How The Best Acquirers Excel At Integration

Survey data published by McKinsey research suggests how high performers stay on top by focusing on three key actions:

1. Ground integration in the objectives of the deal.

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2. Tackle the culture conundrum.

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3. Translate sources of value into quantifiable performance goals.  

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The Best Go the Extra Mile!

  In our view, the keys to successful post-merger integration are:

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1. Recognize and differentiate between three distinct phases post merger.

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2. Foster a ‘transformation’ mindset rather than a ‘combination’ mindset.

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3. Understand and measure drivers of overall performance and not just synergies.    

Recognize Three Distinct Post Merger Phases

  In every acquisition, it is important to recognize and differentiate between three distinct phases post-merger – operating the target as a standalone business; transitioning the target to become part of an enlarged new group, and subsuming the target as a fully integrated operation.   Not all phases are relevant for every acquisition. Some targets may be acquired and, apart from nominal shared services, perform better as stand alone operations. Others can benefit from greater involvement and interface with the new parent without the challenges associated with becoming a fully integrated operation. Common pitfalls of post-merger integration include ignoring phase 1 and not allowing enough time in phase 2 to effect a smooth transition.   Throughout each phase, effective resource deployment strategies and interaction and communication protocols are paramount, particularly in emerging markets. In our experience, companies that understand this dynamic, and plan accordingly, are more likely to achieve or exceed their strategic, commercial and financial objectives from acquisitions.  

Focus on Transformation not Combination

Much has been written about acquisitions failing because of cultural issues. Organizational alignment touches all aspects of the merged operations and affects key stakeholders both internally and externally.   We agree creating a shared vision at an early stage and communicating this clearly is an essential element to post merger success. The merged company can then assess its differentiated capability to meet customer needs and develop appropriate segmentation, value proposition, and pricing strategies. In our view, the culture conundrum is best resolved by fostering a ‘transformation’ mindset, rather than a ‘combination’ mindset.   Too often, decisions are taken based on a ‘best of both worlds’ approach and, the opportunity to create something truly transformational is missed.  

Avoid the Synergy Trap!

  Whilst we agree it is important to separately identify the expected costs and benefits of any acquisition, and translate these into quantifiable performance goals, one of the key challenges in capturing synergies is identifying what are truly costs and benefits of the merger v part of underlying operational performance. There are so many variables that impact financial performance.   These compound over time making it difficult to distinguish true underlying performance v merger costs and benefits. Therefore, in our view, it is preferable to understand and measure drivers of overall performance on a consolidated basis and compare actual performance v expectation over defined periods. Companies that focus on this dynamic going forward are better placed to capture the benefits of a merger.