Achieving successful acquisitions and integrations: focus on the numbers
December 2013 | EXPERT BRIEFING | MERGERS & ACQUISITIONS
To be successful in acquisitions and integrations, we strongly recommend that organisations focus on some key numbers.
The first number to focus on is ‘70’, as in the Rule of 70/70.
Up to 70 percent of acquisitions fail to increase shareholder value and 70 percent of the reason for this has to do with what acquirers do (or do not do) in the integration planning and execution phase. What is frustrating is that this failure rate does not have to be so high. Companies undertaking mergers and acquisitions (M&As) need to focus on building in-house competencies and expertise in this area, just as they would other core business functions. Those companies that are committed to M&A excellence can stack the deck for success and become the 30 percent in the winners’ circle.
The next number to focus on is ‘3’, as in S3 for speed, synergy, and stability.
Speed. Companies need to integrate acquired companies as fast as feasible. The more time it takes, the greater the business risk and the higher the costs. Our point-of-view is to integrate first, then once you are on common systems, processes and facilities, optimise the benefits of the combined assets and operations.
Synergy. The only real measure of success in an acquisition is whether you increased shareholder value as a result of the combination. If not, the process has failed. As you operate through the various stages of the acquisition from target selection, due diligence, pre-close planning and post-close implementation, the focus should always be on capturing the benefits of the deal and achieving sustainable business value.
Stability. In addition to focusing on speed and synergy, the emphasis needs to be on keeping both organisations running their day-to-day businesses as efficiently and effectively as possible, while (ideally) dedicated resources are driving the integration and transition efforts.
The final number to focus on is ‘7’, as in the Seven Critical Success Factors for successful M&A.
Strategy. Set the strategic context for the tactical execution. A successful deal focuses first on articulating the top-down acquisition rationale and integration objectives and then managing the bottom-up tactical and functional activities to achieve those.
Value. Keep everyone focused across the stages of the integration on value: preservation then realisation and finally creation. To achieve the value of the deal, you need to minimise value erosion in the short term (i.e., between date of announcement and day one of legal close). After day one and through the post-close transition period, the shift needs to turn to realising the value of the deal. As you start combining the businesses and migrate into a steady state, attention needs to centre on creating significantly greater value in the combination than just consolidating operations.
Leadership. In our experience, the number one factor for determining the ultimate success or failure of an M&A is leadership. If the senior executive who ultimately owns the business (the CEO, divisional president, general manager, etc.) is driving this effort, is committed to achieving M&A excellence, and is deploying the assets to plan and execute the integration effort, then the probability of M&A success rises exponentially. In addition to the ‘business owner’, leadership means alignment and commitment from the senior management team of both organisations to the strategy and objectives of the deal. Without top-down leadership, the challenges and barriers to successful planning and execution of an M&A transaction are huge.
Governance. It seems simple, but often is governance not observed, or at least not done properly. The objective is to clearly outline and communicate how the two organisations are going to work together during the interim stage between date of announcement and date of close; the legal do’s and don’t’s that people across the two organisations need to be aware of; how decisions will be made and actions taken in the interim and during transition, etc. By outlining the rules of engagement between the senior management of the two organisations, between the integration teams working together, and between the rank-and-file staff of the organisation, problems are avoided, issues that arise are quickly escalated and addressed, and focus is placed on working together in a spirit of trust and openness.
Balance. While M&A planning and implementation is proceeding, it is important to continue to focus on running the existing operations of both businesses better than ever. While a dedicated group of people should be driving the integration activities, the majority of the organisation should be focused on the day-to-day business. Consider the 90/10 rule: 90 percent-plus of the organisation should spend 90 percent of their time running the day-to-day business and only 10 percent on integration, while 10 percent should spent 90 percent of their time on integration and 10 percent on the daily business.
Rigour. M&A is project management on steroids, according to Jim Jefferies, chairman of the M&A Leadership Council. If you are going to be undertaking M&A, you need to have M&A program management excellence. This should involve a focus on discipline and rigour; a sense of urgency on accomplishing tasks; quick decision making; empowering teams; and avoiding ‘analysis-paralysis’ and ‘group-grope’. Most companies do not have this project management excellence expertise in-house, but for each M&A project it is a critical function to implement.
People and change. M&A is change and change is scary, but refusing to change as the result of M&A is not an option. To achieve the objectives of M&A, it is critical to manage people through the cycle of change from where they are to where they need to be. This includes employees of both companies, customers, suppliers, strategic partners, etc. There are two key points to keep in mind regarding this: first, the date of announcement can be the riskiest day in the life of a transaction, as this is when everyone hears about the acquisition for the first time, so it is critical that all attention is focused on communication and addressing all the ‘me’ issues of various stakeholders; second, be realistic, you need to first address the people issues before you can attempt to address the integration issues. Throughout the integration process you need to understand and mitigate those areas of risk that exist due to key cultural differences between the two companies.
Keep focused on the Rule of 70/70, S3 and the Seven Critical Success Factors as you build in-house M&A competencies and expertise. Based upon our experience, you can significantly increase the probability of a successful acquisition and integration.
Jack Prouty is president of the M&A Leadership Council. He can be contacted on +1 (410) 956 0594 or by email: firstname.lastname@example.org.
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