Mergers and acquisitions are highly complex where right planning and execution is essential during the entire M&A lifecycle including pre-deal planning, due-diligence, deal structuring, integration planning and execution. Today, many companies see mergers and acquisitions as an instrument which help them increase the customer reach, reduce cost, achieve scale. drive revenue growth, diversification and positioning in the market which in turn increase the shareholder value. A recent research suggests that the success rate of M&As is approximately 40 – 50% only 1. M&As provide opportunity to the organizations to be more productive while leveraging the existing assets.
Below are some of the best practices that companies should leverage to achieve the maximum out of M&A activities:
Evaluate corporate strategy before opting for M&A to drive growth: Well-defined corporate strategy and means to achieve the vision are essential to drive the growth engine. Although, there is huge surge in M&A activities, it is essential for the companies to establish broad corporate vision and review existing portfolio against strategic vision. This helps in identification of areas where companies can grow organically and inorganically. Following acquisition strategies can help companies create greater shareholder value:
-Performance improvement of target company by helping them develop their business
-Remove excess capacity from industry by consolidation
-Faster time to market for target’s / buyer’s products
-Faster means to acquire new technologies / skills and at a lower cost
Another important factor to consider before M&A is to assess the capability to undergo such programs and identify key stakeholders and their accountability within the organization.
Involve integration team at the very early stage: Typically, M&A is seen as a separate project to purchase new assets and technology within the organization rather than a means to achieve strategic objectives hence having a separate team to drive the entire integration increases the chances of success. M&As are meant to increase shareholder value for both the organizations, so it is imperative to identify the challenges that may arise at any point for the internal stakeholders and have solution in place to address them. Ideally, integration team should be involved during the due-diligence process itself to better understand the structure, identify synergy opportunities and other areas which can deliver quick results for the merged entity. It also helps the team define high level pre-deal integration plan and complete initial diligence to identify synergies.
Look beyond financials during due-diligence: During the evaluation and due-diligence process, companies perform financial / accounting, tax and commercial diligence and leave scope for finding new sources of generating value. Valuing the target and identifying risks involved in the deal is imperative but companies need to look beyond the value that justifies the transaction. Detailed due-diligence provides companies to identify synergies within different functions including HR, IT, business operations etc. and set the basis for refining integration planning. It is important to consider other factors like organization, environmental and integration issues in the due-diligence process.
Focus on culture: Greater cultural understanding prior to the merger significantly improves chances of integration success however very few companies focus on understanding cultures during integration. This includes identifying the extent to which employees take responsibility and how layered hierarchy is, approach towards innovation and how customer external relationships are managed. Companies fail to understand that no two companies are cultural twins which can get along with each other just like that. Companies never keep culture as the screening criteria while evaluating the options for a potential merger.
Capture Combinational synergies and identify Transformation opportunities: Combinational synergies typically involves merging operations, function and processes etc. to drive greater efficiency and achieve economy of scale. These are easy to manage, quantify and are less risky. But bringing two different entities also present the opportunities to unlock new opportunities to transform different functions, processes and business units to position merged entity differently among peers, reduce working capital and drive better efficiency and productivity.
Develop and execute integration strategy: The primary reason for failure of M&As in the past is lack of good enough integration plan. It is imperative to establish operating model and overall integration blueprint to drive customer, market, product and organizational strategies for the merged entity. The day-1 and end state operating model and requirements are to be assessed against organization and functional capabilities. It is also important to address people and cultural issues in the integration plan by having a governance model where roles and responsibilities of different functions and individuals are well-defined in the merged entity. Companies need to build an approach that is flexible enough to allow the leadership team to unlock new avenues of transformation while driving the combinational synergies. Having an integration plan in place also help speed up the process of integration as maximum synergies are realised to highest in the initial 90 days of integration.
Periodic reporting and tracking: Rigorous mechanism for tracking and reporting of the synergies identified during the entire lifecycle of M&A is essential to get the maximum benefit. It is important for leadership to be deeply involved in the governance and tracking to review the output and take necessary action to sustain the momentum and locate the new sources of value creation.
Drive change through effective communication: Mostly, communication regarding change in processes and systems is not communicated to customers and internal teams upfront. Companies take opposite approach and post-merger revenue suffers in many cases due to lack on buy-in from the different teams. Additionally, critical resources leave companies due to uncertainty in their roles and leadership structure. Hence it is essential to drive top-down communication from the start of the integration.