Mergers & Acquisitions: How to Excel at Integration
Mergers and acquisitions (M&A) are key strategic levers pursued by many companies to create value. They are executed for various reasons such as diversification of activities, cost and revenue synergies, acquiring technology, acquiring talent, etc.
However, successfully integrating an acquisition is difficult. Very difficult. According to research from Harvard Business Review, between 70% and 90% of acquisitions fail to create value. One of the main explanations behind this high failure rate is problems during post-merger integration. To excel at integration, organisations need to nail the first 100 days (ensure business continuity, identify synergies and define the target operating model), leverage the culture from both organisations and implement a strong project governance.
Nail the First 100 Days
Having a clear plan with key activities and objectives for those first 100 days is instrumental to generating the desired synergies. As per Capgemini’s approach to post-merger integration, here are the main objectives to pursue in the first 100 days:
Ensure business continuity: As organisations are merging, they must ensure that their day-to-day operations are still running and that customers are not negatively impacted by the integration.
Identify synergy targets and levers: Synergies are key in almost all deals. As the integration begins, leaders will develop a deeper understanding of the two businesses and can elaborate synergy targets and levers that will guide the integration process.
Define the target operating model: Senior management usually develops a target operating model that represents the desired structure, capabilities, systems & technology, processes and resources needed to operate in the future.
Pay attention to Culture
Cultural integration should be a core focus, as cultural differences can create important issues during the merger. Inspired by McKinsey’s approach, here are three key success factors regarding culture and change management:
Understand the starting point (both cultures): As early as possible in the merger process, leaders from both entities must learn about the culture of each company and understand the differences. Challenges in cultural integration can lead to frustration among employees and increase the risk that key talent might quit.
Identify a person in charge of culture integration: Culture changes cannot happen overnight. Having someone who is responsible for cultural initiatives can formalize the process and ensure the human aspect of the integration is not neglected.
Communicate frequently: Keeping employee engagement high all along the integration process is one of the key success factors. This requires the establishment of solid communication channels and to seek regular employee input and feedback on the success of the integration.
Implement a Strong Project Governance
As integration requires time, resources and efforts, having a strong project governance can help manage this complex endeavour. Inspired by PwC’s M&A Integration Survey Report, here are three key success factors to consider for a strong project governance:
Set up a robust governance structure: According to experts, a three-level governance structure with an executive steering committee, a dedicated integration team and functional work streams creates the appropriate level of oversight. Employees from both organisations should participate in all three levels to ensure representativeness.
Develop fast but realistic timelines: According to PwC, successful deal makers are generally fast at integrating and are able to stick to their timeline. As integration is a temporary stage for an organisation, the faster the integration is completed, the faster an organisation can go back to its daily business. A prolonged integration process can lead to uncertainty and doubts about the merger. Therefore, setting a fast pace with realistic timelines can give momentum to the integration and increase the odds of success.
Execute periodic reporting and tracking: Reporting mechanisms and key performance indicators should be established to ensure that the integration is on track and that issues are identified and quickly resolved.
In conclusion, many of our clients pursue mergers & acquisitions as part of their strategic plan. A strategic planning exercise can help your organisation set your strategic priorities and identify potential M&A opportunities while considering risks and key success factors.
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HBR. March 2020. Don't Make This Common M&A Mistake
Capgemini. 2017.The First 100 Days
McKinsey. January 2016. How the Best Acquires Excel at Integration
PwC. 2017. Success Factors in Post-Merger Integration