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A new report from The Boston Consulting Group (BCG) claims that one of the main reasons why more than half of all mergers and acquisitions fail to create shareholder value is that acquirers tend to treat postmerger integration (PMI) as a mechanical process that occurs after the deal is done.
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| Consulting-Times E-zine
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BCG highlights key ingredients for successfully integrating companies
"Although a PMI has to be systematically and rigorously controlled at the implementation stage, it is the strategic and tactical choices that are made before the deal is legally closed-and often before the bid has even been made-that ultimately determine whether the integration will succeed or fail," write the authors of the report, Powering Up for PMI: Making the Right Strategic Choices.
The report, the first in a series on PMI, highlights several make-or-break decisions and steps that need to be taken in advance. One of the most critical is establishing the 'strategic pulse' of the integration. "Different types of M&A; require different approaches," says Peter Strüven, one of the authors and a senior partner and managing director of BCG's Munich Office. "In a consolidation merger, for example, integration has to be rapid and top-down with an aggressive timeline. If the lion's share of the cost synergies is not realized within 12 to 24 months, the integration is unlikely to succeed. Growth mergers require a more gradual, arm's-length approach, with the target treated much more as an equal."
"As deals get larger and larger-since 2002, the average size of an M&A; has doubled to nearly $110 million-the importance of making the right pre-PMI decisions is even more critical," adds Strüven.
Establishing a clean team to assess commercially sensitive information and draw up a provisional PMI game plan ahead of the deal's completion is also recommended. Other key issues discussed in the report include techniques to retain star employees and ways to gauge the emotional temperature in a merger and communicate more effectively. Using informal networkers-stalwarts of the water cooler-to provide grassroots feedback through special electronic mailboxes is just one suggestion.
"Our goal in this new series of reports on PMI is not to provide a technical manual-there are more than enough of such guides," says Strüven. "Instead, our objective, based on more than 15 years of experience in this field, is to highlight the main strategic and tactical issues that need to be considered, including potential pitfalls and the subtle nuances that can spell the difference between value-creating and value-destroying deals."
Copies of Powering Up for PMI: Making the Right Strategic Choices can be downloaded from www.bcg.com. BCG's next PMI report will deal with specific functions, such as R&D;, IT, and procurement, as well as particular industries.
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