Success Factors In Value Creation In Mergers And Acquisitions: Expectations vs. Reality

6 min readDec 21, 2019

Success Factors in Value Creation in Mergers and Acquisitions

Value creation is the purpose, driver, and strength of any M&A deal. Essential success factors in value creation in mergers and acquisitions to be recognized when it comes to maximizing the likelihood of a thriving (accretive) transaction involve the following:

Success Factors in Value Creation in Mergers and Acquisitions — Begin Early

Start generating a synergy map and financial model ahead in the deal process and improve it through due diligence, utilizing due- diligence to question assumptions and ambiguities — i.e., can they be realistically achieved?

Devise a post-close Operating Model and, consequently, the integration/growth strategy, besides due diligence. Assure an open and well-understood link between the synergies explored and the operating model adjustments designed to overcome undesirable change and business disruption;

Develop integration plans quickly from a synergy map and operating model to lessen the scale and scope of integration. Analyze all other models besides integration: do not integrate for the sake of it, but clearly, examine what needs to be done with the two organizations to accomplish goals.

Success Factors in Value Creation in Mergers and Acquisitions — Have the Proper Balance of Focus among Integration and Business as Usual

Overall, it’s necessary to make efforts to continue business as usual besides an expeditious integration/change program post-close. Segregating integration efforts from daily business operations, with integration handled by an integration management office (IMO), is a useful starting point, given business leaders remain entirely responsible for the delivery of integration and deal synergies;

Shrinking the post-announcement, pre-close period and stating the current management unit as quick as possible can decrease confusion, skepticism, and speculation;

Concentrating on the retention of customers and crucial talent by promoting shared goals, clear communication, and suitable incentives should be a top priority. Nevertheless, it’s all straightforward for energies to get centered on the deal to the disadvantage of the ordinary course of business.

Success Factors in Value Creation in Mergers and Acquisitions — Develop and Keep Clear Accountability

Ensure managers accountable for achieving deal benefits post-close are directly engaged in synergy mapping, due diligence, operating model design, and integration planning. These people need to be liable for devising and developing the future if they are going to produce value and be held answerable;

Set up a dedicated integration team to control the process of integration and growth post-close. In this team, set up specialized subgroups concentrated on achieving both revenue and cost synergies;

Contemplate a clean unit to assist extremely sensitive deals. A Clean team can operate to uncover, and develop plans to produce synergies earlier and so attain more confidence in deal conditions through enhanced data access;

Establish performance incentives for managers to accelerate the realization of synergy plans, value capture, and integration/development program milestones.

Concentrate on Skill Retention

The following principles developed to decrease the probability of retention problems growing visible through the integration period of an M&A project:

Integration is going to affect every stakeholder group (customers, employees by function or location, others). Hence formally design and effect a communications program that will both notify, attend and engage each stakeholder over the full term of the integration;
Give adequate access to information — for example; management should demonstrate why the deal is beneficial and assure that the communication resonates with employees;
Recognize the crucial people you want to retain (either permanently or for the term of the integration alone) and develop individualized retention incentives to improve performance. Shun conventional time-based financial retention bonuses since these serve to incentivize retention, not return and may miss what is luring the top people;
Monitor workloads — through the integration process, employees are usually expected to take on the added workload. It’s necessary to ensure that employees believe they can cope and know where the support channels lie in times of need;
Give opportunities for on-going training and professional advancement — the cost of human capital attrition can far surpass the costs of training and development.
Moreover, such actions give information that employees are valued;
Engage frequently with employees by one-on-one meetings or departmental catch-ups. Review with employees how they are coping in their new role and with the expanded workload;
Provide tangible performance management goals and incentivize essential talent;
Support employee focus groups;
Render ample managerial assistance — managers can be role models and play a significant role in the retention of employees through the integration process;
Develop employee engagement surveys to observe employee feelings of the transaction.

Act Swiftly

Making progress swiftly and seizing value as quickly as possible is necessary as part of the message sent to stakeholders and in supporting the underlying deal basis. Moreover, working speedily and achieving value ahead can buy time later in the integration process should specific areas of value capture prove challenging.

Broaden the Synergy Net

A stable portfolio of synergy initiatives is necessary to disperse risk and maximize the possibilities of success;

Lead change management exercises across both companies;
Engage customers, partners, and other significant stakeholders in informing vital decisions;
Estimates for costs to achieve;
Use the transaction as an opportunity to “do more” and seek other essential strategic goals in parallel with the integration effort.

Concentrate on Data & the Detail

Ensure you are working from the most credible data. Secure data is needed to make realistic assessments — though; this is typically challenging to accomplish in the stages of assessing a target and even once immersed into due diligence. Hypotheses are hence initially required earlier on in the deal process — which becomes further defined as more specific information is captured;

Carry meticulous pre-deal due diligence with a focus on value creation;
Update targets as more data get collected, and the accuracy improves.

Don’t Overestimate

Many kinds of research reveal that synergies get all-too-often exaggerated. These reasons can be due to:

Overall plans not being anchored in reality;
Customer responses get underestimated;
Market growth get exaggerated;
Competitor reactions get minimized;
The pricing power of the merged company (acquirer + target) is over-estimated;
Market share gets exaggerated;
Added resources are needed to obtain synergies;
Assessments based on inadequate information — such as due diligence and early site-visits;
Complete sales information, pricing data, sales ability, customers and products, and other vital information is only made accessible after a shift in ownership. Without access to this data it’s hard to evaluate the actual value potential of a deal;
Build-in contingency — if the circumstance requires it, teams might have to go back to the drawing board in quest of new value drivers to connect gaps where value has not got captured.

Scale Accuracy with Speed, but tilt Towards Speed

There will continuously be a trade-off between efficiency and Speed on a project. This trade-off should be a deliberate judgment based on the details of each deal;

To discuss the accuracy versus rate debate, define the suitable implementation timeline by ascertaining when to operate with Speed and when to take more time. An opening point for this can be at the Initiative level and running down to the Synergy level and then to the specific Task level;

Change is stressful and disruptive; thriving integrations are those which take place speedily. New methods and solutions that are “good enough” and executed now are more effective at realizing synergies and going back to business as usual than “ideal solutions” deployed in 24 months.

Contemplate Using a Clean Team

A clean team can serve as an unbiased and accurate resource to assist the decision-makers at both companies involved in the initial stages of deal negotiations when attempting to discover more about each other. A clean team acts autonomously of the acquirer and seller to examine data/information, consolidate it, and furnish reports to assist the deal decision-making process. A vital advantage of using a clean team is to achieve higher accuracy of a possible deal and the value it could generate before the parties make formal pledges or reveal sensitive information to one another;

A clean team can obtain classified information from both parties of a deal and can, hence, give an early assessment of a potential deal’s rationale, what synergies/value creation potential might be on the proposal, what a consolidated business plan might look like and what discussion points might emerge later on;

A clean team checks the risk of sharing too much information, too early in the deal negotiations, and either party speeding into formal negotiations;

To ensure either party can walk away from a potential transaction, with no harm to either party involved, a clean team must run under stringent, commonly agreed-upon rules;

The sensitive information/data analyzed by a clean team might include customer lists (by name, spend), suppliers, and production costs that each company can’t or doesn’t want to share, possibly due to regulatory or competitive considerations.

Originally published at https://ramkumarssite.com on December 21, 2019.