by Anil Singhal, Co-founder, President, and CEO of NETSCOUT and author of “The 5% Rule of Leadership: Using Lean Decision-Making to Drive Trust, Ownership, and Team Productivity“
As merger and acquisition (M&A) activity ramps up in the year ahead, CEOs and senior leadership are under increasing pressure to ensure strategic decisions lead to successful business outcomes. Recent reports found that corporate M&A activity in the U.S. at the close of 2024 was up twelve percent as compared to 2023, with deal volume rising seven percent. Momentum is expected to pick up in 2025. EY predicts corporate M&A deal volume will see eight percent growth this year.
When it comes to these strategic investments, effective decision-making is critical. An important consideration is knowing precisely when CEOs should get involved in the process. After many years and many acquisitions, I have come to the considered conclusion that the most judicious time for the CEO to engage in the decision-making process is limited to the very beginning. I call this the “Five Percent Rule.”
This framework for efficient leadership ensures time and resources are allocated effectively. This principle aligns closely with the Pareto Principle (80/20 Rule), reinforcing that a small percentage of effort — specifically, the first five percent of a decision-making process — drives the majority of results. By understanding and applying this rule, businesses can streamline operations, minimize risk, and enhance strategic outcomes.
Timing Is Everything
One of the most significant insights from the Five Percent Rule is determining when a leader should get involved in a major decision like an acquisition. For many companies, CEOs engage in the process late, often after considerable effort has already been expended by their teams. This traditional approach increases the risk of wasted resources and potential momentum toward a suboptimal decision that does not align with strategic goals.
To clarify, when I suggest the CEO should be involved at the beginning of the acquisition process, I mean after initial assessment by a corporate development team. In my experience, these teams know what they are doing, and CEOs must trust that they will winnow out deals which would not be synergistic to the business. As CEO, I do not want to waste my time getting involved prematurely.
Typically, when the corporate development team comes to the CEO with an acquisition candidate, many additional stakeholders within the organization get involved. But I have learned from experience that this is when the five percent timeline begins. Before any formal discussion or due diligence starts, I become engaged in the decision-making process. The best use of my time is this initial engagement where I can help determine whether the deal is even worth pursuing.
The next ninety percent of the process is handled by the appropriate teams, with the CEO returning for the final five percent, which tends to be pretty much pro forma, dealing with final terms, Board approval, and closing matters.
A Closer Look at the First 5%
Many companies enter negotiations without a concrete understanding of their worth, making it essential for the acquiring company to set the terms. If expectations are misaligned, it is best to walk away early rather than waste resources on fruitless discussions. As CEO, not only is it my job to lead the negotiations, it is also a fiduciary responsibility.
Surprisingly, many companies enter negotiations wanting to be acquired, but having no idea what their market value is. This may be because they have failed to undergo a self-audit, or they may simply be hoping that by playing coy they will be offered an amount far greater than what they might have asked for. In the end, I only want a ballpark price range, which helps me determine if the conversation should continue. Determining what the acquired company is worth can be particularly challenging. This is where having extensive domain knowledge is critical to success and why a CEO must get involved in the first five percent of the process because he or she most likely has worked in this industry longer than anyone else in the company.
As part of this early discussion, one of the common questions we ask is why the company wants to sell and why they want to sell to us. I am less concerned with the specific answers, and more interested in their thought processes. These preliminary questions are important because they open a pathway to a deeper dialog, one that enables us to get a feel for the personalities of the players on the other side and the nature of the assets we may be buying.
During the early Five Percent Rule time period, we are not expecting deep proprietary information. At this stage we are building trust and transparency, which creates velocity. Even during the first meeting, I can generally get a good sense of the inner workings of the other company, which lets me determine whether our investors and Board will like the deal or not.
Once a potential price is agreed upon and both sides see a strategic fit between the two companies, the CEO’s role becomes more of a sales job. This involves telling counterparts about the history and culture of the business. I typically spend much of my initial five percent doing more selling than negotiating. This is done to foreclose our counterpart from considering any other potential suitors. Once the general guidelines have been established, I leave the final negotiating to the team, returning only when we need to close.
By applying the principles of the Five Percent Rule, CEOs can enhance decision-making, maximize efficiency, and set the strategic direction of the business. The key lies in disciplined, early engagement and strategic focus — ensuring that every move contributes to long-term success.
Anil K. Singhal is the co-founder and CEO of NetScout, a software developer that makes products to help customers monitor the reliability and security of their business networks. He is the author of the best-selling book “The 5% Rule of Leadership: Using Lean Decision-Making to Drive Trust, Ownership, and Team Productivity“.
