How to Execute Successful M&A as a CEO

Closing an M&A deal might feel like crossing the finish line, but every CEO knows it’s just the beginning. The journey ahead is filled with potential pitfalls—cultural conflicts, integration struggles, and unexpected obstacles that can threaten your strategic goals. Yet, with the right playbook, these challenges can be turned into opportunities for growth.

In this episode article, we uncover the strategies every CEO should know to achieve M&A success, featuring Sanjay Poonen, CEO & President of Cohesity.

“M&A is not a way out of a strategic bind; you must have a well-understood strategy about where you are heading. The first priority should always be organic growth and building a product.” – Sanjay Poonen

Expanding and innovating through acquisitions

Not every deal is a good deal. Companies should carefully evaluate the potential benefits and risks before acquiring, especially those with limited cash flow. Sanjay highlights that before considering an M&A deal, it's crucial to establish a clear portfolio strategy and a company-wide strategy. 

Avoid the “deal fever” mentality. Sanjay emphasizes that the first priority should always be organic growth and building a product. A strong, organically grown business provides a stable platform for acquisitions. A company with a well-defined product and market strategy is better equipped to identify M&A opportunities that align with its goals. 

Acquisitions can significantly speed up innovation and market expansion than building everything in-house. However, M&A should be a strategic move to complement organic growth, not a standalone strategy. Acquisitions should fill gaps in the company's portfolio, accelerate market entry, or acquire critical technologies.

Key considerations in sourcing deals

The CEO's oversight is essential to ensure the success of a merger or acquisition. Here is Sanjay’s advice to any business unit leader or CEO contemplating an M&A deal:

1. Due diligence and market leadership - Sanjay highlights that acquiring companies that are leaders in their respective categories can significantly accelerate a company's market penetration and revenue growth. But before anything else, it's crucial to conduct extensive due diligence, including speaking to customers and understanding the company's market impact to ensure that the acquisition aligns with its goals.
2. Cultural fit - A company's culture is its DNA, and understanding that genetic makeup is paramount. Like cultivating a deep friendship, Sanjay meticulously examines the target company's leadership and management while being approachable. He deems it critical to delve beyond the C-suite to assess cultural compatibility at every level.
3. CEO relationships - Build a relationship with the target company’s CEO to ensure a successful merger. Sometimes, the acquired company’s CEO might continue to lead; in other cases, they might step aside. The focus should be on what’s best for the business, regardless of personal ego.
4. Leadership and succession planning - Be an unselfish leader. Focus on what is suitable for the company rather than personal gain. Be open to the idea that someone else might be better suited to run the combined entity. Even if you are the CEO running things, you want to create a succession plan of people who can do it after you leave. Ensure that future leaders are groomed to take over when the time comes.
5. Long-term vision and big goals - Think long-term and set ambitious goals. As the adage says, start with the end in mind. What do you want people to say about this business at the end of your journey? Sanjay shares that SAP's analytics business has grown from $1.5 billion to $10 billion, which illustrates how strategic acquisitions can contribute to creating a large, successful business. Everything is achievable with the right approach.

The CEO’s approach to M&A integration

The CEO is the ultimate decision-maker and ensures the integration aligns with the company's overall strategy and long-term goals. Here are vital factors Sanjay considers of high importance in M&A integration:

1. Bold moves and fast decisions - As a CEO, Sanjay appreciates bold, decisive actions in M&A, mainly because the tech industry is fast-paced and often requires aggressive strategies to stay ahead. As Sanjay puts it, sometimes, the best way to move fast is to swing for the fences.
2. Learning from experience - Experience is the best teacher. Learning from past experiences can help improve future integration efforts. Sanjay says to stay humble and hungry. Once a big move is made, there's a risk of becoming overconfident or complacent. Recognize that the hard work is far from over, even after announcing a deal. 
3. Keeping critical people - More importantly, Sanjay believes people are crucial to success. M&A deals usually fail not because of strategy, product, or process issues but because people leave. Retaining top talent should be a priority to improve future integration efforts. 
4. Cultural sensitivity - Be cautious about culture and avoid the “occupier mindset,” which treats the acquisition as a takeover and forces the acquired company to conform entirely to the acquirer's way of doing things. Instead of bulldozing over the existing culture, preserve what made the acquired company valuable and allow it to thrive within the new organization. 
5. Maintaining innovation - Don't stifle the acquired company's innovation. If you have a product team building a product, let them keep innovating. Allow engineering teams to continue operating as they were to maintain the speed and agility that made them attractive acquisition targets in the first place.

The real success of an M&A deal can only be judged years after the acquisition. The ultimate goal is to create long-term value that can be recognized well into the future.

Best practices for managing large-scale acquisitions

Large-scale acquisitions can be disruptive for everyone involved, emphasizing the critical role of strategic communication and relationship management. The CEO plays a significant role in actively managing the narrative and relationships around it to maximize the acquisition's success and integration. Here are some of the best practices when announcing large-scale deals, according to Sanjay:

1. Pre-announcement briefings - Proactively inform crucial ecosystem players and partners about significant upcoming announcements to maintain trust and manage expectations. For instance, personally calling CEOs of major companies like AWS, Microsoft, and Google Cloud the day before a public announcement to ensure they are prepared and feel valued.
2. Strategic timing of communications - Choosing the optimal time to announce major deals to avoid overshadowing other market events or announcements. This includes avoiding days with potentially conflicting major news and selecting business days for better engagement.
3. Sustained post-announcement engagement - Continue to engage with key customers and partners after the announcement to ensure they understand how the deal benefits them and to reinforce their importance to your strategy. Keep an ongoing dialogue to reassure and involve them in the integration process.
4. Build long-term relationships - Establishing and maintaining strong, personal connections with key figures in relevant industries can facilitate smoother communication and more effective collaboration during critical times.
5. Managing deal leaks - Be prepared for potential leaks. Have a plan to bring forward the announcement, if necessary, to control the narrative. Be ready to adapt your plans and make decisions based on the current situation at the last minute. A capable communications team manages these adjustments smoothly and ensures the message remains clear and effective.

Managing large-scale deals carefully can minimize negative impacts, maximize positive outcomes, and protect the acquiring everyone’s interests.

Advice for CEOs on preparing for a successful IPO post-acquisition

A financially healthy acquisition ensures that the deal will contribute positively to the company's bottom line rather than drain resources. Sanjay recommends that CEOs prioritize financial accretion and long-term value creation when preparing for post-acquisition IPOs. 

A less profitable target can pose significant risks, so partner with a seasoned CFO to evaluate the deal's financial implications meticulously. Structure the deal to boost earnings and demonstrate integrated success within four quarters. This will create a compelling narrative for potential investors, focusing on lasting value rather than short-term gains.

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