R.W. Baird recently stated, “The U.S. M&A market again registered impressive numbers in June. The deal total increased 47.1 percent to 1,025, the second largest monthly figure in the last two years. Announced dollar volume (+93.2 percent) nearly doubled in comparison to the low year-ago value.”
In a recent conversation with Mike Smith, principal at MA&I Advisors LLC (a firm providing merger, acquisition, and integration services), Mike mentioned that more than 60 percent (some suggest more than 80 percent) of acquisitions fail to deliver the expected synergies and shareholder value, in large part, due to post-merger integration activities. I asked Mike to explain.
According to Mike …
Ultimately the purpose of an acquisition is to create shareholder value. However, the high failure rate in delivering the expected results is due to a variety of reasons. The most common reasons are:
- The transaction is not based on a clearly articulated strategy.
- Buyer overpays for the company.
- Unrealistic or unclear synergy targets.
- A lack of integration expertise.
- Poor management processes.
- Cultural clashes.
- Buyer is unprepared for Day One.
These reasons notwithstanding, the major reasons transactions fail are process, integration and metric related. Each of these are highly interdependent factors.
Process
Program management (PM) is the key to the successful integration of a transaction. It drives the key deliverables and the integration framework. PM will ensure milestones are achieved, and synergies are accurately identified and then realized. PM is also used to communicate project status to the executive team, ensure appropriate priorities are assigned to critical project tasks, and oversee plan execution.
Integration
The integration effort consists of confirming integration objectives and challenges, developing the acquisition/integration plan, defining success, identifying value drivers and value destroyers (most of an acquisition’s value will be linked to about five key value drivers and/or value destroyers). The integration plans, activities and metrics should focus their planning efforts on capturing these value drivers.
The key roles and responsibilities of the collective integration team are as follows:
- Senior leadership develops and communicates strategic objectives for the transaction, approves final plans, resolves select issues, and selects transaction leaders.
- The transaction leaders will establish accountability for achieving strategic/transaction objectives, review team decisions and program deliverables, provide ongoing leadership and overall transaction management, and will serve as an avenue to resolve critical transaction issues.
- The PMO (Program Management Office) is arguably the most important aspect of the integration effort. The PMO team is key to a successful project outcome. The PMO is responsible for coordinating project management activities, developing the master workplan, milestones, deliverables, and approve task team plans. The PMO manages synergy quantification and tracking, develops and executes the detailed communication plan.
- The due diligence and integration teams should be consistent through the entire transaction/integration process. These teams identify potential synergies, costs, risks, and barriers. They perform financial, HR, and operating analysis, document and prioritize Day One activities, meetings, and updates, as well as the development of the implementation plans.
Metrics
Metrics must be balanced to prevent focusing on a single area. The integration team must select a set of strategic, financial and process metrics that balance short term (financial) goals with long term (strategic) objectives.
The goal
Shareholder value creation is the ultimate goal of acquisitions. Can world class integration save a bad transaction? Probably not, but proper integration will help to ensure the success of a good transaction.
For questions or more information on this topic, Mike Smith can be reached at: (608) 217-3782 or via email at: jmsmith@maiadvisors.com.
