BUSINESS INTEGRATION POST-ACQUISITION
After you have completed the deal and you are now acquiring/merging with the new/additional entity, the process of integrating both companies into a single entity starts.
The post-merger integration phase is one of the most difficult phases of the merger and acquisition process because there will be differences in the companies involved — differences in strategies, differences in culture, differences in information systems, and so on. So, this phase requires extensive planning and design throughout the entire organisation.
The integration process can take place at three levels:
Five Strategic Reasons Why Mergers FAIL:
The sad reality about mergers and acquisitions is that the expected synergy values may not be realised, in which case the merger is considered a failure.
The following are some of the reasons why mergers fail:
While there are many more problems—including organisational resistance and loss of key personnel—that can lead to failed mergers, a solid due diligence procedure will help to avoid most, if not all, of these pitfalls.
WHAT ARE YOU GOING TO DO POST-ACQUISITION?
When the hard work begins
Planning to drive growth
Implementing the plan
To keep management on track, it’s not unusual to offer financial incentives. In companies where they’re in place, if members of the management team achieve 100-day plan goals, most frequent rewards are a one-time bonus. It’s important to note that often, but not always, incentives are tied to the successful execution of the 100-day plan.
Having different ways of creating value at the acquisition, sometimes implementing an outsourcing strategy is part of the 100-day plan. Services such as IT management and support, freight management, compliance, production and accounts receivable are functions that firms explore in terms of outsourcing. It really depends on the company. In some cases, outsourcing makes sense, and for others it does not, but either way, it’s important for firms to look at their options and then make a decision. In fact, it makes sense to look at what aspects of a company can be outsourced if it helps the company focus on the core business, for example, a service such as freight management can be outsourced because it is often not the core competency of the company.
A deep dive into the financial reporting systems can help drive improvements. Daily, weekly and monthly operating metrics, as well as month-end closing timelines and forecasting capabilities, are crucial, and they need to be set up during the 100-day plan. Without accurate financials and metrics for forecasting, it’s almost impossible for a company to put a plan in place and execute successfully. So the month-to-month accuracy of financial reports is particularly important.
The last piece of the equation in creating value is the depth and strength of the management team. You cannot underestimate this factor. In most acquisitions, the firm puts together a 100-day plan of what the firm is going to do. Every line item has an individual’s name next to it. Every week the acquirer should check in to see how people are progressing and hold each one accountable for his or her end of the bargain. The acquirer is responsible for driving returns, and those with the most checks and balances in place will find the job easier and requiring less negotiation.
After the first 100 days, next steps vary by company. But for all companies, it’s important to keep the focus on growth and moving the business forward. It’s equally important to stay on the same page with management as new plans are laid out.
SETTING YOUR M&A STRATEGY TO DELIVER REAL VALUE TO YOUR SHAREHOLDERS.
What is the most appropriate merger/acquisition strategy for your business?
To create successful transactions, today’s deal environment demands new levels of creativity and forward thinking from corporate development professionals. Whether the question is where to find targets, how to structure terms, or when and what to communicate with shareholders about a transaction, one sure answer is that what worked yesterday may need to evolve and adapt to an increasingly fast-paced and ever-evolving environment to succeed tomorrow.
When M&A Works as a Growth Strategy Mergers and acquisitions make perfect sense in a variety of situations. For example, maybe an opportunity presents itself that requires fast, decisive action. Or maybe a competitive threat compels a defensive move to get bigger, faster.
WHAT IS DUE DILIGENCE?
Due diligence is a process of verification, investigation, or audit of a potential deal or investment opportunity to confirm all facts, financial information, and to verify anything else that was brought up during an M&A deal or investment process. Due diligence is completed before a deal closes to provide the buyer with an assurance of what they’re getting.
Importance of Due Diligence
Transactions that undergo a due diligence process offer higher chances of success. Due diligence contributes to making informed decisions by enhancing the quality of information available to decision makers.
From a buyer’s perspective
Due diligence allows the buyer to feel more comfortable that his or her expectations regarding the transaction are correct. In mergers and acquisitions (M&A), purchasing a business without doing due diligence substantially increases the risk to the purchaser.
