How merger integration specialists help improve M&A success
September 29, 2021
By: Sean Mooney
Mergers and acquisitions are intended to create an organization that’s worth more than the sum of its parts. But this process all too frequently gets bogged down by lack of planning, procedural and cultural misalignments, and poor follow-through. As a result, the newly formed whole is often worse off than the individual businesses were before they merged.
Private equity (PE) firms are experts at acquiring and integrating businesses. They leave little to chance when it comes to the success of add-on acquisitions by their portfolio companies. Instead of hoping that all the pieces will simply fall into place once a merger gets underway, top PE firms use specialized PE-grade merger integration advisors from BluWave’s Intelligent Network to help guide and keep portfolio company acquisitions on track. These merger integration experts know what steps need to be taken and when they need to be taken in order for an acquisition to live up to its full potential.
For the deployment of third-party professionals to be effective, there are several best practices investors and companies should observe. Let’s take a closer look at them.
Planning leads to alignment
There’s nothing more essential to a successful merger integration process than planning for aligned success – on business objectives, culture, and a wide range of other issues. But it’s impossible to bring different systems and workforces into alignment without a full accounting of what each company’s strengths and weaknesses are, how tasks and roles will be designated, how success will be measured, and so on. Making these determinations takes planning.
According to a survey conducted by KPMG, 78 percent of companies that have gone through mergers say they intend to prioritize better integration planning for their next merger, and even higher proportions said they’ll focus on improving internal communication (84 percent) and cultural integration (81 percent). Almost two-thirds said they would try to improve performance management.
These are all core elements of a successful transition, and each one is very difficult to execute without a comprehensive planning phase. The leadership teams in most companies are not natural experts at planning for merger integrations – it’s not central to their roles, nor should it be. As such, they’re usually not very good at it and also don’t have the luxury of time to learn how to be an expert. Third-party merger integration advisors have chosen to be experts in this field and help their customers get this critical phase right the first time.
Ensure that roles are well-defined
By bringing in dedicated third-party integration support resources, company leaders and employees will have specialized partners who can help them think through the nuances of how roles and responsibilities should be described, defined, and delegated within the newly whole company.
According to the 2020 PwC M&A Integration Survey, just 22 percent of change management programs include employee onboarding. While half of the companies included a specific focus on culture in their merger integration process, this proportion drops to 37 percent for organization, 36 percent for communications, and 34 percent for leadership. These numbers demonstrate that companies which have gone through the merger integration process aren’t nearly as concerned as they should be with managing their personnel. This is reflected in the fact that the proportion of companies reporting “significant success” in securing post-merger employee retention collapsed from 56 percent in 2010 to just 10 percent in 2019.
Companies should work with third-party HR and transition specialists who can help them identify the areas where employees will be most productive, which will improve morale and make the transition more effective.
Focus on capturing synergies
One of the biggest obstacles companies face during merger integrations is being able to allocate the appropriate time, focus, and attention to tangibly achieve targeted synergies. PwC reports that, while 70 percent of companies had synergy plans in place when the deal was signed, only 13 percent said they had “very favorable” results capturing revenue synergies while 10 percent could say the same about cost synergies. When companies captured synergies, shareholders saw gains in excess of 10 percent.
According to McKinsey, the most successful acquirers proactively focus on synergies, moving deliberately to capture more than 50% of targeted gains during the first 12 months. By bringing in third-party merger integration experts, companies benefit from dedicated and professional project management focus and attention that make sure both the acquirer and acquiree are working with purpose and urgency to achieve promised results.
A merger or acquisition can be one of the most strategically impactful or value-destroying initiatives a company can undertake. The private equity industry and other world-class acquirers understand this. Merger integration specialists are one of the lowest costs workflows in a merger or acquisition process, but at the same time offer one of the highest returns on investment by meaningfully improving the chances that the combined companies will capitalize on their strengths, mitigate their weaknesses, and create far more value than they could have on their own.
We have a deep bench of PE-grade merger integration experts in our network, contact us to quickly get connected to the exact-fit provider you need.