Time Warner-AOL, Sprint-Nextel, eBay-Skype. What do these have in common? They are all examples of M&A deals gone wrong. They are all integrations that failed to deliver the benefits identified in the pre-deal phase.
There are many contributing factors to the failure of these deals. Overestimating synergies, failing to understand the target organisation’s core services and inadequate integration of differing cultures are just but a few.
We know M&A deals have a high failure rate, are fraught with complexity and carry enormous risk. However, we also know that ‘growth by acquisition’ is a strategy favoured by many companies.
Thomson Reuters recently reported that worldwide M&A activity totalled $2.4tn in the first 9 months of 2017 – up 3% from the same point in 2016. Which leaves one to ask; why, if there is so much continued investment in M&A, do so many deals fail to deliver the vast benefits identified? And what can organisations do to ensure they don’t fall short of achieving their targeted synergies.
Project Management is critical to driving out the benefits identified pre-deal, yet so many organisations approach their integration without the adequate structures, controls and processes in place. Here, we look at five fundamental actions that companies should take to ensure they maximise the benefits of their post-merger integration.
1. Define a clear governance structure that creates accountability
Establish a clear and robust governance structure to steer the programme. Identify business and functional experts within the organisation to act as the workstream leads responsible for delivering the identified synergies. Including experts from the organisation provides vital industry insight and allows them to own the targets. The combination of knowledge and ownership helps instil individual accountability across the programme.
Set up an integration Steering Committee to hold workstream leads to account. The committee will also act as the forum for resolving any risks, issues and challenges. Use the integration plan and project management tools, such as an integration dashboard, to report to the committee and task the integration Project Management Office (PMO) with driving day-to-day execution of plans.
2. Make use of new information – test, test and test again
Overestimating synergies is a common reason for disappointing deal outcomes. Synergies identified during the due diligence phase are driven by calculated but understandably high level assumptions based on data available at the time. Given that much more data is available post-deal, these original assumptions and targets should be retested.
‘Bottom up’ analysis should be undertaken to stress test the original figures. While offering validation, this will also help develop accurate stretch targets – which themselves are key to driving delivery of synergies. By setting teams the challenge of developing stretch targets they are forced to explore new and additional synergy opportunities.
3. Develop an integration plan and engage the integration team early
As obvious as it may seem, having a clear plan is essential if an integration is to ever achieve its objectives. The integration plan serves as the basis for tracking progress against milestones, KPIs, and stage gates. It provides the Integration PMO with a means to track performance and drive progress, while being a critical communication tool. A clearly defined plan will provide stakeholders with a clear view of progress and a view of the direction of travel over the immediate and longer term.
Planning can often be an afterthought as the deal team are so focused on completing the transaction. Engaging the integration team as early as possible is key to building the momentum needed to drive delivery of synergies. Few organisations evidence this better than AB InBev, whose acquisition approach is to mobilise integration, oversight & change programmes at the start of the deal process. It then establishes targets, and the processes and tools that will be used to manage their delivery.
4. Track progress and performance through robust project controls
Equipped with a well-defined plan, a PMO should be established to support the integration. Use the PMO to implement project management best practice, track performance and report to senior stakeholders. Developing a performance dashboard is an effective way to report against progress and key business metrics that underpin the acquisition.
When BA acquired bmi, Moorhouse supported them to develop an integration dashboard that tracked progress not only on integration activities (e.g. SAP migration, route conversion, achievement of business case benefits) but also key business metrics such as the migration of bmi customers to the BA frequent flier programme. This type of performance dashboard was critical to demonstrating progress and any areas of concern to stakeholders.
5. Communicate early, often, and be wary of the culture clash
The organisational changes that a merger or acquisition brings will naturally create concern for those impacted. Early and frequent communication is a way to alleviate concern and reduce unnecessary speculation that may impact morale and performance.
There are, of course, intricacies to M&A deals that cannot be communicated to the wider organisation. This can inadvertently create a ‘closed door’ mentality that prospective buyers should be wary of. To combat this, be open and transparent with those affected. Keeping people well-informed will help staff get on-board with the deal and keep them motivated.
Goals and objectives of an integration are primarily revenue and cost driven, and cultural aspects are too often overlooked. Identify the cultural challenges pre-deal and use pro-active change management to implement initiatives that target these gaps.
Google’s 2014 acquisition of Nest is an example of where contrasting cultures impact an integration. Google’s culture of socialisation and collaboration was in stark contrast to Nest’s more reserved and structured ex-Apple culture. Amid rumours of employee frustration, declining revenues and perceived lack of new products the acquisition has yet to realise the benefits identified pre-deal.
Get the basics right
The recurring theme of strong and effective project management underpins each of the actions mentioned above. Whether creating the communications strategy, tracking benefits delivery or developing the integration plan; each is a core component of a robust project management approach. Getting these fundamentals right is critical to ensuring that an organisation achieves the full benefits of an integration and avoids becoming another case study for a failed M&A deal.
To find out more about how your organisation can drive a successful M&A integration, please contact Mike Creasey.
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