2. Post-merger Integration Success Factors

Inside Post-merger Integration (4): Drivers of Success

Everybody has heard horror stories of terrible M&A failures, destroying value and potentially bringing down entire businesses. On the other hand, many Corporations make M&A a continued success. They share a common recipe.

Luckily, we don’t have to invent the wheel over and over again: There is plenty of evidence from scientific analysis, market surveys and case studies that it’s a handful of components which decide whether or not a project setup will lead to post-merger integration success. Generally, successful acquirers sport

A strong team;
Strict project governance;
Well-defined synergy targets;
An ambitious timeline for completion;
A people-centric approach to cultural integration.

Getting all of these right will not guarantee integration success, but certainly increase the odds for successful completion of a post-merger integration process.

Admittedly, it is all but easy to get an integration right, however, there seems to be a proven path which we will explore in this and the next articles in my column “Inside Post-merger Integration”. Let’s take a look at the first key building block, the integration team.

An acquisition and its integration is likely to impact the entire organization, its structure, processes and behavior. That’s why I rather like to refer to PMI projects as transformation programs. (Linguistically, “program” seems to carry a little more weight than “project”.) Running a transformation program means serious business – you will want to get it right under all circumstances. It all starts with selecting the right people to help you with it.

Rule #4: Resource your program with top people

As one of my colleagues said once: Availability is not a skill set. Your integration team should consist of hand-picked, strong leaders, coming from both sides of the deal, buyer and acquiree. A dedicated team lead, a skilled PMI Manager, can be resourced from the outside (consider an interim manager with methodical and implementation know-how), but the rest of the team should be from within the organizations, if at all possible.

Integration activities will take up time – a lot of time, while business continues. This may put an undue strain on the resources, and should be considered already in the setup. Adding functional backup to deal with day-to-day business while the department head is distracted with project work is a proven response.

The integration team structure will reflect the strategic business intent: The target operating model dictates the functional (and/or regional) areas of integration (compare the previous article, “Pre-deal Planning”) – and the integration team aligns with the areas of integration. Usually, the team is organized by workstreams, with each workstream representing one integration area. Each integration workstream should be led by the relevant functional manager. Ideally, there is a good balance between the buyer and target in leading and staffing the workstreams, for example representative of size.

Diethard Engel is an independent consultant and interim manager, focused on Business Transformation, Post-merger Integration / Carve-out and Executive Finance in the manufacturing industry. He has run multiple post-merger integration/carve-out projects for international businesses.

Inside Post-merger Integration (3): Pre-deal Planning

Planning integration pre-deal is an iterative process (Photo: Diego Henao on Pexels)

An acquisition target has been identified, and the strategic fit confirmed. What’s next?

M&A is people business: While the buyer also acquires assets (material and immaterial), it’s people who make things work, or not. The PMI Manager got to have backing and a good standing in both organizations, buyer and target. Hence, building relationships on senior level is a must. While many PMI Managers are tempted to start out with a host of project management tools they plan to deploy, demonstrating their technical capabilities, gaining commitment is the crucial step: Senior Management got to agree to, and be in support of, the general steps of developing the integration plan.

Once the path towards integration planning has been paved, the integration itself is moving into the focus of activities. Successful acquirers plan integration simultaneous to their due diligence, in fact: Integration planning is an integral part of due diligence.

Good thing is, not everything got to be integrated. Identification of those functions or parts of the business which are to be integrated should be driven by the acquirer’s business strategy and the linked desired benefits. This leads to

Rule #3: Keep it simple.

Full integration – all functions, all systems – is rarely required to reap the benefits of an acquisition. In fact, performing integration activities besides running a day-to-day business will eat deeply into resources, in both the target and the buyer. Hence, it is recommended to keep integration focused on those areas which are most promising in terms of benefits delivery, while balancing integration risk. Backoffice integration (Finance, HR) is often on top of the list (recognized as “low hanging fruit”), but integration of core functions, Sales and Marketing before all, usually offers the highest reward (but take more efforts, too).

Functional leaders should be involved in developing the integration goals and in gauging potential benefits. A structured goal definition process from general deal benefits (e.g. “market access”) to detailed objectives (e.g. “sell N units of product A at price Y”) will demonstrate how benefits can be achieved, and what is needed to get there.

As a result of this process (which takes time – it’s not a one-day workshop), the acquirer will have a detailed list of benefits, measures and activities required to achieve them, and – maybe above all – Management agreement on both sides that this is what it takes to integrate successfully. The result of the process represents the Holy Grail of integration planning, the Target Operating Model (TOM). The TOM details what the future organization will look like, what will be integrated for which benefits, and – equally important – what will be left alone. The TOM gives a strategic, risk-balanced view on the future state of the joint operation; it will serve as the blueprint for integration, should the deal be closed.

