Post-merger integration success in Tech, Media & Telecom

Why many deals fail

M&A remains a popular strategy for TMT companies trying to keep pace with technological innovation. And while the reasoning behind many acquisitions may be sound, they are often doomed from the start. In a 2016 study of tech, media, and telecom executives, 92 percent of respondents across the sector reported that a recent acquisition fell short of expectations.¹

Failed acquisitions typically have one or both of these factors² in common:

• Management didn’t understand the value drivers for generating Return on Investment (RoI)

• Inadequate planning for post-merger integration
  

To avoid these pitfalls and maximize value from acquisitions, executives need to begin the tech, media, and telecom M&A lifecycle with an end goal in mind.

In this paper, we look at two types of deals and examine the challenges they pose and the ingredients for success.

• “Tech and talent” acquisitions
• Strategic acquisitions of larger firms

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Integrating larger acquisitions

As opposed to tech-and-talent deals, acquisitions of larger firms—including unicorns—are much more strategic in nature. In these deals, the acquired organization continues to operate rather than being dissolved. Eventually, however, the acquirer will need to decide whether it’s best to integrate the acquiree (entirely or partially) or allow it to operate autonomously.

Tech, media, and telecom M&A deals involving unicorns present a few immediate challenges:

• Lofty growth expectations
• Homogenous vision
• Unfamiliar business models

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Post-merger integration operating models

Two factors can help TMT companies determine how best to integrate an acquired company: Size parity and business model similarity.

Whatever integration model is adopted, it must be based on a realistic assessment of the company’s circumstances. True transformation requires enormous effort, focus, and fortitude.

References

¹ John Harrison, Axel Majert, Ken Welter, and Clarence Mitchell, “Merger Integration in a Converging World,” EYGM Limited, 2017. Interestingly, these estimates differ significantly with responses in the recent Deloitte survey, where only 1 in 10 respondents said that more than half their deals did not deliver the return on investment they had anticipated. In Deloitte’s 2016 survey, 40 percent said more than half their deals did not deliver.

² Note: In Deloitte’s recent report, “State of the Deal: M&A Trends 2018,” survey respondents cited effective integration, accurate valuation, and economic certainty as the three most important factors for a deal’s success. Other key influences were a stable regulatory environment, proper target identification, change management, the quality and timeliness of data, and capturing synergies.

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