Large cash positions coupled with historically low interest rates make mergers and acquisitions an obvious strategic choice for companies to significantly improve their performance.
As companies increase their Mergers and Acquisitions activity, there is a need for a well thought through program assure the successful integration of new companies with different cultures and business processes. It is reported by KPMG that 83% of mergers and acquisitions fail to increase shareholder value. Cultural differences and incomplete or delayed integration of the businesses are the two most often cited reasons for this.
The M&A life cycle is typically defined as follows:
|Stage 1||Analysis and Commitment|
|Stage 2||Due Diligence|
|Stage 3||Planning and Close|
The processes in the first 3 stages are well defined. The post close execution process is well defined for back office business processes and for some of the initial product and facility integration, but this stage will usually have a life of its own. We have seen significant variations in approach from company to company as well as a lack of consistency in approach from organization to organization inside of companies. This may be partially a result of the belief that every integration is different and that the requirements for cultural integration are unique. While it is true that unique circumstances will exist, there is a need for a consistent approach to integration, cultural alignment and business process optimization.
Typically, stage 4 is completed after the first 100 days when the external integration teams have completed their work. Functional processes have been combined, functional organizations have been aligned to the acquirer’s systems and the first phase of human resource integration has been completed. Even with this work complete, employees are still faced with uncertainty, have a lack of familiarity with each other’s businesses and are just learning the objectives of the new entity. Teams from the combined entities are just learning to work together and there remain many business systems and processes that have yet to be integrated and optimized.
The focus is now turned to operational objectives, while attempting to deal with post integration issues that still exist. The operating team is now dealing with twice as much work, which is further exacerbated by the need to perform. This is the time in which mergers and acquisitions typically go awry. The focus on completing the integration task is gone. The organization has accepted “good enough” and leadership team has pulled the plug on the incremental resources required to complete the integration task.
Given these challenges, companies should consider adding a fifth stage to the M&A life cycle. Stage 5 should be focused on alignment and optimization.
|Stage 1||Analysis and Commitment|
|Stage 2||Due Diligence|
|Stage 3||Planning and close|
|Stage 5||Alignment and Optimization|
After the integration teams leave, operating teams have differing views on how to proceed. Completion of the integration work, alignment of the organization and tactics for transitioning to an operating focus are key aspects of work that most teams don’t have a significant amount of experience in. The fifth stage of the M&A cycle is designed to provide the operating team with the necessary tools and skills to successfully complete the integration and begin to realize the full potential of the transaction.
The work to set up the fifth stage actually begins in the third stage, where the integration team begins planning for the following items:
- Evaluating the differences between the merging entities and creating an action plan to address strategic and operational gaps, function by function, market by market, etc. (This should be done pre-close)
- Implementing alignment tools to assure the accountability of all stakeholders in the organization to cultural and performance objectives
- Creating a metrics based accountability system for integration and performance objectives
- Identify engagement tools to have routine conversations with all employees, contractors and suppliers about the status of performance to business objectives.
a. Continuous feedback from all stakeholders regarding roadblocks
b. Identification of integration and operational issues
- Create individual development plans for each go-forward employee that brings their skill sets up to the standards required for successful performance in the new organization
a. Training for new business systems
b. Upgrading of base skill sets
Once the acquisition or merger has been completed, and the initial integration work of stage 4 is completed, Stage 5 begins in earnest. The next 12-18 months are critical for the success of the transaction, and most organizations don’t put enough emphasis on this stage.
Stage 5 is a dynamic process that provides leadership team of the integrated company with detailed plans and resources to support optimizing the integrated entity. These plans will include business process re-engineering and continue on with the integration management office/team. A properly defined and managed Stage 5 will have a road map with milestone reviews every 2-4 weeks. During these reviews, integration issues and Key Performance Indicators (KPI’s) are reviewed along with the progress of the development plans that have been outlined.
It is important during each review to identify modifications to the plans and integrate new objectives into the organization. These reviews and planning activities are critically important to providing a team approach to newly defined organizations and their leaders. It is this approach that begins to gel the new culture of the defined entities.
Only when the integration and optimization of the business processes are complete and fully ingrained into the organization will the mergers and acquisitions realize their full potential.
About the Author:
Jim Gitney is the CEO of Group50® Consulting and specializes in the development and implementation of manufacturing and supply chain strategies as well as M&A work. Jim and the Group50 team are all former executives with well-known manufacturing and distribution companies who understand what it takes to put together and manage the implementation of a successful integration plan. They have led or participated in over 25 Mergers and Acquisition. Group50 has designed a series of strategic assessments, workshops and strategic execution tools that eliminate the existence of Anti-Strategy. To find out more about Group50’s Merger and Acquisition Services capabilities, call (909) 949-9083 or send an email to firstname.lastname@example.org.
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