Jan 17 Digitizing M&A to Realize Synergies
“The whole is often less than the sum of its parts”1 concludes a recent research report from S&P, confirming what corporate leaders already know, that M&A is a risk for acquirers.2
It’s no secret that M&A generates value for shareholders of the acquired firm, while significant merger and acquisitions activity can result in long-term underperformance for acquirers.3
Despite the risks, M&A activity is set to rapidly increase in 2017, exceeding 2015’s high of $4.9 trillion. In October 2016, the Wall Street Journal reported that M&A monthly deals reached a record high.4 New EY research reports that “75% of executives surveyed said they are planning an M&A transaction in the next 12 months. According to EY, this is the highest percentage recorded in the 15 times the survey has been conducted.”5
Kevin Kane, managing partner at Riveron Consulting, a leading firm specializing in M&A, notes that “A big part of our practice is post-merger integration, which has become increasingly complicated and high stakes for our clients. To succeed, companies need to realize the growth and synergies they set out to achieve.”
Joel Schlachtenhaufen, principal, Deloitte Consulting LLP, concurs: “The long-term value derived from a deal hinges mainly on realizing synergies with rare exceptions for competitive purposes.” He adds that, “all the elements of a fully integrated company can be in place, but if you haven’t achieved the growth and cost synergies you set out to capture, you really haven’t succeeded.6
Yet Deloitte reports that “…many companies drastically underestimate the complexity, resources, communication and management focus needed to successfully integrate and realize expected synergies.”7 The report’s authors note that “…after having devoted significant time and resources to negotiating the deal, it’s easy to overlook the procedures that keep a business running once the merger is complete. But these are precisely the types of details that need to be attended to.”8
How can companies best realize intended synergies? While thorough planning and preparation is vital, leading firms like Riveron and Deloitte point to several factors related to excellence in plan execution9: a focus on increased communication, transparency, impeccable and swift plan execution, being able to accurately track plan execution, and, finally, the ability to respond with agility and alacrity to unexpected events.
Importantly, “managers must have mechanisms in place that support the functions of the business and the human capital responsible for carrying out those functions.”10
The newest such mechanism is part of a digital revolution in the C-Suite. Corporate Strategy Management (CSM) software for CEOs and the C-Suites of complex organizations can help senior leaders brilliantly manage and implement M&A integration.
How? CSM gives senior leaders increased control; for example, by tracking plan execution, while at the same time increasing autonomy while supporting distributed leadership within organizations. This distributed leadership on the front lines of the organization communicates in real time with the CEO and C-Suite leaders, allowing them to anticipate and react quickly to unforeseen events. These benefits can make the difference between M&A success or failure.
What causes failures? Deloitte’s study notes that11:
- The inability to deal with unexpected challenges was the chief factor that respondents said doomed combinations.
- Delays and lack of preparedness were also key reasons that some integrations failed.
- 10% of the executives they surveyed weren’t even sure if they met their targets.
CSM benefits that address these challenges include:
- Aligning the organization to plan priorities by clearly communicating them;
- Ensuring that all initiatives fulfill these priorities;
- Assigning all initiatives to an accountable individual;
- Tracking progress.
The visibility and transparency CSM provides are ingredients for success. Deloitte reports that:
- “Transparent and consistent communication with employees was cited by respondents as one of the top five factors driving a successful integration.
- The majority of the executives, 76%, said that the alignment of cultures between the two companies was important to the overall success of the integration.”12
The study’s respondents said their experiences will strongly influence their future plans:
- “In the future, respondents said they would focus on a swifter and phased post-merger integration, better communication, and a more rigorous process to select an integration team. They also said they’d allocate more budget to the integration.”
- “Next time around, the survey respondents said they’d focus resources most heavily on accelerating their integration pace – 15% ranked that as the most important area they’d focus on.
- Other critical areas that respondents honed in on included implementing a phased approach to integration, and communicating the strategy to employees, customers, and, to a lesser extent, suppliers, distributors, and other partners.”
Driving post M&A integration to achieve expected synergies is required to achieve success and increased value for the acquirer.
It is my belief that CSM will transform M&A integration in large, complex organizations. It strengthens two-way communication, which fosters the ability to respond rapidly to unexpected events and avoid delays. And, it can increase needed transparency, ensuring all initiatives are linked to plan priorities. In doing so, CSM will align organizations to achieve promised synergies.
About the Author
Bob Epner is founder and CEO of Chiefofstaff.com. Chiefofstaff.com is the leader in the new category of Corporate Strategy Management software, which helps CEOs and C-Suites manage the resources, activities and processes required to successfully achieve an organization’s plan objectives. With Chiefofstaff.com, senior leaders in complex organizations can see their whole plan in one place, maintaining a clear line of sight across the plan, the people, and the initiatives that are necessary to deliver the plan. Epner has over 20 years of related senior management experience, having held multiple leadership positions at ING Global including Senior Vice President and Chief of Staff for ING Investment Management. From 2002 to 2008 he was based at ING’s Asia/Pacific headquarters in Hong Kong, where he held the positions of Chief of Staff and Regional Chief Operating Officer overseeing 24 businesses across twelve countries with over 10,000 employees.
1 “Mergers & Acquisitions: The Good, the Bad, and the Ugly (and how to tell them apart.” S &P Global Market Intelligence, Quantamental Research, August 2016, p. 11
4 Merger Deals Set Monthly Record, Even as Election Looms: Qualcomm’s pact to buy NXP is part of wave making this month the busiest ever for M&A” WSJ, Oct. 28, 2016.
5 “M&A outlook for 2017: Rosy,” p. 21.
6 Deloitte Post Integration Report 2015 (https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/integration-report-2015.html), p. 5.
7 Ibid, p. 10
8 Deloitte Post Integration Report 2015 (https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/integration-report-2015.html), p. 12.
9 Ibid., p. 12
10 Ibid., p. 12.
11 Deloitte post integration report 2015 https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/integration-report-2015.html
12 Ibid., p. 8.