Being Successful in Post M&A Integration
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The document discusses strategies for successful post-merger and acquisition (M&A) integration, emphasizing the importance of preparation, clear expectations, and timely communication. It outlines that many M&A deals fail due to lack of structured processes and proper integration, with a focus on leveraging talent and setting precise metrics. The integration process should be tailored to each deal, prioritizing rapid value creation while managing employee morale and organizational culture.
Being Successful in Post M&A Integration
- 1. Succeeding in Post M&A Integration March 2018Munich Finance M&A Seminar
- 2. Biography • Olivier Coispeau, CFA • Founder of Maverlinn Strategic Finance • Strategy (Roland Berger) and Finance Page 2 • Strategy (Roland Berger) and Finance (JP Morgan, Schroders, Clinvest) • Innovative start-up incubation (Antfactory) • Former economics professor at Paris- Sorbonne university • Education: Stanford University, Paris Dauphine University and Sciences Po Paris
- 3. Close or miss M&A ? remember shareholders will ask about return Comments : • Executives assessing M&A opportunities may experience difficulties to make deals penciled out due to competition • Check internal hurdle rates to make sure they still• Check internal hurdle rates to make sure they still capture capital markets conditions • Abundant dry powder, strong balance sheet and M&A opportunities are not enough to justify acquisitions and make them a success • Alternative to M&A, return cash to shareholders through dividends and share buybacks • In order to close M&A ops, acquirers must prove their capacity to quickly put boots on the ground to deliver expected returns and create value Page 3 Source : Bain & Cie
- 4. Create shareholder valueIntegrate new talents faster What is the reason for Mergers & Acquisitions ? - Invest corporate cash to obtain financial return higher than the weighted average cost of capital - Talents are expensive and difficult to hire fast enough to feed the corporate growth Half of the M&A deals fail to meet the acquirer’s strategic objective and do not create value weighted average cost of capital - Manage length and depth of the target integration - Deliver value on the basis of the higher brackets of the industry growth - Talents create value: historical net book value (NBV) anticipated value: the difference between expected equity value (NPV of future free cash flows) and NBV Page 4
- 5. The secret for successful M&A is a good preparation 1. Upstream preparation M&A strategic group 2. M&A execution Trusted expert team Expert M&A team Clear growth strategy roadmap 1 Strategic M&A is a three step integrated process M&A strategic group Trusted expert team 3. Integration Transition management Expert M&A team Trust & empowerment for fast action Early identification of acquisition benefits Smart transition management to leverage acquisition 2 3 Page 5
- 6. There is no magic formula for successful post M&A integration - Acquirers in the most successful deals have specific, structured and precise value creation process going on - Acquirers in the less successful deals have vague justifications for making the deals, and lousy metrics Repeated M&A needs a proper post deal integration organization to extract all accessible synergies deals, and lousy metrics - The very first step before making an acquisition is to know the type of M&A going on and set precise expectations - The justification for making an acquisition reflects unsufficient internal work over 50% of the cases Page 6
- 7. As a first step, management must assess the type of M&A deal going on, this will set the right profile for the integration process • Post M&A actions should be calibrated according to each deal; every post M&A process is tailor made • The following possible framework helps defining a precise profile for the transaction before starting the integration process Page 7 Source : Oliver Wyman Synergies Cost <-------------o-------------> Growth Speed Fast, under time pressure <-------------o-------------> Mid-range perspective Extent All areas <-------------o-------------> No or partial integration Integration spirit Takeover <-------------o-------------> Merger of equals Integration start Immediately after signing <-------------o-------------> Deferred until closing Team structure Clean team <-------------o-------------> Joint team Fundamental decisions In advance, implicit <-------------o-------------> Explicit, intensive
- 8. Six basic M&A strategies define most ot the post M&A operations 1. Improve the target company performance 4. Access talents faster than recruiting them Source : McKinsey Page 8 2. Consolidate industry excess capacity 3. Accelerate market access for products 5. Exploit scalability opportunity 6. Pick winners to grow their business
- 9. There might be four other less frequent justifications for M&A operations, and even sometimes less reasonable reasons Source : McKinsey, IbisWorld Page 9 9. Build-up for better market practices Case: SCI Corp. 10. Reduce market fragmentation Case: Air France 11. Activate internal transformation Case: Novartis 12. Bargain opportunity, hidden gem Case: Bolloré 10 11 1211109 12 1213
- 10. There are a few simple rules to create incremental value, and three pitfalls that will destroy value in any M&A deal A. Free the talents, resolve conflicts and build quickly on human capital. Avoid a walking dead HR mismanagement B. Follow the money, work the numbers in the details, reap low hanging synergies first, stick to a precise roadmap Source : Bain & Cie, Bo Le Associates Page 10 2. Fail to define the cash value drivers of the transaction and the risks. Investors will sell 1. Loss of key people. Head hunters know that M&A creates frustrations and opportunities 3. Distraction from the core business resulting in weak corporate performance.
