Mergers and acquisitions, what’s the success factor?

Mergers and acquisitions are never far from the headlines.

Only today Telefonica’s proposed sale of O2 to CK Hutchison, the owner of Three, has been plastered over the news with the European Commission putting a brake on what would have been the biggest mobile coming together since the creation of EE, an amalgamation of T-Mobile and Orange, in 2010.

While EE maybe boasting as a real success, the ability to conquer the vital integration element of M&A and drive success, still remains elusive.

By some measures half of all mergers and acquisitions are ultimately unsuccessful and fail to add value. Although often seen as offering opportunities for expansion and growth, more often than not they are ‘defensive’ in nature and a reaction to contracting markets, or falling prices, or new technologies or excess capacity.

So, what is the check the approach for a successful M&A? Here is Piran Partner’s seven point list.

  1. Plan ahead: Successful firms do not start the integration process when the deal is announced; experienced acquirers develop a plan for the entire integration before the deal closes, allowing execution to proceed without delay.
  2. Appoint a leader: typically no one in the acquisition team is assigned to manage the process. This often leaves the role to the new entity’s boss, whose focus should be on strategic business goals such as customers and profits not the integration. By acting as a facilitator an ‘integration manager’ creates structure, connects the cultures and allows focus on the critical objectives. Assisting the manager are the integration teams. A rule of thumb states that only 10% of employees in any function should drive the integration – everyone else should stay focused on customers.
  3. Think customer: it’s easy to become distracted and too internally focused, exposing the newly formed company to competitor attacks. Firms mustn’t let customer satisfaction suffer while integrating. And where multiple brands are involved, customers need to have a clear value proposition and know what’s going to happen to the brands they may love.
  4. Focus on strategy: according to Accenture, integration efforts should concentrate on capturing value toward the strategic objectives. This forces integration managers and leaders to prioritize activities according to the value they create. For example, if the strategic objective is is to expand product line and the purchased company has talented developers, an acquirer shouldn’t automatically force their R&D departments to integrate.
  5. Be sensitive to the culture & people: A relatively new approach is to conduct a ‘cultural audit’ prior to a deal’s close so as to incorporate culture into the integration plan. It is crucial that cultural aspects are phased in – displaying little concern for the way business has been done in the past is a sure way to alienate key players at the target firm. Losing the people needed to run the business is crippling, so retaining these high-performers must top the integration plan.
  6. Actively Communicate: prompt, straight-forward communication is important as insecurity affects morale and productivity. Left without communication, employees form their own messages, and motivation decreases while resistance increases. Management also must show respect for the acquired firm’s accomplishments, and stress how important the employees of that firm are to the new entity’s success.
  7. Go quicker: Time is more valuable than money in integrating M&A. If an acquirer expects to capture €500 million in yearly cost savings, a month’s delay reduces the deal’s NPV by over €150 million. There is also an indirect impact, caused by the delay. When a deal is made, change is expected but when it doesn’t immediately happen, people become preoccupied with other things. Prudent acquirers take advantage of the window of opportunity provided to them by M&A, and rapidly introduce their integration plan.