In case you have missed the previous article in the series “Inside Post-merger Integration”, it can be found here.

Diethard Engel is an independent consultant and interim manager, focused on Business Transformation, Post-merger Integration / Carve-out and Executive Finance in the manufacturing industry. He has run multiple post-merger integration/carve-out projects for international businesses.

Inside Post-merger Integration (2): Programmatic Acquirers

Reviews and research have shown that programmatic acquirers are more successful in increasing shareholder value than their peer group. Let’s take a look at some of the drivers.

Programmatic buyers actively pursue acquisitions as a key component of their growth strategy. They acquire regularly, and usually close two or more deals per year. The target companies’ combined sales or market capitalization can be considerable in relation to the buyer’s. In other words: Programmatic buyers know what they are doing, and why.

Programmatic buyers show M&A success is not random. It is plannable, sustainable, and can be a continuous source of growing shareholder value if done correctly. Programmatic buyers do not treat M&A like a project, but rather like a program. The difference is that projects are singular, non-repetitive endeavors, which may follow certain common rules, but those are in general non-systematic. A program prescribes a flow, following a pre-defined governance and given parameters. A program is never ad-hoc.

Rule #2: Successful acquirers follow a pre-defined program

The programmatic acquirer features a detailed M&A operating model, which allows following through on the complete process from strategy to operating model of the combined business.

The end-to-end M&A operating model includes clear performance measures, incentives, and governance processes. For example, potential acquisitions are not ad-hoc evaluated; instead any evaluation is based upon a pre-defined model, with clear parameters and decision criteria. Ideally, there is a regular feed of data into a potential target pipeline.

Unless a potential acquirer can point to such program, it is recommended to use expert advice already in the pre-deal phase. M&A experts will bring the experience to the table, which the prospect buyer cannot have, lacking the routine in the acquisition process. However, any internal expertise can be build, by hiring experienced personnel, or by using external know-how initially.

In case you have missed the previous article in the series “Inside Post-merger Integration”, it can be found here.

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Inside Post-merger Integration (1)

Today, I am starting a short series on post-merger integration best practice. Do not expect any new groundbreaking insights: PMI success depends on some core elements, many of them well known to the community, but re-iterating some of them may be helpful.

Who would have guessed: If you repeat a certain exercise, you will get better at it, both in terms of quality of execution and speed. This is valid in any area of life, including business. Surveys show that businesses which include anorganic growth (i.e. growth through acquisition) in their strategy tend to be more successful than businesses relying on organic growth only. At the same time, analysis shows that singular big deals rarely add shareholder value, but multiple smaller deals do. Why is that so?

Mostly, hands-on integration work is handled by middle management and their functional teams, even if the program is led by an external resource or a central department. This puts a significant strain on employees, and their day-to-day tasks. The integration effort going along with big deals (i.e. deals representing a large share of sales or market capitalization of the acquiring company) increases exponentially with size, leading to inward focus and potentially losing sight of customers, markets and business. Large integrations also tend to take longer – increasing risk even further.

Rule #1: Repeat acquirers have a higher chance of acquisition success

By their nature, large singular deals are not suited to be repeated frequently. The acquirer will have little chance to build sustainable internal capabilities for future acquisitions, based upon multiple post-merger integration experiences. The same applies to businesses not seeking the big deal, but acquiring on smaller scale, in an opportunistic approach: Such acquirers are best suited to seek external support for their post-merger integration process.

In the next article, I am going to review success factors applied by repeat buyers, so-called programmatic acquirers. Stay tuned.

CFOs Drive Success in Acquisitions

In M&A, CFOs shouldn’t only focus on financial due diligence and financing structures, but directly contribute to value creation, say EY consultants Juan Uro and Lukas Hoebarth in an article, published by the CFO Magazine.

When delegating important tasks in M&A, be sure the assignee got the right competencies

I could not agree more: My CFO-background has proven to be a true asset in my post-merger integration projects. Understanding synergy targets (and target setting), dependencies and cost of implementation, interfaces, as well as planning and controlling are indispensable competencies when managing a post-merger integration. My experience tells this goes well beyond project management skills.

The CFO’s contributions in deal value creation are regarded especially important in:

Articulating where and how synergies can be realized, in line with the deal thesis;
Identifying the true cost to achieve synergies;
Building synergy targets into multi-year strategic plans and budgets;
Assigning specific owners to each synergy goal and including synergy attainment in their individual annual performance measures; and
Driving management to define operational key performance indicators that measure synergies and serve as leading indicators.

To make a long story short: If such activities are delegated, they should not be delegated into Corporate Development or left to M&A’s exclusive attention. Rather, if handed over to someone else, it should be a person with the right background.

