How to Attain Value from Post-Merger Integration
There are many potential reasons why businesses pursue mergers and acquisitions (M&As). Acquisitions are often used to accelerate a company’s revenue and earnings growth. Post-merger integration can generate economies of scale. And it’s sometimes shrewder to buy expertise or capabilities by acquiring another company than it is to build them.
Delivering on the promise of an acquisition, however, can sometimes be elusive. For example, M&A post-deal performances had mixed results in 2018. Deals in the Asia-Pacific region performed worse relative to those in North America or Europe. Also, most mega-deals with transactions valued over $10 billion underperformed the market.
The volume of M&A deals in the U.S. is expected to remain stable this year as most activity focuses on domestic targets. Many deals will focus on accelerating digital transformation, while obtaining the robust presence of artificial intelligence, data analytics and the cloud and cloud security through acquisition will be high on the agenda of acquirers.
Capturing Full Value Creation
The main objective of a merger or acquisition should be to create value, but one of the biggest challenges faced by acquirers is ensuring that they capture the full value creation from post-merger integration activities. A recent article in CFO.com1 suggested reasons why deals fail to deliver anticipated value, and they include the following:
- Management loses focus on the key value drivers that were sought from the merger.
- Key customers defect from one or both of the merged companies due to this loss of focus.
- Top talent leaves one or both of the merged companies due to post-merger integration uncertainty.
- Subterfuge or resistance to change undermines goals as employees fail to get on board with the merger.
Sometimes, the best way to capture value from post-merger integration activities is for the acquired business to continue operating independently. In most instances, however, integration of the merged entities at some level is the best strategy for capturing value. The key is to avoid “leaking” value by making some common post-merger integration mistakes, including the following mentioned in the article1:
1. Getting caught up in organizational details.
These include things like reporting structure and filling organizational boxes. While it’s understandable that employees will want to know what their new roles are going to be and what the reporting relationships will look like, management needs to be careful not to let too much of their attention be diverted in this direction.
2. Neglecting high-value customers, employees and channel partners.
It’s not uncommon for competitors to try to poach key customers and top employees (especially salespeople) in the immediate aftermath of an M&A. So it’s critical to identify which customers and employees add the most value to your organization and be proactive in planning how you will retain them.
3. Not addressing compensation issues.
When two companies merge, one of the first priorities should be to integrate the sales compensation plans. But management sometimes puts this off, thinking that it’s best to just leave things like they are. This can lead to uncertainty among key salespeople and a fear of what kinds of compensation changes might be coming in the future.
4. Failing to cast a long-term vision for the organization.
During the first days after an acquisition, management attention is rightly focused on immediate priorities and short-term tactical moves. But you can’t let too much time go by before turning attention to creating a long-term vision — specifically, one that defines growth goals and how they will be achieved.
Avoiding Post-Merger Integration Mistakes
There are a number of solutions you can implement that can help your organization avoid these kinds of post-merger integration mistakes, including the following:
- Develop go-to-market models and sales processes and align strategic segments of the combined organization to effectively capture value.
- Create initiatives to retain key customers, channel partners and employees.
- Integrate high-priority value items that were targeted by the merger.
- Implement the best of each company’s structure, systems and processes (e.g., CRM) that maximize productivity and add value to the new organization.
Your company could realize a number of benefits by implementing solutions like these. For example, you could increase stakeholder value, accelerate revenue and earnings growth, enhance your product and service offerings, improve operating processes, and build a strong foundation to pursue your short- and long-term vision.
There are many potential reasons why businesses pursue mergers and acquisitions. Delivering on the promise of an acquisition, however, can sometimes be elusive. The main objective of an acquisition should be to create value, but one of the biggest challenges faced by acquirers is ensuring that they capture the full value creation from post-merger integration activities. An on-demand CFO – acting as a project CFO or part-time CFO – brings both client-side and services-side expertise in achieving targeted post-merger integration value. A CFO partner can help you avoid common post-merger integration mistakes and thus increase stakeholder value, accelerate revenue and earnings growth, and build a strong foundation to pursue your corporate vision.
1 Capturing Post-Merger Value from Commercial Integration; Bulend Corbacioglu & Kevin Mulloy; CFO.com; April 4, 2019
John W. Braine, Partner, CFO Edge, LLC