The year 2015 was the biggest for global M&A activity, ever. US deals worth US$4.9 trillion were announced, promising to deliver up to $2 trillion of cost synergies. The stakes are high for business leaders, their boards, investors and pension funds, and this topic is expected to be high on boardroom agendas globally. However, releasing potential from these collaborative deals is not straightforward. Research from Deloitte shows that while only 17% of deals create significant value, poorly executed integration causes 70% of mergers to fail.
Having a proper integration plan is standard if you’re a serial integrator – but what if you’re not? How can you ensure that your deal pays off?
London Business School’s (LBS) M&A programme taught by Florin Vasvari, Term Professor of Accounting and Marcus Alexander, Adjunct Professor of Strategy and Entrepreneurship at LBS provided answers. Marcus, the participants, and guest speakers Peter Williams and Debbie Wrench from Deloitte’s Integration and Separation Services shared their tips and lessons from successful, and less successful, integrations.
It sounds obvious, but if you can’t explain what the combined business looks like, the exact sources of synergy and their expected value before the deal, you will not be able to explain them post-execution either. Moreover, you’ve missed the opportunity of doing proper due diligence for your deal. “If there isn’t a common view of objectives when you go into due diligence, the diligence will not produce meaningful results for your deal,” says Peter Williams.
Think carefully about who holds the power and influence in the organisation – this may not be what you see on the organisational chart. In a family business for example, identify who has final sign off – is it the CEO and CFO, or the family directors? Make sure that you have HR and broader representation around the table, not just senior management. Identify key representatives for the whole organisation. “Work out who is critical to making this deal work – it could be customers, suppliers, acquired staff, existing staff, regulators – and make sure they are involved early,” says Marcus.
So you’ve got the deal over the line. But what about day one, when you take legal control? “Include an implementation budget from the outset – otherwise it will be a case of ‘we’ll get by’ with no resources to oversee the process, and then it is too late,” says Marcus. “Select one of your top executives as integration director.” Initially the aim is to have an integration plan. Williams adds: “Having a clear plan that is properly communicated really settles the organisation.”
An M&A deal is not just a legal agreement. Debbie Wrench says: “As with any business endeavour, to lead successfully you need to win the hearts and minds within the organisation.” Cultural integration and culture clash are often low priority considerations in deals, yet have the power to totally derail business outcomes. Invest the time up front. Marcus says: “Think about how factors such as feelings, emotions and cultures will affect business outcomes and address these in the implementation plan.” And it’s not just the big changes that impact engagement. It is often the small things that really mean something to staff. One example was shared about the reaction to changes in canteen food post-deal which really upset staff. Look for these small wins which give people confidence in the integration process.
Allow people from both organisations to interact and understand each other’s fears and motivations. Get them to work on something real together, even just something internal. There’s no substitute for bringing people together face to face. Williams says, even if it’s an international deal, the travel cost is worth it because “the investment pays off many times over”.
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