From a seller’s perspective
Due diligence is conducted to provide the purchaser with trust. However, due diligence may also benefit the seller, as going through the rigorous financial examination may, in fact, reveal that the fair market value of the seller is more than what was initially thought to be the case. Therefore, it is not uncommon for sellers to prepare due diligence reports themselves prior to potential transactions.
Reasons For Due Diligence
There are several reasons why due diligence is conducted:
Costs of Due Diligence
The costs of undergoing a due diligence process depend on the scope and duration of the effort, which depends heavily on the complexity of the target company. Costs associated with due diligence are an easily justifiable expense compared to the risks associated with failing to conduct due diligence. Parties involved in the deal determine who bears the expense of due diligence. Both buyer and seller typically pay for their own team of investment bankers, accountants, attorneys, and other consulting personnel.
Why Due Diligence Matters
"Due diligence helps investors and companies understand the nature of a deal, the risks involved, and whether the deal fits with their portfolio. Essentially, undergoing due diligence is like doing “homework” on a potential deal and is essential to informed investment decisions"
Due Diligence Activities in an M&A Transaction
There is an exhaustive list of possible due diligence questions to be addressed. Additional questions may be required for industry-specific M&A deals while fewer questions may be required for smaller transactions. Below are typical due diligence questions addressed in an M&A transaction:
1. Target Company Overview
Understanding why the owners of the company are selling the business –
Examining historical financial statements and related financial metrics, with future projections
The quality of the company’s technology and intellectual property
4. Strategic Fit
How the company will fit into the buyer’s organisation
5. Target Base
The company’s target consumer base and the sales pipeline
The company’s management, employee base, and corporate structure
7. Legal Issues
Pending, threatened, or settled litigation
8. Information Technology
Capacity, systems in place, outsourcing agreements, and recovery plan of company’s IT
9. Corporate Matters
Review of organisational documents and corporate records
10. Environmental Issues
Environmental issues that the company faces and how it may affect the company
11. Production Capabilities
Review of the company’s production-related matters
12. Marketing Strategies
Understanding the company’s marketing strategies and arrangements
PART 1: SMALLER M&A deals work out better over time.
Research shows that across most industries, companies with the right capabilities can succeed with a pattern of smaller deals, but in large deals the industry structure plays as much of a role in success as the capabilities of a company and its leadership. As companies get bigger, the ones that get the best returns are those that continue their growth through a strategy of smaller deals, as the big deals can be a bit of hit or miss.
Large Deals: Are more suited to slower growing mature industries as there is great value in reducing excess industry capacity and improving performance, and a lengthy integration effort is less disruptive. Conversely large deals in fast moving and rapidly growing sectors have been less successful, because of the time it takes to integrate the acquisition and companies focus inwardly taking their eye off the ball to some extent on what's happening in the marketplace, maybe missing a new product or upgrade cycle.
Pragmatic Deals: Companies across a variety of industries do well using the programmatic approach. Companies using this strategy completed many acquisitions that together represented a material level of investment. Furthermore the volume effect — the more deals a company did, the higher the probability it would earn excess returns.
PART 2: A strategy that uses CAPABILITIES as the basis for inorganic growth.
— while most other inorganic growth moves have led to a loss of value.
Deals do better when the incoming company matches the acquiring company’s capabilities system. Some industries, such as information technology and retail, show a larger effect; all industries, however, show a consistent, observable capabilities premium in M&A. Deals made with a capabilities perspective are far more likely to generate value over time.
A capabilities system, is something specific: three to six mutually reinforcing, distinctive capabilities that are organised to support and drive the company’s strategy, integrating people, processes, and technologies to produce something of value for customers. they are differentiated and complementary, working together to reliably and consistently deliver a specified outcome, in support of a company’s long-term strategy and market position. These capabilities systems are typically complex and multi functional, and tied closely to the company’s identity; they take a lot of attention and investment to build and maintain. But once in place, they guide a company’s way of creating value in the market and provide distinction and prowess to its products and services.