Transform While Transacting M&A Deals

Take a peek at Deloitte’s recommendations regarding the opportunity for business transformation on occasion of a post-merger integration, published in the Wall Street Journal.

Any integration project comprises significant transformation elements in my experience – compare my contribution of December 9, 2020. Grabbing the opportunity to question the new (joint) organization’s business model, setup etc while you are at it anyhow seems a logical step.

Addressing transformation in integration planning can add additional value to your transaction.

Post-merger Integration: Wie wird aus 1+1 mehr als 2?

Die mit Akquisitionen verbundenen Ziele werden oft nicht erreicht. Dies kann vielfältige Ursachen haben.

Erfolgreiche Akquisitionen sind strategisch – selten opportunistisch – begründet. Zugang zu Märkten, zu Technologien oder auch Kostenreduktion/Skaleneffekte sind die meistgenannten Gründe für einen Zukauf. Trotz einer sorgsamen Zielauswahl erreichen viele Akquisiteure den geplanten Erfolg nicht. Im Folgenden erläutere ich die wesentlichen vier Gründe, die zu mangelndem Akquisitionserfolg führen.

1. Der Akquisitionsprozess wird auf Biegen und Brechen durchgezogen.
Das Ziel derer, die den Deal einfädeln, ist der erfolgreiche Abschluss. Dies gilt oft nicht nur für die Berater und beteiligten Banken, sondern auch für das Management des Akquisiteurs. Ein Abbruch des Vorhabens geht mit finanziellen Einbußen für die Berater einher, und auch das Management lässt sich gern für einen Abschluss feiern. Gründe, die für einen möglichen Abbruch des Prozesses sprechen, können aber durchaus erst im Verlauf der Verhandlungen bekannt werden: Der Preis für das Unternehmen ist im Verhältnis zu den erwarteten Synergieeffekten zu hoch; Bilanz- oder rechtliche Risiken, Schwächen in Personalstruktur oder der Technologie werden erst in der Due Diligence offensichtlich. In solchen Fällen wäre es besser, ein alternatives Ziel zu verfolgen. Programmatische Akquisiteure beobachten daher immer eine Auswahl potentieller Akquisitionsziele – da fällt es leichter, auch einmal „nein“ zu sagen.

2. Synergieeffekte werden überschätzt.
Oftmals werden die positiven Effekte einer Akquisition wohlwollend in die Kalkulation aufgenommen, während mögliche Aufwände herausgerechnet werden. In meiner Erfahrung ist es meistens sehr schwer bis unmöglich, die vorgezeichneten defensiven und offensiven Synergien aus einem Unternehmenszusammenschluss zu erreichen, weil die zugrundeliegenden Annahmen zu optimistisch ausgefallen sind. Der Base Case für die Akquisition sollte niemals die rosige Seite der Zukunft beleuchten, sondern ausreichende (also: großzügige) Risikoabschläge berücksichtigen. Papier ist geduldig – Anteilseigner und Kreditgeber sind es nicht. Mein Motto: Underpromise – overdeliver.

3. Der Aufwand für die Integration wird unterschätzt.
Eine Integration ist eine Mammutaufgabe – siehe dazu auch den Beitrag auf meiner Website „Nothing compares to what comes after you acquire the business“. Selten hält ein Unternehmen freie Ressourcen bereit, um eine Integration voran zu treiben. Und wenn es jemanden im Unternehmen gibt, der verfügbar wäre, ist diese Person auch tatsächlich geeignet, ein solches strategisches Projekt zu führen? „People’s availability is not a skill set“, sagte Stan Strnad in einem Beitrag auf LinkedIn. Dem kann ich nur beipflichten: Es braucht viel Erfahrung, Prozess-Know-how und (interne wie externe) Kommunikation, um eine Post-merger Integration erfolgreich zu gestalten. Nur große Unternehmen unterhalten eigene M&A-Abteilungen; die meisten anderen versuchen es mit Bordmitteln (und nehmen die begleitenden Risiken oft unbewusst in Kauf). Wer nicht über erfahrene PMI-Manager verfügt, sollte sich projektbezogen mit externen Ressourcen verstärken. Das kostet zwar – aber meistens weniger als eine gescheiterte Akquisition.

4. Der Zeitplan für die Integration passt nicht.
Erfolg bemisst sich nicht nur nach absoluter, sondern auch nach rechtzeitiger Zielerreichung. Integrationspläne verfolgen daher eine bestimmte Zeitschiene, in der die gewünschten Effekte erreicht werden sollen. In den meisten PMI-Projekten, zu denen ich gerufen wurde, lag die Organisation bereits weit hinter dem geplanten Projektfortschritt. Die Hauptgründe dafür liegen meistens im Fehlen einer Projektorganisation, darin, dass Fortschritte (oder mangelnde Fortschritte) nicht nachgehalten werden, es keine klare Governance gibt (Verantwortungszuordnung, Entscheidungsprozesse…), dem Projekt zu wenig Ressourcen zugeordnet werden, und vor allem keine Priorisierung vorgenommen wird.

