The Conference Board released a report finding that U.S. businesses seeking M&A deals often overlook the need to engage with their target company's middle management. Neglecting to engage with and sufficiently assess this group can weaken a deal's outcome, since middle management carries out the day-to-day work of companies and either embraces or rejects proposed changes by senior leaders. As detailed in the new analysis, companies typically focus on engaging with and evaluating the competencies of just their target company's c-suite and senior management.

The report, The Leadership Factor in Mergers & Acquisitions, comes on the heels of a banner year for M&A activity, with 2018 marking the third highest year on record. Despite the stakes for businesses, and M&A activity expected to increase, many M&A teams continue taking a highly transactional view of the human capital issues in a deal rather than focusing on the more strategic issue of leadership.

"As a major driver of deal value, leadership is one of the last true uncharted territories in M&A," said Amy Lui Abel, Managing Director of Human Capital at The Conference Board. "By helping to make the connection between leadership capability and M&A success, our research aims to improve deal outcomes and reduce the risk of failures."

The insights featured in the report are from The Conference Board's recent survey of over 100 executives involved in M&A deals, follow-up interviews with participants, and a review of existing literature. Insights include:

Successful Acquirers Focus on the Importance of Middle Managers

Acquirers that are highly successful at achieving their deal outcomes are more likely to engage with middle managers than those that are less successful. Research on employee engagement finds that engaged employees are more likely to be high performers.

Neglecting to engage with and sufficiently assess this group can weaken a deal's outcome, since middle management carries out the day-to-day work of companies and either embraces or rejects proposed changes by senior leaders.

Successful Acquirers Assess and Identify the Right Leaders

Whereas at one point, leadership might have been considered post-transaction, The Conference Board's survey results suggest that companies are increasingly considering leadership as a driver in the decision of whether to buy or merge.

More successful acquirers spend more time and effort in gathering the views of influential stakeholders about individual leaders, rather than relying only on interviews with the leaders themselves. The need for a holistic view of talent is similar to efforts around internal talent assessment and succession planning. To minimize business risk, organizations need to apply similar discipline and methods when assessing leaders in M&A deals, both pre- and post-deal closing.

Successful Acquirers Understand the Leadership Skills and Behaviors Needed at Each Phase of the Deal

Strategic: The key leadership skills needed in the early stage of planning a deal are the ability to think strategically, provide vision, and use sound judgement.

Results: During integration, results skills shift toward helping the business be outward-looking by driving for results and focusing on customer needs.

People: At almost every stage of an M&A, the most important leadership skills are to lead teams and foster teamwork. In the initial changeover, change management skills become important as well as the ability to motivate others. When integration is well underway (7–24 months), it becomes important to develop others.

Personal: Three complementary skills are required during most phases of an M&A. They are the ability to communicate effectively, listen to others, and inspire trust.

"Most companies focus their attention on culture as being the most critical human capital component of successful M&A outcomes," said Dr. J. Keith Dunbar, Distinguished Principal Research Fellow at The Conference Board, and Managing Partner of JKD Talent Solutions, an M&A leadership consultancy. "But in addition to culture, a critical factor is leadership, which our new research asserts and provides compelling evidence as to why."