Insider Business Club: mergers & acquisitions

Is there any way to make integration a priority before you actually sign
the final offer and transfer ownership?

Stephen Hickford, European M&A leader, IBM

The key thing from my perspective is to separate the deal team from the
integration team. There is a corporate sigh of relief when the deal is done and
everybody goes back to thinking ‘that’s a great job we’ve done there. Now let’s
get on with doing what we normally do’, but there does need to be a lot of
planning in advance.

The best way is setting up a separate team that does the integration
planning, deals with the people issues and the assessment of the business that
wouldn’t be covered with due diligence.

That can be done in advance of completion to prepare for the change of
ownership from day one. This is best done by a small team outside of the deal
making team and they can run along in parallel. In that way, a business can be
prepared for completion of the deal and launch into the transition period on a
smooth basis and demonstrate some real leadership.

The focus should be on the real sources of value in the deal, so there is
often a tendency to just integrate for integrations sake and integrate things
that won’t generate value. Focus on the real sources of value, and planning
accordingly is one way of meeting expectations. Don’t do things that are going
to cost money and waste effort, time and resources on things that won’t deliver

The key areas that should be focused on differ from business to business.
However, the real sources of value are going to be cross-selling a specific
product into new markets or integrating a supply chain or the rationalisation of
a property portfolio. So there are not that many, but they will be different for
each deal. The trick is to recognise those areas in advance, get commitment
behind them at a senior executive level and then organise and focus relentlessly
on those synergies and the new value drivers for the deal. There will be some
enabling projects that have to be dealt with, such as systems integrations, but
be very careful about doing things that don’t deliver value.

There are plenty of blueprints for making a deal work. You can buy them or
you can get them from the internet. But it comes down to one thing and that is
the experience of having done it before. That experience comes from either
serial acquisitions, or organisations with a track record and huge intellectual
capital base of doing these things and understanding the issues and the problems
that will occur. If that knowledge is not available then do not rely on buying a
blueprint from the internet because it won’t work. It really needs people with
strong experience of having done it before that are going to make the
difference. There is a blueprint, but just use it with extreme caution.

There is a feeling that M&A can actually destroy value, but surely
integration is something that everyone is now doing?

Mark Durham, publisher, Mergermarket

You would think so, but when senior level executives are involved in the
acquisition process, a lot of their personal time is taken up in the nuts and
bolts of putting that deal together.

Looking at the cost of that package and dealing with their advisers makes it
very easy for them to be removed from what their central roles are in terms of
running the business and having a good focus on the business itself.

There is possibly a level of distraction that happens among senior executives
which can make some of the key integration issues slip because they are more
concerned with pushing the deal through, and making sure it happens within a
given timeframe.

For some entities, it is only once the deal is completed that people realise
that there are a lot of integration issues that need to be addressed which
should have been dealt with before the process began.

There is a history of that, there is plenty of research that says that this
does happen, but the fresh research that we have conducted over the course of
the summer of last year still bears out the same issues – that people are not
paying enough attention to integration issues.

We conducted research among 80 individuals, including a mix of CEO’s, CFO’s,
COO’s and heads of HR and IT. We asked the question whether or not they
nominated a dedicated integration manager and whether or not that person
actually assumed the responsibility for integration. The results show that 62%
did and they did that in the pre-deal phase. But a sizeable minority to our
surprise, don’t pay enough attention to these issues.

Deal values are on the up, and they are going back to the types of levels we
saw before the M&A and dotcom bubbles crashed and the terrorist events of 11
September 2001. We are seeing people with experience of M&A and I think that
plays a big factor. The more M&A you do, the better you get at integrating
businesses. So business, on the whole, is paying attention to integration, but
there is still a sizeable minority that is not doing that. Whether that is
through a lack of experience and deal making experience remains to be seen.

What surprised us was the lack of pre-deal planning that actually happened.
The amount of problems you see when two entities come together after the
acquisition itself does seem to be from a lack of planning at an early stage and
obviously that creates problems for the business across a range of functions,
particularly financial. In our experience, from a research perspective, that
kind of issue is essential and it should be looked at in advance, with the
advice of professional advisers.

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