Post Merger Integration Principles
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The key principles about how to make sure you deliver value from your M&A Integration activity
![Guiding principles for acquisition integration ,[object Object],[object Object],[object Object],[object Object],[object Object],Successful Integration Strategy Programme Design Programme Management Risk Management People & Communications](https://image.slidesharecdn.com/principles-090811061754-phpapp02/85/post-merger-integration-principles-1-320.jpg)
![Get the integration strategy right for the deal Spell out the rationale for the deal, the benefits sought, along with key complexity factors Determine the integration approach and strategy Studies indicate that there is no ‘one approach’ for all acquisitions ,[object Object],[object Object],Have a clear view of the ‘end game’ – along with the stages in the journey ,[object Object],[object Object],[object Object],[object Object],[object Object],cultural compatibility (different) geographic presence (overlapping) relative size (similar) resource valuation base (pinkware) produce positioning (competing) acquirer preparedness (not ready) sector concentration (high) Level of involvement Depth / Degree Pace Performance Time Benefits Delivery $ improvement FTE Reduction Cost Reduction Revenue Growth Economy of scale Extension of presence Bundling of capabilities NO GO ZONE](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
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- The key message here is: “ You need to transfer the energy from the small team which made the deal to the teams who will drive delivery - without losing focus and slowing the whole process down”
- Points to make are: That while top management should know what the intent of the acquisition is, it might not be exactly what they’ve told the financial markets or their own employees, and the acquiree will not necessarily be aware of the agenda Circumstances can change between the bid being accepted and the deal being completed and the acquirer always finds an extra bit of value or risk The strategy dictates to a large extent the focus of effort for the integration programme. The integration approach will depend on the characteristics of the two organisations, along with the analysis of where the value lies (the motive for the deal). There are many stakeholders to engage and the key messages for each will be different Supporting Notes: PA’s research - ‘Creating shareholding value from acquisition integration’ - shows that there is no significant increase in shareholder value where cost savings were the prime motive “ Cost reduction shouldn’t be the sole goal; the most successful companies will be those that can grow as well. When we make acquisitions, therefore, our real aim is to create larger platforms for growth” Raj Gupta Chairman and CEO, Rohm and Haas - Lessons from Master Acquirers: A CEO Roundtable on Making Mergers Succeed, Harvard Business Review May/June 2000.
- Define the total value This can be used generically but, whenever possible, should be populated with “real” numbers (or at the least best guesses) based on PA research. This enables us to put a value based proposition along this lines that “if you have to extract £/$/€ X m of value, then it is worth paying PA Y% of that (where Y is 1-5%) to help ensure you get it” Prioritise and focus There will not be limitless resources, so it will be necessary to prioritise based on: Value of the possible integration project (calculated on a risk reduced basis, net present value basis) The degree to which the project will contribute to the end state vision (e.g. it may be necessary to do some projects which do not deliver benefits themselves in order to align the organisations) Benefits Model Keep it simple - avoid complicated accounting measures of benefit Supporting Notes The “integration costs” include all the costs of achieving the integration, such as restructuring costs (redundancies and the like) and the cost of the integration team Be careful when applying the “value to be extracted” argument in a merger situation - where no premium is paid.
- Planning & Quick Wins In the initial stages of the integration, there will be much uncertainty, thus, the need will be to direct the team to plan the integration programme and to deliver the quick wins. Integration Programme During the execution of the programme there will be a defined set of objectives and programme of work. The emphasis will therefore need to switch from “directing” to controlling, monitoring and communicating as the integration progresses. Embedding Here the integration programme is complete. However, to get the full benefits, the new organisation, work processes and culture must now be embedded. This requires coaching, facilitating and supporting by the integration team Key Points In designing the integration process, you need to strike the right balance between doing things quickly to get early benefits, while sticking at it long enough to make the changes stick It is important to design the best programme to deliver benefits, not by functional silos or for operational convenience. For example on one large integration programme, a £2MM pa benefit was achieved by closing down the acquirer's mainframe. Initially, labelled as an IT project, within a short space of time it was clear that it was totally dependent on legal, premises and HR activities Defining “islands of change” will allow the intermediate states of the organisation to be visualised more clearly The benefits model must be directly tied to the programme of activities which deliver them
- People and communications are at the heart of most integrations. Key areas are: Appointments to key integration roles are on the basis of experience and potential (i.e. a proving ground for the emerging “stars”, rather than a home for surplus “dead wood”) Providing significant integration incentives increase the chances of successful integration. Many integrations are constipated by cumbersome appointments processes for getting people into jobs - this is a task for which you can gear up in advance Be clear who is leading the integration and who is responsible for delivering each and every benefit (single point responsibility) Genuine two-way communication with all stakeholders Early dialogue to involve and re-assure key staff Recognise and plan for any cultural differences via a detailed HR plan Case Study Examples: : Lloyds - TSB. Thought Leadership: : Assimilating acquisitions: a study among the world’s major food and drink companies of the human resource implications of successfully assimilating acquisitions - Susan Johnson Integration: how to hit the ground running - Bridget Skelton.