Neben den erläuterten Faktoren gibt es noch eine Vielzahl anderer Einflüsse, die zu einem erfolgreichen Post-merger Integration Projekt beitragen, die ich aber hier nicht alle auflisten möchte. Dem interessierten Leser empfehle ich meine Rubrik „Beiträge/Contributions“, wo ich eine Reihe von Publikationen namhafter Berater/Beratungshäuser und eigene Vorschläge präsentiere.

Wer die Erfolgswahrscheinlichkeit seines Akquisitionsprojektes erhöhen will, sollte dem Integrationsprozess dringend Aufmerksamkeit schenken. Der Abschluss des Deals ist meistens nur die halbe Miete – falls überhaupt.

Diethard Engel ist als Interim Manager auf die Bereiche Business Transformation, Post-merger Integration / Carve-out und Executive Finance für produzierende Unternehmen spezialisiert.

Post-merger Integration: Richtige Organisation führt zum Erfolg

Wer in der Organisation hat die Zeit und die Kompetenz, ein strategisches PMI-Projekt zu organisieren und zu führen?

Von anderen lernen heißt, Fehler zu vermeiden. Ich verweise auf einen Beitrag meiner Kollegen von Beyond the Deal Consulting, die sich mit M&A genauso wie mit der nachgelagerten operativen Post-merger Integration gut auskennen:

BTD weist darauf hin, dass sich der Erfolg einer Akquisition erst mit der erfolgreichen Integration einstellt. Die richtige Organisation ist dabei einer der Schlüssel: Ein formelles Programm, die Auswahl der richtigen Ressourcen und der Leadership-Faktor sind Bausteine eines erfolgreichen PMI-Projekts.

Dies deckt sich mit meiner Erfahrung aus internationalen PMI Projekten, die ich als Integration Lead führen und umsetzen durfte. In den allermeisten Fällen fehlt den akquirierenden Unternehmen nicht nur die Erfahrung mit PMI-Projekten, sondern auch das Personal und die Zeit für Entwicklung und Umsetzung eines Integrationsplans. Ein externer PMI Manager hilft, die Ziele zu identifizieren, das Programm zu entwickeln und die Implementierung voran zu treiben.

Sicher: Im idealen Projektablauf ist die Planung der Integration ein integraler Bestandteil des (pre-deal) M&A-Prozesses. Trotzdem werde ich meistens erst in ein Projekt gerufen, wenn dem Management bewusst wird, dass die Akquisitionsziele nicht oder zumindest nicht rechtzeitig erreicht werden. Meine erste Aufgabe besteht in diesen Fällen darin, ein Projektteam und eine Projektorganisation zu etablieren, die Meilensteine zu identifizieren und einen (neuen) Zeitplan zu erstellen. Erst danach ist der Weg zur Umsetzung frei.

10 Tipps für Post-merger Success

Auch diejenigen, die M&A Deals suchen und abschließen, kennen die Herausforderungen, die eine Integration mit sich bringt. Schauen Sie doch einmal auf diese Liste von Benchmark International, die sich mit dem Thema beschäftigt. Der Autor schlägt 10 Kern-Maßnahmen vor, die in der Post-merger Integration umgesetzt werden sollten. Dass die notwendigen Ressourcen – sowohl kompetenz- wie auch kapazitätsmäßig – oft fehlen, sagt er dabei nicht.

Einschlägige Studien belegen, dass ein durchdachtes PMI-Konzept die Chancen der Zielerreichung aus der Akquisition erhöht. Das Bereitstellen der notwendigen Ressourcen – intern oder extern – bildet einen integralen Bestandteil der Integrationsstrategie.

Ich stehe mit meiner PMI-Erfahrung bereit, Sie in Ihrem Integrationsprozess zu unterstützen.

Operative Post-merger Integration Process

One of my (potential) clients has asked me what my concept was to tackle an operative post-merger integration project. I have pulled together a slide describing my approach – see below – and thought I’d share this with the community.

Diethard Engel Management & Consulting Services: General Approach to a PMI Project

Now, many of you may say this was the wrong sequence, and integration objectives should be prepared in the acquisition phase (i.e. pre-deal) already, synergy projects defined etc.. I do not disagree with you.

However, real life is different, and many acquisition and integration projects do not go by the book. And yet, the post-merger integration manager got to come up with a process that makes the best from the situation. In fact, my experience tells me that in most cases I get called after management has already realized they don’t have a process, their process is not going to work, or is delayed already before it started.

I implement the C-level agenda.