- 11. Post M&A objectives focus on return, talents and clients Deal Logic Management Style Production Status Key integration factors Style / Culture / Status Time Page 11 Style Equity Return Talent Pool Market Leadership Integration ScopeCorporate Culture Core objectives Return / Talents / Leadership Management style: winner takes all <–> management bio-diversity Corporate culture: corporate credo <–> pragmatism according to goals Production status: our way <– > their way (e.g. IT, machinery …) Expectations Source : BCG
- 12. The 90 day rule of M&A integration is a critical Key Success Factor Comments : • The first 90 days are key for the success of the target integration • The M&A integration team empowerment and the target key Timeline is critical, proscratination is lethal empowerment and the target key people mobilization are both critical • Prepare corporate integration toolbox to save time and energy • The strategic roadmap must be clearly set and quickly communicated • Expectations must be set, strategy must be clear, responsibilities set • Staff must be regularly updated on the integration progress and mistakes quickly corrected Page 12
- 13. The top line « health check » is a management priority, cost optimisation is only second to it Comments : • A simple way to look at the priorities is to go through the details of the free cash flow generation • FCF is still the best indicator of value creation for the firmcreation for the firm • The first line of FCF is REVENUES, representing 100% of the decreasing order structure of the P&L • The optimization of the cost structure is derived from the 100% base line materialized by revenues • The optimization impact is measured on the improvement of the EBIT margin Page 13 Source : Accenture, EBIT impact on process optimization
- 14. Over 50% of M&A synergies are related to IT integration, systems migration can cause delays in value extraction Comments : • Flexible and scalable IT architecture provide a strong advantage in post M&A integration • The best acquirers have already organized themselves : SOA, one ERP, avoid systems + = 48% of deals Systems Integration themselves : SOA, one ERP, avoid systems useless redundancies • Due diligence will help streamline and anticipate the systems integration. A messy IT organization may lead to different choices • People are always reluctant to migrate and this can cause significant delays in extracting synergies • Budget third party assistance to accelerate the integration and balance it with the DIY option Page 14 + = & + = 24% of deals 28% of deals Source : Technische Universität München or
- 15. The soft factors will decide on the success or failure of the post M&A integration, being smart, nice and pro. is mandatory Comments : • Every process is unique and every company wants to feel it is special • M&A generates a huge amount of• M&A generates a huge amount of stress, the higher the price paid, the higher the stress • Post M&A is one of the most difficult management challenge with a high risk of error • During this time, staff feel a high degree of insecurity and anxiety, awaiting bad news and painful decisions to be announced Page 15 Source : Oliver Wyman
- 16. Share and discuss a simple but precise integration scorecard on the on-going process with team, project by project ISSUE RESOLUTION What does not work and must be fixed quickly, ranked and prioritized. PROGRESS Typically, this is the compass for the integration process, it measures the distance to the end of the process. 90% 75% Page 16 DISCOVERIES What needs to be adjusted or discussed in the process. Things that could be useful later end of the process. ACHIEVEMENTS What has been done already and working well. 80% 60% The integration scorecard must be shared, updated and discussed at least every week
- 17. Strategy and Organization provide the framework of a successful post M&A integration Comments : • Strategy: the expectations for the newly acquired company are set and communicated One needs quickly the big picture • Organization: the target management is clear, tough decisions are quickly made if necessary, people understand well what is expected the acquiror’s integration team is moving smoothly alongside the target management team to facilitate the execution of the plan The corporate threads from both the target and the acquiror are interlaced at right angles to form a new fabric Page 17
- 18. DON’T DOMUST DO Keep a smart and clear mind on the post M&A priorities: leverage talents first - Don’t be vague, waste time, and show that you are hesitant: staff is waiting for a clear roadmap - Interview key target people and ask them what can be improved, organize peer to peer discussions, foster a Keep people morale high, celebrate achievements, a too stressful environment will only generate negative externalities radiating all over the firm waiting for a clear roadmap - Don’t lose people confidence, you must be reliable and fair - Don’t allow stressful working conditions to develop together with a heavy management hand peer to peer discussions, foster a « sport » positive competition spirit - Set compact ranked integration metrics, set and act on priorities first and take the tough decisions early - Make people happy, integration must not be just another stressful process Page 18
- 19. Leading a world of change, together