Posted: 25 Aug. 2021 4 min.

Realising the benefit case from M&A

Topic: Operational Excellence

Bringing organizations together through mergers and acquisitions, or disengaging them through separations and divestitures, still rate among the most complex and exciting business activities.

As consultants we engage in many great projects in many different industries, but some of the most complex and tense projects are without doubt mergers and acquisitions. Maybe it’s because the stakes are so high. After all, the results from a successful transaction can be game-changing – while failure or underperformance can depress financial outcomes for years.

The last months have been really busy with regards to M&A advisory here in Deloitte Consulting, and we are involved in quite a few transactions at this very moment. As always, transformation is key: a combination of offensive and defensive M&A strategies has emerged post COVID-19 as companies strive to defend their existing markets, accelerate recovery and position themselves to thrive. Beyond traditional M&A, companies also deploy a wide range of inorganic growth strategies such as alliances and ecosystem partnerships. To me, this surge in activity reflects the new priorities of the post-crisis world and the constant need to deliver lasting impact as well as commercial success.

Being ready at the right time
Realising benefits is of course a recurrent theme in all M&A, and continues to remain a challenge for many companies. Once a transaction closes and a combination has been forged, companies have a critical window of time to get the most out of the merger or acquisition. Being ready at that juncture, at the close, provides a great platform for integration success.

Here, operating models can have a tremendous impact on performance and competitiveness, so it’s important to get it right, especially when combining disparate companies through a merger.

One of the critical issues is in defining what an operating model is because they often are confused with business models. Business models typically boil down to “how do we make money?” while operating models describe how the business model will be implemented by aligning processes, systems and internal structure – the core of the organisation that will ultimately deliver the horsepower you need to move ahead.

Why is it difficult?
Even in a well-planned, well-executed and strategically sound M&A transaction, creating a new operating model is far from easy, and companies typically face a number of issues along the way. In fact, some will argue that one of the main reasons transactions sometimes fail is poor preparation for the critical post-merger period. Negotiators place big efforts into closing the transaction, but there is in adequate preparation and training for those bumps that are likely to occur after the deal is final.

From my own experience with complex transactions, I can think of at least three pitfalls that I’ve encountered again and again:

  1. Firstly, there is the inherent problems in many transactions that a team of people have created a business case that someone else has to execute. In many instances, the huge amount of work that was put into the due diligence process is simply not properly handed over to the execution team, which means that planned synergies are not rooted in the business.
  2. Secondly, there is the risk of thinking in silos during the post-merger integration phase instead of thinking holistically about the business. This is also something I see quite often: instead of thinking in end-to-end processes between the two organisations, you try to match HR with HR, Finance with Finance, production with production, and so on. While this can be short term solution in terms of realising synergy savings, it’s rarely a long-term platform for creating an operating model that will deliver growth.
  3. And thirdly, even with ambitious targets and objective goals, many PMI processes tend to focus on making sure that different stakeholders are happy. This is not a surprise since, after all, all transactions are envisioned, planned and driven by humans, and as humans we are focused on the wellbeing of people around us. But the facts remain that M&A activity often requires very difficult decisions when it comes to letting go of people, systems and various inefficiencies that slow down transformation.

Maximising value capture
I’m not saying that there are quick solutions to these shortcomings, but they are definitely worth thinking about when planning and executing a transaction to realise synergies.

Here are a few pieces of advice:

Ensure leadership. Often, merging companies overlook the complexity of post-merger integration issues and are consequently not as prepared to handle the merger as they planned. Structural incompatibility may arise from companies that have conflicting degrees of centralised decision making, mismatched organisational structures and processes, or diverging processes with regards to products, customers and sales. Therefore, create a cross-functional, elite team of very experienced people to drive the target operating model design, and make sure that they take strong responsibility for the entire PMI process.

Be uncompromising when it comes to synergies. I’ve seen this approach with a few of those companies that one might consider best-in-class when it comes to executing transactions. These companies are typically uncompromising when it comes to realising synergies, meaning that they deliberately avoid being soft on difficult issues. Of course, this approach comes with a prize, and not everyone will emerge as a winner when the new organisation is drawn, but facts are that this was never the intention anyway.

Don’t ignore the customers. While it’s easy to be caught up in the internal processes of integrating two organisations, companies should never lose sight of the vision of how the combined company will be able to increase revenues and gain market share at a more rapid pace than either company could alone. Therefore, building stronger relationships with customers, capitalising on synergies, and targeting new market opportunities are a vital part of the PMI process and should never be neglected.

By understanding the leading practices for success, companies can navigate the organisational, cultural and operational issues that emerge in the post-merger phase in order achieve the goals of the transaction.

It’s definitely a challenge to get all elements done correctly, but it is possible with effective planning and thoughtful execution by a knowledgeable team. First and foremost, it’s a privilege to be part of an M&A process, and it’s amazing to see it succeed. 

More about the author

Tore Christian Jensen

Tore Christian Jensen

Partner

As a part of the Strategy & Operations practice Tore has worked with analysis, development and implementation of operational strategies. Tore has deep experience with aligning business models to changing market demands through optimisation of business processes and aligning systems, organisation and governance accordingly. He has industry experience from manufacturing, transportation, consumer products and energy. His main focus is on on the operational core processes but he also covers administrative support processes. As a program manager Tore has been leading transformation projects for international clients heading multiple parallel projects and reporting directly to executive committee members. His responsibilities cover everything from initiating assessments, identifying opportunities for improvement to building business cases and following up by designing solutions and driving teams through implementation.