Mergers & Acquisitions: Success is a choice
August 24, 2018
The majority of Mergers and Acquisitions fail to achieve their targets. According to KPMG (2015), 83 percent of the mergers did not boost shareholder returns. In the same study, KPMG emphasizes the importance of planning and execution of integration in ensuring a successful merger or acquisition. Midagon has helped dozens of companies in planning and implementing M&A integrations. The size of these cases varies, from extremely large to small ones. Based on our experience, we have identified a number of success and failure factors affecting the outcome of mergers and acquisitions. In the following section, some of the key factors are introduced.
Clear vision is perhaps the most important success factor in M&As. It is important to understand what is expected. The targeted level of integration should also be clear. The question must be asked whether we are aiming for full rapid, full delayed, hybrid or minimal integration. Once the overall objectives have been set, it is possible to design the target operating model.
A clearly communicated vision and targets guide the planning and execution of integration. If the direction is not clear, the integration will only be muddled through. The benefits will be limited. Redundant structures will continue to exist for years after the deal.
By its nature, successful integration requires the removal of redundancies. Two will become one. For example, the product portfolio must be reviewed and some of the products will discontinued. The organization needs to be restructured and redundant systems must be ramped down. This will require leadership and readiness to make decisions, even when there is strong opposition and it will hurt some of the people in the organization. An inability to make decisions, will result in the inability to move forward in integration and lost benefits.
Losing people is a major risk. If people with critical competencies are lost, it can have a fatal outcome. It is necessary to ensure that the organization remains attractive for the employees. Cultural issues, terms of employment and ability to provide interesting roles should be focused on. Individuals from both merging organizations should be involved during the integration. It is necessary to avoid the perception that the buying or larger organization is dictating the decisions. The corporate culture and the ways of working must also be aligned, unless the organizations continue as a holding structure with separate entities and limited harmonization. Otherwise, the organization cannot really work efficiently. There will be daily conflicts at every operational level.
Large integration usually requires many projects. Program office and program management play a critical role in ensuring that these projects hold together. This allows the required projects to be identified and started, targets across individual projects to be aligned, cross-project dependencies understood and schedules synchronized.
While planning is important, active and hands-on program management is also needed to ensure that integration moves forward as planned and deviations in individual projects are promptly addressed. Without active coordination, the entire integration risks failure and there is also a severe business continuity risk, especially at Day 1 (first day of integrated operations).
It is important to remember that program management needs a clear mandate as well as visible and continuous support from the top management. Otherwise, the change will not happen.
It is tempting to think that integration is complete on Day 1, when the basic structures are in place. Investment in integration can be cut and people can focus on other things. Unfortunately, the real integration only happens after Day 1. Full integration in large integrations requires several years of focused integration effort. If minimal integration is the target, skipping most of the post-Day 1 integration is fine. If realization of synergies requires deeper integration, skipping the post Day 1 activities results in redundant structures (e.g. processes and systems) continuing to exist and suboptimal organizational performance.
While the objective of a merger or an acquisition is to unlock the targeted business benefits and potential, and not the integration itself, successful integration is often the main vehicle for unlocking the potential. Success in integrating merging or acquired companies is not a coincidence, but a result of deliberate actions. In other words, success is also a choice in Mergers and Acquisitions.