Taking a patient, longer-term view of post-deal implementation is the only realistic way to deliver synergies from complex business integration.
Despite the $3.2 trillion1 spent on mergers and acquisitions in 2016, studies continue to put the failure rate of deals at a stubbornly high 70-90%2. Of the myriad reasons for this, the fatal flaw remains a mismanagement of expectations: over-inflated synergies promised to investors, compounded by chronic underestimation of the integration challenge.
“Indifference is an excellent substitute for patience” as Mason Cooley once said, and so it is in the world of post-deal implementation. Bereft of either the necessary grit or resources to realise the full potential from the integration, management teams become increasingly dispirited as benefit forecasts diverge from the synergy case. Investment and attention are commonly diverted to the next shiny change initiative long before the integration is concluded. The only real winners here are the pre-deal advisors, rarely to be seen after the 30-day plan has been delivered.
For the percentage of successful deals to improve, we believe a fundamental rebalancing is necessary: better management of initial expectations, more flexible budgetary control, and – above all – a longer-term execution focus, paying attention to cultural as well as operational integration. All of this implies much smarter use of external support
Manage expectations of the financial synergies
Initial benefits cases can be based on broad assumptions, so they don’t often stack up when the detail is revealed later in the process – never mind the inevitable setbacks that occur during implementation. Synergy cases can also sometimes be used to justify the large fees of pre-deal professional support (a self-fulfilling prophecy), but don’t necessarily factor in support needed to complete the work to properly embed the savings into business as usual.
This situation is exacerbated by the very limited ‘circle of trust’ involved at this stage in the deal. Given confidentiality paranoia, often there are more external than internal experts involved in developing the synergy case and implementation plan. Furthermore, those who will be given the accountability to deliver the integration (and who really know what it takes to succeed) are invariably excluded from pre-deal discussions. Inviting these voices to the table – even if only one or two key individuals with vital experience of designing and delivering integration programmes – can be a key determinant of later success. Being ‘outside the tent’ not only deprives the deal team of advice and expertise, but crucial buy-in as well.
In our experience, synergy cases must stand up to robust challenge and expectations of value realisation should be managed throughout the process – with appropriate contingency made for inevitable ‘benefits leakage’.
Save some contingency for unforeseen issues
Time and again we see the budgets for both internal and external support of an M&A deal plummet when the first 30 days are over. The first 100, or even 500, days are just as important and are when unforeseen issues may crop up. This could be pushback from regional or functional areas not involved in the deal strategic discussions, difficulties retaining key staff, or a requirement to be flexible in adapting a new operating model.
Implementation budgets should cover a strong internal team, supplemented with external expertise if required, to fully embed the change. It is also good practice to make provision for a cross-functional SWAT team to trouble-shoot those unforeseen deployment issues that have the potential to derail the whole future vision. Such measures are often a reactive afterthought, but rarely included in the integration budget.
Focus on the big vision and culture change journey
Of course, achieving the financial benefits is important, but it is critical to also consider the long-term vision and change journey to reach this.
This will be difficult, and there may be hard messages to deliver, but these are the big changes that must stick to deliver the new company culture and ensure that key staff are retained.
People and culture can often be overlooked in relentless pursuit of deal synergies; we are clear that a successful deal outcome is just as much about people and culture as it is about driving the business case and harmonising processes and tools.
We have recently seen a case with a client where key staff from the acquired company had not been given clarity on their new roles quickly enough and many talented individuals pursued opportunities elsewhere, leaving a gaping knowledge gap and negating any potential short-term benefits. Earlier engagement with them and a clear change management plan from the start could have prevented this happening.
There is a better way to M&A success
We believe that the first few months of the deal require the robustness and rigour of the pre-deal activities but with a greater degree of collaboration across teams, change management and stakeholder alignment. This ensures that the strategy is implemented, the deal synergies are realised and the desired company culture is achieved.
In our experience, support works best in the post-deal world when a team of highly skilled individuals are embedded within the company’s implementation team. This allows the consultants to really work with the team and the broader groups of people who know the business best, such as HR and Operations teams. The joint team is able to adapt quickly to the changing landscape of the post-deal environment and work together to ensure that the new, integrated company is set up for long-term success.
Rigour, grit and tenacity are not words commonly found in deal announcements, but they are the clearest guarantor of meeting shareholder expectations from large-scale M&A. However hard the path to successful integration, we choose patience over indifference every time.
At Gate One, we are M&A post-deal integration and separation specialists. We support strategically important initiatives that make a difference.