Analysis

Successful mergers and acquisitions are designed that way

M&A pace in private businesses

According to the findings of the 2015 M&A Trends Report, the robust pace of mergers and acquisitions is expected to continue across the board this year, in private and public businesses, in multiple industry sectors, in companies and private equity firms large, small, and in between.

Successful mergers and acquisitions are designed that way

May 28, 2015

A guest post by Tom McGee, National Managing Partner, M&A Services, Deloitte LLP

According to the findings of the 2015 M&A Trends Report, the robust pace of mergers and acquisitions is expected to continue across the board this year, in private and public businesses, in multiple industry sectors, in companies and private equity firms large, small, and in between. Successful deals typically require a well thought-out strategy, as well as due diligence that covers both financial and operational aspects of the combined entities. Integration is where companies have the opportunity to convert M&A potential into actual value, and often it determines the long-term viability of a deal.

Over the past two years, Deloitte’s M&A Trends Reports have revealed that nine out of ten corporate executives feel at least some portion of past deals failed to generate the expected return on investment. And over half cite failure to integrate effectively as a top area of concern in pursuing a deal.

Intrigued by these results, we dug deeper into the challenges and opportunities presented by merger integration. Deloitte’s Post-merger integration report 2015, surveyed more than 800 US executives across industries that had either recently engaged in M&A or were planning to do so soon. The results show that the deals that succeed are the ones best able to overcome the post-merger challenges.

Specifically, these four best practices can help a company extract the most value from a merger or acquisition.

  1. A formal plan with defined synergy targets: The goal of capturing synergies is to create value—by improving operating margins, enhancing the balance sheet or rewarding shareholders. It’s difficult to capture synergies if you haven’t first defined your expectations for them.
  2. A dedicated team: Identifying a dedicated integration team of individuals from across functions and from both organizations can help create post-merger integration plans that will benefit both organizations without leaving anyone in the lurch. In fact, integration teams were cited by survey respondents as pivotal to the overall success of the deal.
  3. Accountability and measurement criteria: According to the survey, 10 percent of executives reported they didn’t even know whether or not their synergy targets were achieved. Successful acquirers create effective measurement criteria as part of their post-merger plans. These metrics make it easy to track results and keep companies focused and accountable over the long term.
  4. Communications approach for internal and external stakeholders: You’ve heard it before—communication is key. A focus on clarifying the rationale behind the deal and maintaining transparency with teams throughout the integration period can help align cultures as well. Communications with customers and other external stakeholders should focus on ensuring that any merger or acquisition will enhance and not disrupt the level of service to which they’ve grown accustomed.

With the economy growing and plenty of capital available to fund deals, the pace of acquisitions in the middle market is unlikely to cool anytime soon. Yet without effective post-merger integration, deals can lead to conflict, confusion and perhaps even dissolution after months of hard work. Following these four practices can help provide private companies with yet another path to sustained growth.

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