Note: This is part of an ongoing series of articles that mine the Be Epic Podcast for lessons and insights that students and practitioners can apply to their lives as business leaders. This is the second of two based on the podcast with Gary Norcross.
Mergers and acquisitions are one of the most fascinating aspects of modern business. If you are an entrepreneur, perhaps you dream of the day when you can sell your business for a big payday. Or maybe you want to grow your business by acquiring competitors. Or perhaps you are a leader in an established business and you see M&As as a way to fend off competition, add complementary revenue streams, or both.
The problem is that mergers and acquisitions historically have a horrible success rate. A widely read 2011 report by Harvard Business School suggests that between 70 and 90 percent of M&A deals fail. And McKinsey & Company research from 2019 found that 10 percent of the 450 large deals announced each year are abandoned before they are even finalized.
Yet, just about every source you can locate – PwC, Morgan Stanley, Deloitte, Bain – predicts these types of deals will soon return to pre-pandemic levels. Tech companies, in fact, have already spent a record $264 billion this year acquiring rivals worth less than $1 billion, according the Financial Times.
So, what does it take to get them right?
Fidelity Information Systems (FIS) has grown into a Fortune 500 global financial services company in part because of its success with mergers and acquisitions under the guidance of chairman and CEO Gary Norcross. And in his recent conversation with Walton College Dean Matt Waller on the Be Epic Podcast, the University of Arkansas graduate outlined his advice for successful M&A deals.
Grow naturally before you acquire other businesses. Norcross took over a struggling business unit within the company when he was younger and helped turn it around. The business was losing $2.5 million a year in 1996, but it was turning a profit of more than $1 billion a year by 2007. Much of that growth came through mergers and acquisitions, but Norcross was quick to point out that organic growth game first.
“The reality is if you’re not growing organically, if your existing business is not successful, you really don’t have permission to do M&A,” he said. “So, as we started turning that business around, we then started realizing where there were marketing opportunities but gaps in our solution that needed to be filled. And we did that through a series of organic builds, but we also did it through inorganic activities with M&A to gain speed and access to those markets.”
Look for strategic fit. Mergers and acquisitions succeed only if the strategy’s right.
“If the strategy isn’t correct,” Norcross said, “then no matter how hard you work, most of the time mergers and acquisitions don’t work out. For me, the company has to fit within financial services because that’s the industry that we play in.”
“It has to bring us a new capability in an existing market we serve or it has to break into an adjacent market within financial services,” continued Norcross.
Vet the culture, as well as the business. The courtship process often reveals cultural differences between organizations that should be deal-killers, but executives often convince themselves they can make it work anyway. That’s seldom the case.
“If going through due diligence, you're finding cultural impact and major cultural differences, that’s the time to walk away,” Norcross said. “You’re not gonna be able to integrate it successfully and get the results that your investors or shareholders are looking for.”
Norcross’s advice reminded me of something Kirk Thompson, the chairman and former CEO of J.B. Hunt Transport, once wrote about the importance of cultural fit when it came to acquiring other companies.
“We’ve seldom done well with acquisitions or by depending too heavily on outside experts to run parts of our business,” Thompson wrote in Purple on the Inside, which he co-authored with Waller. “Of course, some ‘tuck-in’ acquisitions complement a segment of our business and make sense. We won’t pass on a good fit, but, for the most part, the JBHT body tends to reject organ donations.”
Don’t rush a deal if the timing is wrong. The most recent acquisition for FIS was a $43 billion deal for WorldPay, a payment processing provider, and it was a decade in the making.
“The former CEO and I are still good friends, Charles Drucker,” Norcross said. “He and I talked off and on for 10 years. [The problem] was never culture. At one point in time, he was doing something and so timing was bad for him. Or I was doing something, and the timing was bad for me. Or our stock prices were trading differently and so financially it didn’t make sense at that point in time. But, really, keeping that relationship was very, very important. And then we were successful putting the two companies together. And the integration of that and the return that we’ve made and the value creation we’ve created has been just an outstanding success story.”
Mergers and acquisitions always come with a risk, but the failure rate doesn’t have to be as high as it’s been in the past. When healthy, culturally aligned companies combine at the right time and for the right strategic reasons, then growth and success are likely to follow.
