Business Management

M&A Success is More Than Just Numbers

As the UK powers out of recession, the investment banks are gearing up for an anticipated glut of IPOs. If businesses finally find the confidence to dig into the piles of cash that they accumulated during the recession, acceleration in M&A activity may not be far behind. But, as has been demonstrated by several recent unions, value can be destroyed as easily as it can be created when two companies come together. The management of both companies have a responsibility towards their shareholders and employees, to make sure that the result of a merger is greater, not less, than the sum of its parts. That means it is crucial to perform due diligence — not just the obvious interrogation of the numbers that props up such a large slice of the boutique banking market, but the bigger picture, looking at what happens three, five and more years after the merger.

Of course, all companies entering into M&A activity believe that theirs will be a successful venture. If the numbers are right, success surely ought to follow?  Unfortunately, that is not always the case. Putting together ‘the deal’ and closing it effectively, even if the numbers look stellar, is only one of many aspects to take into consideration. Precedent suggests this is not where complete success lies. 

Success is about being clear and focussed on the benefits, and foreseeing and minimising the downstream risk, and this is about planning. The best planning follows a definite route  and starts when the board first decides it wants to wade into M&A waters — is the target ideal, or is it just the best available? What is the motivation, and does it serve the interests of all (or the majority) of clients and other stakeholders? If it does, will it result in greater market share, perhaps the removal of a competitor, increased skills, diversified products, access to new markets, or the acquisition of technology unavailable elsewhere? Clarity of purpose at the outset will make the process more likely to succeed.

However, there is another sort of planning that is often overlooked: planning how the management team is actually going to bring the two entities together — on time, on budget and with minimal distraction and loss of morale and staff — ensuring the value is physically realised, not just a remnant on the acquisition proposal for shareholders to beat you with. 

In parallel with closing the deal, plans for integration must be drawn up and clearly owned. Ideally, an experienced senior executive should be put in charge to liaise across the two companies, and ‘run’ the process over the first year of the new company’s operation. The right leadership is essential in order to motivate staff on both sides, and prevent the long and costly delays to integration that can so often destroy value.

In successful projects, this person needs to be an independent, experienced decision maker whose only vested interest is making the deal work properly. This independence will reassure staff, and the chances are that their input will follow five basic principles of integration.

1. Keep a sharp eye on the performance of the main business. This sounds simple, but neglect here is often the root cause of integration failures, resulting in a fall in business as clients – and staff – are neglected and defect to the competition. Keep sales teams motivated, morale high and clients informed during the process; monitor KPIs closely, be they daily, weekly or monthly. If something appears to be going wrong, address it immediately to get it back on track.

2. Integration versus optimisation — no contest. Integration must be the priority and should only be eclipsed by keeping the show on the road or mandatory imposed change. This is not the time for fixing every operational issue or pandering to internal pressures to add functionality or structures, but for finding ways to remove complexity.

3. Do not strive for planning perfection...it will never be achieved. Aiming to create an integration plan that answers all of the questions before the organisation moves into execution will just result in delays and prolonged debate. Events will occur that, no matter how long you take in planning, you will never be able to predict. The level of success will come down to how the organisation navigates through these points of pain.

4. Single accountability and dedicated focus on delivering integration. Whoever is in charge must be accountable and have direct access to the board. Managing the delivery of a successful integration (or any major change programme) is not a part-time activity nor is it for the uninitiated. A dedicated, experienced team will inject speed into decision making and create the relentless focus on the goal.

5. Manage the market and communicate regularly. The post-acquisition world is alive with uncertainty for both the external market and the enlarged organisation. This is the time to intensify communications, increasing the frequency of updates to clients and staff; ensuring key third parties are clear on their roles in the integration process; and keeping the myriad of interested bystanders, including the media and analysts, on your side. Across all of these groups, you must constantly communicate the logic of the acquisition, the integration plan and its progress. The importance of this cannot be overstated.

There is no ‘one size fits all’ model to integration; success is closely linked to keeping sight of the above principles. Doing so should allow the new company to run its business better and more efficiently than its two components. It should also help the new company run differently, and innovate in ways that the original organisations were not able to do. That massively increases the chances of unlocking the full potential in a merger, and creating value from the deal.



Phil Dunmore is Head of Consulting, UK and Global Head of Programme Management, Cognizant Business Consulting


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Phil Dunmore

Phil Dunmore is Head of Consulting, UK and Global Head of Programme Management, Cognizant Business Consulting

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