the Korn Ferry report. But how can you confidently identify the agile leaders of the future when you’re unfamiliar with the new internal talent pool from the acquired company?

Korn Ferry says to start by asking these three questions:

What talent do we need?

What talent do we have?

How do we close the gaps?

“Companies need to make decisions quickly and confidently, but in the early stages of a merger or acquisition, there’s no rhythm yet and no rules of the road,” said Ms. Duda. “A common mistake is to focus on task integration first versus human integration. Task integration can seem easier since objective data exists on system effectiveness. The truth is, objective data exists on people too. But avoiding the hard issues around people is a mistake. Get your team in place from the beginning and start making key leadership decisions early based on objective criteria.”

Making Leadership Decisions: 3 Steps for Success 

In a highly charged political environment, Korn Ferry explains that there’s a tendency to default to two common processes for leadership selection. One option is for company A to retain most of its current leaders and let most of the company B counterparts go. Another option is to strive for a 50/50 integration: half the C-suite is made of company A and half is made of company B. Neither approach leads to long-term success.

“Leadership selection must be made using objective, data-driven decisions,” said Ms. Duda. “This is the only way to determine if you’re truly selecting leaders with the skills needed for success, like adaptability and learning agility. This isn’t about making a gut choice or one company asserting dominance over another. If the goal is for Newco to be successful from day one, then you need data-driven insights.”

Related: Managing Cultural Friction Along The M&A Deal Cycle

“A consistent, objective, and transparent process is essential for selecting the right leaders,” the Korn Ferry report said. “If you’ve asked the three key questions, you’ll have a good sense of where your overall bench sits. Now, it’s time to assess each individual’s fit for Newco’s leadership and critical roles.”

Korn Ferry provides the following steps.

Step 1: Obtain clarity and alignment on what great looks like.

What does success look like for the role, for the context and challenge, and considering Newco’s cultural aspirations? Aligning key decision makers to what great looks like provides an objective standard for individual assessment.

Step 2: Assess performance and potential.

Gain in-depth and actionable insights on your leadership talent with a standardized, scientific, and data-driven assessment approach. For example, an objective survey measuring skill sets and mindsets can illustrate an individual’s current capability and future potential. This minimizes selection uncertainty and human bias.

Step 3: Make strong selection decisions.

Using objective assessment criteria, determine which people will be best for which roles and which roles need a net-new hire. Solidify board and leadership decisions quickly to drive the business forward. Understand individual and collective leadership risk factors and establish a plan to proactively close the gaps, keeping the focus on how you get to success.

Conviction And Speed To Drive M&A Deals In 2024
The M&A market has always operated in a boom/bust cycle of expansion and contraction. And the last couple of years have been no exception. According to Bain & Company’s latest Global M&A Report, rising interest rates among other factors represented a significant obstacle for dealmakers. But the biggest hurdle according to the consultancy was the valuation gap between what buyers wanted to spend and what sellers wanted to charge for their companies. That rift kept many would-be deals from happening.

“When making leadership decisions, while stability counts, remember that you have one opportunity to create a new company, a masterpiece called Newco– and success is going to look different here than it did at company A or company B,” said Ms. Duda.

Sometimes that means you’ll go out and hire a new person for a role. For example, if the Board determines neither CEO is the right future leader, you’ll need to execute a CEO search quickly. From a relationship standpoint, this can be a tricky process. “But the fact is, some skill sets are more important today than they were in the past,” said Ms. Duda. “You need to keep your focus on getting to success for Newco.”

Throughout the leadership selection process, consistency, objectivity, and transparency are key, according to the Korn Ferry report said. The firm explains to develop and communicate selection principles early on, followed by an objective and fair talent planning process. Korn Ferry notes that retaining your top leaders is much easier when there is clarity and trust in the selection process.

Next Steps: Setting a Winning Vision  

Once you’ve decided on your leadership team, these leaders can begin fulfilling one of their key responsibilities: being the meaning makers at Newco, according to the Korn Ferry report. Whether it’s about setting the vision, prioritizing the right work, or confidently answering the team’s questions, Newco’s leaders provide the insight and understanding essential to engage and retain talent who will help create a winning organization.

“One job of the leader is to describe winning,” Ms. Duda said. “Why is Newco more than just a combination of company A and company B? What makes it special and why will it be a success? Internally, people at all levels are looking for this answer, but externally market analysts need this answer too.”

Related: 2024 M&A Outlook: PE Comes Off the Bench

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor; Lily Fauver, Managing Editor – Hunt Scanlon Media