Custom consolidation methods for specific transactions.
Every merger or acquisition is different, but many companies stick to the same script. Here’s how to customize your approach.
Late Thursday afternoon, Carmela Jones sat at her desk, reflecting ACME’s failed bid. Carmela was expected to retain most of ACME’s leadership team, but they are fleeing and customers are following suit. If it doesn’t stop, the deal could undermine important value.
How could this happen? During her five years as head of mergers and acquisitions, she led the successful integration of more than 50 companies. How did the same top team use the same well-developed scripts and world-class tools, and this time it was so wrong?
After staring at the data and examining all the deals the company had done, Carmela finally realized what had happened. Early deals were mostly made up of small competitors’ products or rolled up.
ACME transactions are different. It falls outside the company’s typical affiliate, which relies on ACME to help change key businesses, making them faster and more entrepreneurial. Of course, in hindsight, Carmela thinks the acquisition needs a different approach.
Adjust the integration approach to the details.
Like any muscle, integration requires practice to build strength and agility. Exercises can also build muscle memory that can last a long time.
Companies that do first deals can learn a lot from active acquirers, who have gone through mergers and acquisitions teams and complex integration manuals for a quick start. But even active acquirers may fall, because their experience may encourage excessive reliance on standard methods (building muscle memory through long-term practice). In today’s environment, this “one size fits all” attitude may be particularly dangerous, in such an environment, trade is more and more big, more and more complex, focus on revenue growth, rather than just cost synergies.
Serial receiving institutions can learn a lot from agile collection agencies. Our research shows that serial acquirers do not outperform first-time buyers unless they consistently tailor their methods to the specific circumstances of each transaction (chart 1).
In order to understand whether m&a driven company, when and how to tailor its integration method to deal with the basic principle and value source, we surveyed 638 experienced company size, industry and region within the scope of the merger management leader. We also assessed the impact of tailoring on the trading performance of the company’s report.
We found that more than half of m&a performance best companies (those that consistently achieve revenue and cost goals) tailor their approach to principles and sources of value (chart 2).
This is particularly true for top performers pursuing multiple types of transactions (at least three different types), because different value sources of transactions may require different integration approaches. Target and integration requirements, for example, to consolidate the company exists in mature markets, trading on the geographical location and strategic growth of new business investment and trade looks very different goals and integration. According to our study, doing various types of trading companies in the report, the poor performance of the company has a 44% chance that use the standard method, rather than according to the adjusting method under the condition of every transaction.
When the tailor
Not surprisingly, companies that do well say three factors suggest a need to adjust their integration:
The culture of the target company and the acquirer is very different – the values they represent and the way they accomplish their work are fundamentally different.
The core business of the target company is relative to the core business of the acquirer.
The target is large relative to the acquirer.
These factors reflect the different complexities of integrating the two companies in terms of culture, business focus or scale. The best performers stress the importance of change management in these circumstances.
What to cut
More than 80 percent of the best-performing people said they were always or often customised for five key integrations:
Governance: who leads and how do they do it?
The integrated management office (IMO) architecture: who is responsible for coordinating the integration effort and through what organization?
Scope: to what extent?
Speed and pace: how fast and how hard.
Culture and talent: how to deal with talent?
The best performing companies adjust the decision-making power between the acquirer and the target management to meet the target of the transaction. They also built teams of leaders to help them achieve that goal.
For example, to establish a new culture and promote cooperation, it may be necessary to organize an integrated management team to include the mirror leaders of the two organizations, and to allocate the decision rights equally. However, the transaction, mainly to retain the culture and operation model of the acquirer, may give the majority of the integration team and decision-making authority to the purchaser.
A global information company is looking at a slightly larger target and has a stronger international presence. The buyer expects the transaction to achieve significant cost synergies, while retaining the target’s middle and top talent is critical to the success of the future international business.
As a result, the acquirer has given the target managers considerable leadership responsibilities during and after the integration. The target management team led the integration effort and announced a few months ago as the new chief operating officer. The leadership of the international maritime organization’s work process is reflected, and every United Nations personnel gives a fair assessment of the final work. These efforts paid off, and the combined company quickly achieved synergies, increasing market share and retaining all key talent.
The best performers customize three key aspects of the IMO architecture to address specific issues:
Number of imo (staff and funding level)
Use dedicated professional teams (dedicated to value capture, cleaning teams, change management, culture or communication)
Integrated team structure (by geographical location, business unit (BU), function or mix)
Serial acquirers in the pharmaceutical industry typically buy relatively small companies that sell products in similar therapeutic areas. The acquirer is usually equipped with a small IMO organization and assigns responsibilities to the ongoing business owners in order to control the target as soon as possible.
In preparation for the acquisition of a high-growth pharmaceutical company with a high reputation in some diseases, the company realizes that interfering with the target business relationship will pose significant risks. In order to avoid this risk, the acquiring firm organized a larger international maritime organization, including a clean team, is responsible for the assessment of doctor degree of overlap and the relationship between two sales staff strength. Then, the company organized three business teams, focusing on key customer retention, contract review and sales redeployment. This tailor-made approach minimizes the damage to relationships and gains incremental synergies.
A leading biotech company has bought a player of the same size. When the acquirer set up an integrated team, they realized that the two companies had very different business models. The acquirer is geographically organized, with a small business center, and the target enterprise is a global business unit structure.
The acquirer decided to launch a new matrix based operation. Aware of this tension, the acquirer created an organization design team in IMO and established a dedicated business partner for each team. The responsibilities of business partners include introducing new structures, managing talent selection, and communicating the operational principles of the new model.