You are facing the challenge of completion of post-M&A integration (PMI): perhaps implying the integration of teams, development of new strategy, corporate culture? In the present business conditions many companies in a variety of industries choose to consolidate their businesses, grow not only organically but also through M&A activities. One of the key challenges of M&A deals is, clearly, the effective integration of the merged companies or acquired entity.
The context of our work
“Latest studies show that half of all deals destroy value, and that is an improvement on the 1980s and 1990s when the rate was 60-70%, but that still means in the last few years with annual M&A deals value running at $2 tn-$2.7tn,about a trillion dollars was evaporated into the air”’. (FT,’12).
According to various research (Bain, KPMG, Tower Watson) more than half of all M&A deals done in the corporate world today do not yield the desired increase in the shareholders value, this trend has been present for at least the past two decades.
One of the international management consulting companies in a recent study analysed 26,000 M&A deals done in the last 23 years, to discover the key generic factors for success of an M&A. Among other key factors, the study highlighted:
the importance of proper due diligence of the target, optimal timing and fast timeline, presence of clear integration strategy, as well as attention to the corporate identity differences and organisational cultures of merged enterprises.
Why do many M&A deals fall short of expectations?
Clearly, each M&A deal is unique in itself, different factors impact synergies realization and as a result trigger a surge or fall in the value realised.
Traditionally, among the key “secrets of success” of an M&A deal are named such factors as: quality of the due diligence – analysis of the strategic, organisational, financial metrics of the potential asset; the speed of integration; business-risks monitoring.
Much less attention is often paid to:
• organisational cultures compatibility;
• Cross-cultural considerations (in cross-border M&A deals);
• Retention of key employees, in particular, those responsible for clients relations.
From our experience the latter factors play a considerable and in some cases even a crucial role in successful integration.
Organisational cultures of the merged enterprises can differ or even conflict in key dimensions, e.g.:
• Client-oriented vs. product-oriented culture;
• Innovative vs. conservative culture etc.
Another consideration that can’t be neglected in case of international M&A deals are cultural differences of the merging entities. The volume of cross-border M&As by Russian companies is steadily increasing and we believe that cross-cultural aspects should be part of any international M&A integration agenda.
Organisational cultures integration is deeply rooted in the behavioural and value systems of organisations members, in their traditions and history of interaction, hence making the overall integration not only a technological but primarily a human process.
Our approach to M&A integration process
Based on our experience gained from participation in domestic as well as international M&A deals, we recommend our clients to start with a diagnosis of “potential risk zones” at the due diligence stage.
We work with shareholders and executives of the buyer or of the newly created company (NewCo) on identifying the key triggers of value creation (or potential loss), focusing, in the first place, on the people aspects of the merger. We pay close attention to the differences in organisational cultures, values systems, organisation member’s leadership styles and competence levels.
No matter how good the due diligence or well thought-through the integration strategy in terms of business, financial benchmarks assessment, the risk of loss of value as a result of lack of consideration of the following factors must not be neglected:
• Incompatibility of organisational cultures, corporate values and business principles of the merging teams;
• Lack of alignment within the combined leadership group on such matters as organisation identity, strategy and business objectives;
• Insufficient or not transparent communication about the integration process within the organisation;
• Poor management of external communications in respect of the merger and as a result creation of a wrong image of the consolidated entity in the public space, affecting general public as well as employees perception of the company’s future;
• Loss of employees as a result of poorly thought-through changes to organisational structure, absence of renewed motivation (incl. compensation) system, etc.;
• People resistance to changes and loss of focus on business and clients, as a result of uncertainty about the future.
By using our expertise, experience and diagnostic tools, we assist you in addressing the “What” and “How” questions in respect of the factors relevant to your organisation.
In collaboration with you we develop and implement the necessary solutions.
For more information please refer to “Methodology” section.
Minimising integration costs
We work with you on creation of an integration project-group, consisting of your company senior executives in charge of the integration (internal sponsors) and key employees – both teams representatives and other external advisors if any.
To minimize the time and effort (and consequently the cost) spent by your senior executives on coordinating the integration, we offer you our capabilities in coordination of the project team and its activities.
For optimising the costs as well as gaining support of the integration process from the employees, we suggest you start with looking for relevant in-house expertise and resources.
Our diagnostic and process design techniques help to elicit your organisation knowledge and to apply it for the benefit of the integration. This approach minimises costs incurred on external experts advice when similar or better knowledge might be generated internally.
We help you to determine what external expertise is exactly needed (e.g. organisational design services, business-communications etc.) and we can run for you the tender process of selection of the best expert in the relevant filed.
Our approach is directed towards helping you at any stage of integration execution by: (1) freeing up the time spent on this by your executives and by (2) uncovering the hidden resources of your organisation and maximising their use.
All these actions lead to significant decrease in direct and indirect spending on the integration and greatly increase the effectiveness.