There comes a time in the life of almost all successful technology companies when organic growth slows to a crawl and directors need to turn to an alternative method of growth: Mergers and Acquisitions (M&A). Through M&A, tech companies can capitalise on horizontal or vertical synergies between entities to enhance product offerings, bolster customer-bases and ultimately achieve further growth.

Exchange markets all over the world are filled with technology companies that have benefited from M&A transactions. Notable Australian exemplars include Menulog (acquired by LSE-listed Just Eat), TPG (acquisitions include Pipe Networks, AAPT and iiNET) and Atlassian (acquired Trello). The benefits of M&A activity are not solely limited to billion-dollar market-cap companies. Several smaller software companies have also enjoyed growth through M&A activity – such as ASX-listed RXP Services, who have made several mid-market acquisitions over the past 5 years.

However, the world of M&A is not an easy one to navigate, particularly for new players. Research by the China Market Research Group finds that shareholders are worse off after a merger or acquisition in a whopping 70% of cases. This high failure rate can be attributed to any number of a myriad of causes, including:

  • Clash of cultures: productive employees ascribe to the culture and values of their employing company – a merger or acquisition can drastically change the internal environment of the company, leaving employees disillusioned, demotivated and unproductive.
  • Dissonance between valuation and practical benefits: it is all too easy for corporate managers, the media and shareholders to get carried away by the huge sums of money poured into M&A without considering what these huge investments, that look great on paper, will actually provide as practical benefits to the companies, customers and shareholders.
  • Lack of clarity and poor execution: poor or insufficient implementation plans will stifle productivity, extend integration timelines, cause frictions and frustrations between parties and will require time-consuming and costly plan reworks.

The traditional view is that the difficulties and failures of M&A can be avoided through diligent planning, thorough research and prudential decision making – skills all falling under the banner of IQ, a measure of `people’s intellectual ability. These skills are undeniably important; however, recent research has indicated that IQ is not the critical factor that sets successful deals and dealmakers apart from the rest.

A different type of intelligence is key instead – Emotional Intelligence (EQ). It is the thing in all of us that governs our behaviour, emotions and motives as well as our relations with others. It is a measure of our intrapersonal and interpersonal skills. Individuals with high EQ are able to effectively recognize and manage their own emotions and exercise self-control as well as accurately perceive the emotions of others and use this awareness to manage interactions positively and productively. A study conducted by TalentSmart tested EQ alongside 33 other workplace skills and found that EQ accounts for a full 60% of job success.

How can EQ help manage the risks of M&A activity?

  • A clash between corporate cultures is one of the most common and detrimental complications that surrounds M&A activity. Emotionally intelligent individuals are better able to predict a culture clash between parties and devise and implement a strategy to effectively harmonise the disparate cultures.
  • It is said that if you ask five different prospective buyers to value a target company, you will be given 10 different valuations. Emotionally intelligent individuals are able to understand not only their motivations for a particular valuation, but also the motives that others have for their valuations, allowing them to accurately disentangle the objective practical benefits of M&A activity from the highly subjective theoretical value.
  • A clear and effective plan for the execution of M&A activity is arguably the most important factor that differentiates an effective merger or acquisition from an ineffective one. Emotionally intelligent individuals are better equipped to create such a plan through their ability to accept and understand criticism, recognize and respect the perspective of others and work with peers towards a unified goal allowing for positive and productive interactions.

Fortunately for all of us EQ can be learned. As we discover and practice new EQ skills the neural connections in our brains strengthen making the behaviour more natural and comfortable for us, a process neurologists call brain plasticity. Thus, the best way to improve our EQ is, as with so many things, through practice. Embarking on an M&A journey is an excellent source of such practice, allowing us to invest in the development and growth of our company, as well as the development and growth of ourselves.