UK: Beating the post-merger blues

Last Updated: 12 October 2004
Article by Julian Thomas

Most Read Contributor in UK, August 2017

More than 70% of mergers and acquisitions fail to deliver the expected benefits. Our specialist merger integration team believes that most of these failures have two factors in common. Firstly, the directors did not plan how the new business would fit strategically into the rest of the operation and, secondly, they did not integrate it in time, or indeed, at all. With joint experience of advising on over xx successful mergers, our people believe that the ‘business as usual’ approach leads to prolonged confusion, low staff morale, loss of business and, inevitably, falling confidence among shareholders. Whereas a fast, focused programme will nip many potential problems in the bud, retain the talented players and start unlocking the benefits of synergy almost immediately.

If, however, the merger did not get off on the right foot, all is not lost. In fact, this example of a ‘rescue mission’ is typical of a manufacturing engagement. Two members of our team worked with a food manufacturer to ‘unblock’ a stalled integration that, after six months, was jeopardising the standing of the entire company. It serves to illustrate the value of external professional advice when cultural differences make willing change virtually impossible.

The cultural divide

The company had made two major acquisitions – one in the US and one in Europe – which would take it further up the food processing value chain. The strategy was appealing to the City as it promised major savings through synergies in operation. Unfortunately, however, the CEO had not convinced the recipient management teams that the benefits case he had already announced was actually achievable. The process of bringing the three companies together started without external advice and without the appointment of a dedicated integrations director, with pronounced political sensitivities and cultural differences on all sides. After several months, the company had had four successive profits warnings, the share price had fallen dramatically, and capitalisation value was less than break-up value. The eyes of the City were focused on it.

Our people were called in to examine the businesses, identify the projects that could deliver the benefits case, and put a transparent structure in place to allow it to happen. In most mergers, external advisers are needed as much to manage the political and emotional issues as the rational. This was clearly true in this project. The key issue was the reluctance of the European arm to do anything until they could see what the merged organisation would actually look like. The team worked with three executive groups to develop together a blueprint for the future. With a basis for co-operation finally established, they set up a programme office, scoped the projects and managed the delivery alongside a newly-appointed integration director. Within only six months, they had delivered half the proposed benefits and there were clear plans for achieving the rest. Today, the value of the integrations has exceeded the original projection by some 40%. As a consequence, the share price climbed steeply and the CEO was applauded by the investor community. He is on record as saying that the team leader was the best adviser he had ever worked with.

Building the bridge

A few interesting, general points emerge from this example. Specialist integration support pays back many times over at both pre-deal and post-merger stages. But it takes more than just a professional services background to give truly sound advice. The integration strategy, benefits case and blueprint must reflect an understanding of the manufacturing process itself. For example, in this case the synergies the acquiring company had initially identified went only part way towards what was finally achieved. In fact, the value uncovered was 60% higher than the company’s earlier expectations. This is common in projects of this kind because members of the acquired company inevitably make conservative or defensive analyses. Everyone in our merger integrations team has worked in manufacturing and knows what to look for both strategically and operationally.

Secondly, although there is no such thing as a ‘standard’ merger, there are certain elements that every acquiring company ought to put in place to avoid later rescue missions. Checklists like ours encompass all the legal, regulatory, financial and operational points that need considering well in advance to manage day one of ownership effectively. Executive teams often also need coaching to develop an organisational structure that will actually support the vision that drove them to merge in the first place. And few companies are readily versed in the programme management skills that accelerate the integration and unlock the advantages. It is ironic that managing a merger is likely to be the most demanding task directors will ever face and yet they will rarely handle more than one or two in their entire career. Opportunities for a rehearsal are rare – which may have considerable bearing upon why so many fail. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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