by Jane Viljoen (Manager in Deloitte Corporate Finance) and Bianca Apker (Senior Manager in Deloitte Corporate Finance)
“The deal is won or lost only after the deal is done.” (1)
Deal value is not only based on share prices and financial performance but also includes the extent that performance targets like cost synergies, cross selling, know-how transfer, implementation efficiency and social compatibility are met. Studies of post-merger performance show that only 17% of deals create significant value, 33% have created marginal value and 50% have destroyed value.
The majority of these merger failures are due to poorly executed integration and transaction errors, with the former comprising the majority. Research suggests that common integration errors include:
- Inadequate integration planning
- Lack of Programme leadership
- Lack of a formal and fast decision making process
- Lack of executive alignment on merger rationale
- Too much time spent on organisation politics
- Loss of focus on everyday operations
- Merger synergies not driven through quickly enough
- Customers getting forgotten
Therefore, one of the key factors to a successful transaction is to construct a detailed Post Merger Integration (“PMI”) strategy to explain how the merged entity is going to integrate, operate, grow and prosper.
PMI is defined as: “The part of the merger process, following the closing of the merger agreement itself, in which the assets, personnel, and business activities of the two companies participating in the merger are combined. The post-merger integration may take between a few months to multiple years after the merger agreement is signed.” (2) Inconveniently, a PMI strategy is not a generic pre-packaged product that can be purchased on-line and rolled-out on a repeat basis. Each transaction is unique and requires a particular strategy to meet the numerous and often competing pressures that a newly merged organisation must respond to such as returning value to shareholders and investors; keeping the business going if not growing; integrating two distinct working cultures; satisfying existing customers; and maintaining labour relations and productivity. (3)
“Companies are good at buying businesses but not good at integrating them. The challenge after signing is greater as that before.” (4)
A successful PMI strategy should typically focus on three key areas notably: clarity of purpose; control over the integration process and people management. (5) All of these key areas have the objective to ensure that the business functions successfully from Day One onwards.
- Clarity of purpose involves establishing a “blueprint” as early as possible which enables a clear understanding of the rationale for the merger across all the areas of the business as well as to identify the sources of synergy and a timeframe put in place to achieve them. Further, strong leaders are selected to manage the entire process during this stage and a clear vision of how the entity should look on Day One is essential
- Control over the integration process involves ensuring that the integration process does not divert attention from managing day to day operations. This can be achieved by making planning and reporting frameworks as practical as possible; tackling risks and issues quickly and making the tough decisions early.
- People management involves removing uncertainty and ambiguity by implementing the new organisational design as quickly as possible. Further it involves identifying and recognising cultural differences at an early stage and implementing strong communication channels.
“PMI underscores the success of mergers. Culture and synergy management is critical, as are the right people, actions and plans because you only get one shot at getting it right.” (6)
If you have any questions or require a more detailed discussion on your post-merger strategy, contact Jane Viljoen at email@example.com or Bianca Apker at firstname.lastname@example.org
(1) “Post Merger Integration, A successful combination,” Deloitte, 2012.
(2) The Business Dictionary, http://www.businessdictionary.com.
(3) Tom Fairley, “Post Merger Integration, Do you have a plan,” Taylor Vinters Solicitors, 2010.
(4) Chairman FTSE 100, “When the ink dries, who is driving the post-integration process?,” Deloitte, 2012
(5) Deloitte Viewpoint, “When the ink dries, who is driving the post-integration process?,” Deloitte, 2012.
(6) “Post Merger Integration,” Roland Berger Strategy Consultants, 2011.