Making a success of mergers and acquisitions by Paul Crowe, Director, LOC Consultancy on 12-Sep-2012

Mergers and acquisitions (M&A) provide a way of building competitive strength, diversifying and ensuring financial stability and the new and larger entity to emerge from the deal should be well placed to streamline costs and improve cost / income ratio. However, according to Quantisoft, a specialist in measuring integration success, two thirds of deals fail to achieve the expected returns.

Although there are a variety of explanations for this, ultimately, realising the anticipated returns of a large-scale integration hinges on the critical success factors of leadership and focus. Addressing these factors from the outset will mean a programme of this type has a greater chance of delivering anticipated returns.

Unrelenting focus should be instilled from Board level downwards and then throughout the new organisation. To achieve this, it is vital to frame the programme's business value as an imperative - eg. without integrating, costs will remain a barrier to profitability and the business could fail to return to growth. Securing the full support of the board in this way helps to keep everyone's minds focused on the task at hand. One of the challenges is to retain the interest of those executives who do not have day-to-day interaction with the programme. When building the business case it is worth carefully considering incentives or the order in which benefits are delivered to maintain the engagement of the programme peripheral business areas.

Restructuring is essential, but it can be a fairly brutal exercise and there are ways to lessen the impact. For example, aside from offering financial incentives, it is possible to engage staff by clearly communicating what their role will be during the integration programme and ensuring they are fully aware of the potential opportunities for them within the new target model.

Having made the decision to merge, the entities involved will often post impressive cost saving targets, but translating these planned benefits into quantifiable returns is a tricky path to navigate. Common pitfalls include: altering the leadership team mid-programme; the setting of unrealistic delivery dates; and a reticence to enforce re-structuring activities with rigour.

In our experience, large-scale integrations have a natural success limit of circa three years. Setting a migration or delivery date beyond this timeframe heightens the risk of change-fatigue. Indeed, it can be enough of a challenge to maintain motivation in the delivery team for 12 quarters, but doing so will mitigate some of the people issues that can derail such programmes in the final straight. Conversely, it is not uncommon for stakeholders to press for a change in the programme's management team if progress is not on schedule. However, leadership changes usually result in shifting targets as well as a restructuring of resources, reducing the likelihood delivering the original objectives.

Information Technology (IT) is a function that is central to the success of a post-merger or pan-organisation integration programme. IT often underpins and links business functions, supports day-to-day operations and drives constant change in the way products and services are delivered. Yet according to analyst firm Ernst & Young, one of the most common mistakes encountered in an M&A transaction is not involving IT early enough in the transaction process or elevating IT to the right level within the organisation. If IT is not taken into account, there will be a direct impact on the value of the deal - the synergies that have been publicly announced will not be reached in the set time frame and the deal will exceed costs and budgets.

Narrowing the gap between current and target operating models is a good way to circumvent the potentially negative impacts of a migration.

Re-configuring the source system to act more like the target system reduces risk by largely avoiding any changes to the target system and ensures a more seamless transition for both internal users and customers.

It is also advisable to wait until a platform migration is complete before attempting to streamline a product portfolio or launch and support new products.

M&A and pan-organisation integration may have a somewhat chequered history, but even in these uncertain times there are still major benefits for companies in coming together, driving out cost and improving their ability to compete in the market. It is not without risk, but the best way to mitigate the risk is to invest in a strong leadership team, ensure there are clear goals supported by continuous delivery of financial returns, as well as driving towards a realistic date with an unrelenting focus on the detail.

Paul Crowe is a Director at LOC Consultancy, a privately-held business based in the UK that works with clients across Europe. For more information, please visit: www.locconsulting.co.uk

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