Giovanni Valentini (1582-1649) was an Italian Baroque composer, poet and keyboard virtuoso, informs Wikipedia. “Valentini is practically forgotten today, although he occupied one of the most prestigious musical posts of his time. He is best remembered for his innovative usage of asymmetric meters and the fact that he was Johann Kaspar Kerll's first teacher…”

But the Giovanni Valentini I was listening to, during the recent India Strategy Conference in ISB, Hyderabad, is an Assistant Professor in theDepartment of Management, Institute of Strategy, Università Commerciale Luigi Bocconi, Milan, Italy.

(http://bit.ly/F4TGiovanniV). And it may come as music to the ears of those clued into M&A that among ‘selected publications' listed in Giovanni's page (http://faculty.unibocconi.eu), are ‘Measuring the effect of M&A on patenting quantity and quality,' ‘Beyond knowledge bases: Towards a better understanding of the effects of M&A on technological performance,' and ‘Trends in mergers and acquisitions.'

Here are excerpts an e-mail interview that I took forward with Giovanni after the ISB conference. “Our claims are based on the study by Maurizio Zollo, Giovanni Valentini, and Degenhard Meier, ‘What explains M&A performance?', which analyses data from a questionnaire-based survey of 146 acquisitions,” begins Mr Giovanni…

First, a brief definition of M&A performance

What we call ‘M&A performance' – assuming there is only one way to define and to measure it – is actually an umbrella under which a number of performance dimensions exist, depending on the time horizon considered (short-term vs long-term), and on the unit of analysis adopted.

For instance, the integration process is made by a number of specific tasks (e.g., conversion of the IT systems, transferring of sales practices, etc.), and each of these tasks generates its own performance. Other measures are at the transaction level and consider the value generated by the deal, while other measures are at the firm level.

Considering these distinct dimensions of M&A performance is important not only because each dimension might be influenced by different factors, but also because the same factor might have a positive influence on one performance dimension and a negative effect on another.

What are the factors that get spoken about often as drivers of M&A performance? Are there flaws in these common perceptions?

Most of the studies on M&A performance have insisted on a relatively restricted number of drivers. Specifically, researchers have typically focused on the features of the deal and of the two firms involved, often underestimating the importance of the organisational integration and of the implementation process.

Like in the old story of the drunk man who was looking for his lost keys, which he could have dropped anywhere in the street but that he kept searching only under the lamppost simply because that's where the light was, so researchers have possibly looked for drivers of M&A performance where data availability made it easier to find them.

Yet most of the value is created after the deal is signed: we show that when taking into account a wider array of drivers that span also the integration and the implementation of the deal, factors like the relatedness in product markets between target and acquirer – arguably the most debated driver of M&A success – do not influence any of the performance dimensions we considered.

Are there factors that get overlooked by M&A researchers?

Typically, several features of the post-deal implementation process. For instance, though the role of leadership in M&A has been often neglected, and at times even denied, our results show that firms must manage actively the integration process paying particular attention not only to structures and systems, but also to the appropriate leadership roles. Also, changes in role models – which are almost by definition visible and symbolic – are appreciated by the market.

Also, the role of firm capabilities can be better enlightened. In fact, despite a number of insights into what needs to be done, many firms might not know how to do it. Learning from prior M&A experience becomes therefore crucial.

However, experience per se does not improve performance. Experience does not automatically translate into learning, and it might actually simply increase managers' overconfidence.

We find that experience enhances performance only when it is accompanied by a codification of previous deals' lessons. However, this codification has to be done formally (i.e. in manuals, procedures). Using only brainstorming or verbal reports to recollect deals' results produces a negative effect on performance.

This suggests that informal recollection of M&A experience might reinforce managers' confidence over and above their competence, whereas a more formal analysis leads to a deeper and evidence-based evaluation of past deals.

Furthermore, codifying deals' evaluation permits to return to it over time and share it across units and managers, thus promoting real organisational learning. Managers are therefore invited to invest in the formalisation of codified learning processes, following the example of companies like GE and Cisco Systems.

A few insights from research to benefit M&A managers.

First, we found that the relative quality of a target compared to its competitors makes more difficult customer retention. The higher the quality of the target, the more disruptive is going to be the effect of the acquisition, with immediate reverberations on the revenues side.

Top executives might often be biased towards high quality, ‘prestige' targets – irrespective of their potential added-value to the bidder – because of reputational effects. Yet, not only does target quality not automatically translate into superior value creation, but it may actually lead to such a disruption in the target firm that customers are significantly more difficult to be retained.

Therefore, when evaluating potential targets, an important dimension of the problem consists in the fact that higher quality targets are not only more expensive, but are also considerably harder to integrate.

Another interesting implication of our study has to do with the management of the speed of the integration process. We show it is important to disentangle the effect of the speed of execution from the speed of decision-making in the integration phase. The speed of the execution of integration has a clear positive effect on the M&A process as well as on customer retention and accounting performance.

A quick implementation of integration decisions is beneficial since it minimises the amount of uncertainty and disruption among workers and managers, and it reduces the time during which competitors may take advantage of a distracted acquirer. However, the speed of execution is different from the speed of decision-making. And the speed of decision-making is actually associated to a negative firm financial performance. Managers, in fact, are often pressed by different stakeholders to show fast decisions regarding the integration strategy in the aftermath of the deal. However, only careful decisions, followed by a fast implementation, increase the odds of M&A success.

Finally, managers should appreciate that multiple dimensions of M&A performance exist, and that the same factor might affect them differently. For instance, we show that while M&As pursued because of efficiencies and cost reductions increase accounting performance, they also make customer retention more difficult.

The relentless action to cut costs in the aftermath of M&A is also mirrored in the quality of services offered, which suddenly declines. Being aware of possible trade-offs can help the managers in the design of an appropriate incentive system for those involved in the M&A decision-making, implementation and coordination processes.

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