Divestitures and separations


Securing the big prize of mega deals

Succeeding with transformational integrations

Mega deals – here to stay

The trend of mega deals continues. Whilst not at the same volume as in the record year of 2015, over 250 high value deals have been announced in the first half of 2016. Lafarge-Holcim, Abbot-St. Jude Medical, Starwood-Marriott and more recently Bayer-Monsanto. As per the Deloitte’s 2016 report on M&A trends, 2015 marked the busiest ever year for M&A with global M&A volume topping $4.7 trillion in aggregate. In fact, 26% of the respondents indicated they will seek large transformative deals, up 5% compared to the previous year.

Investors, analysts and other market pundits have vehemently warned against large scale deals, perhaps rightly so, due the large risks they carry. All the above mentioned deals have drawn flack especially Lafarge-Holcim and Bayer-Monsanto. Though most of the issues are around externalities like regulatory approvals and customer perception, the risks of managing “too big” companies and executing the integrations have been frequently highlighted.

Prepare for rejuvenation (integration)!

We believe that the risks can be overcome and successes ensured by preparing early - well before the actual integration commences. Successful integration programmes are founded on: clarity of purpose, control, laser-sharp value focus and managing people. These may not be new news, but organizations often struggle and in the heat of the deal lose sight of these.

Integration goes wrong when the integration team comes in post announcement, or worse, close when various strategic decisions have already been taken. A mid-level manager is given the responsibility on top of his or her day job of ensuring the integration team is on track and reporting back regularly for any roadblocks. Such an approach results in the dilution of the understanding of M&A rationale, loss of control due to unclear decision-making and risk to business as usual as teams are being torn between integration and running the day to day business.

There are a few actions organizations can take to prepare for successful integration that come with mega deals. These should be kept in mind even before the deal is closed:

1) Connect shareholder value to the integration agenda
Obvious but often badly executed. Mega deals attract a lot of scrutiny from financial markets. Investors keep a close watch on how the leadership executes on the deals and whether they will be able to follow through on the promised benefits. Hence it is critical that the integration agenda should flow from the drivers for shareholder value. The deal thesis (rationale) should clearly lay out the value drivers. Using an Enterprise Value Map, the integration team with representation from key functions should develop a synergy estimate which is more robust and backed by execution realities. These drivers along with competitive and macroeconomic realities should inform the decision making behind the operating model (enterprise blueprint). This is more important for large transformative deals since the operating model usually undergoes rethinking. The integration team should then list out strategic initiatives to implement the integrated model or new operating model. The nature, scope, interdependency and complexity of these initiatives should drive the integration agenda.

2) Select and prepare the integration leader wisely
Get a business leader and not a glorified project manager. Mega deals tend to provide opportunities for new/existing leaders to shine. We believe that the right person is someone who is comfortable with uncertainty, has a broad knowledge of the organization, and possesses strong decision-making ability, has emotional grounding and takes pride in resolving conflict (comfortable with different strategies).

Successful Integration Leaders prepare before they take on the role, similar to how CXOs prepare. Integration Labs can accelerate preparation for the role by combining technical integration training with preparing for the role.

3) Empower the Integration Management Office with structure and decision rights
Large scale M&A integrations require a programmatic but practical approach capable to cope with the fast paced nature of M&A as opposed to a methodology that is a project management tool decorated with corporate jargon. IMO should not be set up as a mere project management team. A well-set Integration Management Office which has a buy-in and sponsorship of top management from both companies can ensure this. The IMO should be empowered and bestowed with appropriate decision rights to keep the execution going.

4) Phase 0 is as important – define and effectively communicate the operating model and integration approach
Some companies jump into integration planning without a clear picture of the end state or alignment on the integration approach. This can lead to confusion and unnecessary work. A Phase 0 to define the integration blueprint including the high level operating model, integration principles and approach is key. The integration blueprint sets the marching orders for the teams to conduct the detailed planning.

Leadership alignment sessions and Interdependency workshops are critical. Acquirers should take strategic time-out to prepare for integration and initiate integration activities and not just for pre-deal phase. This time will help accelerate integration efforts. A core set of leaders should be brought together; who are in a position to build the operating model, drive decision making, and influence the successful execution.

One of our life sciences client took out 3 weeks to prepare for the integration right after the deal was announced. The potential team was informed before deal announcement and was ready to brainstorm the operating model and set the integration agenda.

5) Culture – Do more than just talk
A large scale merger is an opportunity for leaders to take a step back and assess what kind of culture they need, and what kind of culture differentiates them as an organization. It allows them to define the core set of values that will govern behaviour in the organization not just during business as usual but also during the integration phase. Evaluate how to use execution of the deal as a way to change the culture. Daimler-Chrysler deal brings the memory of culture clash often seen in trans-Atlantic mergers. Bayer-Monsanto integration (if it goes forward) will be a case talked about in the future.

Last word

Connect the dots: ensure that integration has a continuity from pre-deal phase. Prepare: Assess the interdependency early on and decide on operating model keeping the details in mind. Lead and not just manage: get the right and influential leaders involved and don’t leave it to just project managers to integrate.

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