Paul J. Siegenthaler

Dealing with the lack of Resources and Experience

The high failure rate of M&As has not shown any marked signs of improvement over the past thirty years. How can this be ?

Not already been there ...

With the exception of companies whose growth strategy is heavily reliant on serial acquisitions, in most mid-size or smaller companies a merger or major acquisition is a once in a lifetime event, so it is no surprise that the leadership teams of those businesses have little or no prior experience of managing a post-acquisition integration or an orderly merger.

We are all familiar with the notorious claims that 50% to 80% of all mergers and acquisitions fail to achieve the outcome upon which their business case was based. The initial studies on the effectiveness of M&As date back to the 1980’s, and yet a study published by KPMG in 1999 based on a survey of 107 cross-border M&A transactions completed between 1996 and 1998 concluded that a staggering 83% had not succeeded in creating shareholder value. So it seems that the business community is not becoming any wiser.

Business as “unusual”

Conversations with business leaders and private equity portfolio managers repeatedly reinforce my observation that most people seriously underestimate the complexity and challenges that need to be overcome to achieve a successful Post Merger Integration. I have often been told “that’s the boss’s job”. Of course the person at the top of the organisation must be seen as the leader and key sponsor of the integration effort, but is it reasonable to expect that individual to be personally involved in the running of two somewhat destabilised businesses as well as managing the myriad of facets and issues that need to be considered and resolved within the course of the business integration?

Acknowledging that days only last 24 hours and business leaders only have one brain, additional resources are called in to provide advice and support, to guide the company along its PMI journey, or at least its early phases. This is the role of advisors, consultants and other subject matter experts. And in spite of this support and the huge capital of knowledge and experience provided by the advisors and consultants, the majority of M&As still fail to deliver their promise. As it is reasonable to assume that the advisors and consultants are of the appropriate calibre, the causes of the failures are to be found within the Client company.

The jigsaw does not simply fall into place …

For a start, many Clients will feel that their advisors’ recommendations regarding the level of resources needed to achieve a successful PMI are a “hard sell” and an attempt to charge astronomical fees when in fact integrating two businesses is a simple affair - or so they think. Beyond a Client’s understandable efforts to contain the costs of external professional advice, the lack of internal resources seconded to the integration programme is one of the root causes of PMI failures, another being the lack of an experienced senior executive within the Client’s leadership team with whom the external advisors and consultants can interface effectively.

Companies which have accumulated repeated experience of M&As achieve successful PMIs with a high level of consistency, precisely because compared to first-timers they have a better feel for the level of resources, the amount of planning and preparation, the crystal clear governance and the realistic amount external support which will lead to a successful implementation. They also understand the cross-functional nature of PMI and the need at top of the programme management structure within the company for an individual - let’s call him or her the Integration Director - who can see beyond the confines of functional silos, understands how to manage and arbitrate interdependencies, organises the integration activity in a way that will minimize the disruption caused to the day-to-day business, and work effectively with the external advisors and consultants in making best use of their specialist knowledge to realize the business case of the merger or acquisition.

Unless they have already integrated a few significant acquisitions, mid-size companies (FTSE-250 or smaller) are unlikely within their ranks to have an individual with the experience and capabilities that are required of an effective Integration Director. And unless repeated acquisitions form a core part of the company’s growth strategy, there is no sense in hiring such an individual for a single PMI. In that case, the best solution is to get a very senior interim executive on board, who has repeated experience of PMI in a variety of industry sectors, whose role will be to drive the planning, preparation and implementation of the integration programme, acting on behalf of the Client company as the primary interface between the business and its external advisors.

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