Challenges to Integration in an Expanding M&A Environment

Deloitte releases its latest “Survey on China Outbound Activities and Post-deal Integration” report today.

Deloitte conducted survey on 30 senior executives from companies which are active investors in the China outbound M&A arena to share their experiences and views on the current market trends and key drivers of China's outbound M&A activities. The report reveals findings around factors influencing the outcome of transactions, dives into what drives successes and what foils deals; most importantly, examines the challenges that Chinese investors face during the post-merger integration (PMI) phase of the M&A life cycle, and what companies can do to achieve maximum deal value.

As Keat Lee — Partner of M&A Consulting at Deloitte China put, "China outbound M&A activities have experienced astounding growth over the past 5 years; our survey reveals that close to 90% of respondents hold an optimistic view on future outbound M&A activity level yet anticipate the growth rate will decline."

According to Victor Chen, Director of M&A Consulting at Deloitte China, "Main drivers for China outbound M&A activities include acquisition of key capacities and intangible assets, expedite access to new markets, product portfolio enhancement as well as market expansion. A majority of corporate executives surveyed indicate that Europe and North America will continue to be the hotspot for China outbound M&A activities in the near future; investors will focus on targets within their operating industry and its relevant up- and downstream sectors. 

The survey reveals that the top two reasons that doomed China outbound M&A transactions are deal negotiation fall through as well as identification of major risk factors during due diligence phase.

The major reasons contributing to failed realization of proposed strategic and financial targets may vary, but common factors include failure to identify and achieve synergy, imperfect planning and ineffective implementation of post-deal integration, unexpected changes in the macro economic environment, failed timely identification of major risks during due diligence as well as transactions being overpriced.

The survey also shows that the bottleneck that enterprises face throughout the outbound M&A life cycle are as follows: M&A strategy formulation, target searching and screening, PMI planning and implementation, valuation and negotiation.

To overcome these challenges, Chinese investors are more likely to seek help from third-party service providers during the below three stages: due diligence, M&A strategy formulation, target searching, screening and valuation, as well as deal negotiation.

Respondents concurred on the major challenges during post-deal integration: adopting integration strategy that aligns with the business' long-term development plan, aligning with executive goals and obtaining resources support from the leadership team, and formulating a practical implementation plan and ensuring strict fulfilment. Chinese investors are most likely to expect third-party service companies to provide financial and legal advisory, human resources and culture integration services during post-deal integration process.

The report includes survey results with respondents from multiple industries, including auto, consumer products & services (CP&S), industrial product & services (IP&S), energy & resources (E&R), life sciences (LSHC), TMT, financial services (FS) as well as real estate (RE) industry.