Effective Mergers And Acquisitions

By M. Isi Eromosele

At various times in their competitive history, many companies have to grapple with the enormous challenges of integrating acquired companies. Too often, though, success eludes the merged companies.

The cold reality is that 50% of major mergers since 1990 have eroded shareholder returns. Industries such as media, technology, and communications saw a dramatic reduction in shareholder value as a result of difficulties integrating the acquired company.

The success or failure of mergers and acquisitions depends to a great extent on how well a company meets the challenges of post-merger integration, including how it defines the role of specific groups in facilitating a rapid and effective integration.

Even the most straightforward scenarios – a product acquisition, for example, where there is little overlap of applications and infra-structure, present challenges for the acquiring company.

These problems can leach the value from the deal when it is not planned for carefully.

Challenges Of Post-Merger Integration

Although every merger or acquisition has its unique challenges, acquiring companies also face a common set of problems and challenges. And although most organizations intuitively under-stand these issues, even the best companies can underestimate the intricacies involved as they try to address M&A challenges quickly and thoroughly.

These challenges include:

Overestimating Synergies

Without the right data or tools to evaluate and calculate synergies, acquiring companies frequently overestimate the value and timing of the deal. Deal makers often overestimate

potential synergies and underestimate costs created by the deal. As a result, mergers frequently fail to achieve expected revenue synergies.

Customer Loss

Determining which customers are profitable and creating a plan to retain them should be one of the top priorities in a merger. But companies often fail to transition customers to the merged entity. There are lots of reasons why: for example, lack of consistent customer relationship management (CRM) processes; a changed product portfolio or product duplicates; loss of a trusted sales team; and inconsistent pricing, maintenance, and support.

Employee Attrition

When employees leave as a result of a merger, it’s usually the top employees who defect and not the underperformers. One recent study of failed acquisitions found that management attrition rates soared 47% over the three years following the acquisition, with employee satisfaction dropping by 14% and productivity dropping by 50%.4

Other factors hindering an acquiring company’s ability to retain top talent include duplicate or undefined roles, lack of consolidated employee data, and incompatible HR systems.

Supplier Consolidation

The ability to consolidate and synergize supplies from various vendors can reduce costs and add value to the supply chain. Companies that cannot integrate or establish a supplier relationship management (SRM) system quickly are prevented from enjoying the advantages of joint development, marketing, and sales efforts with partners.

Inability to track key performance indicators (KPIs)

Disparate systems and data prevent management from having visibility into the performance of the combined companies.

The ability to analyze KPIs, even when underlying systems are not yet integrated, is essential to assessing the success of a merger or acquisition. By tracking performance, executives can identify problems earlier to keep earnings on track.

Adding Business Value To Mergers

Companies need to assess the existing relationships of shared customers and find ways to retain those customers after the merger or acquisition.

Unified master data and integrated applications ensure that the merged company has insight into profitable top-line customers and can focus on them immediately.

Prospects or target markets - By analyzing customer data to identify size, geographic location, or industry, the acquiring company can assess potential market growth.

Shared vendors - Merging companies need to identify duplicate vendors across various procurement activities to streamline costs and form an efficient merged entity.

Products - By assessing products in a combined portfolio, companies can determine overlap and pricing inconsistencies, identify the impact of redundant or similar products on the customer, and communicate product transition plans to joint customers.

Employees - By assessing roles and responsibilities, companies can pinpoint overlap and work with the HR organization to identify and retain top talent.

It’s critical that employee benefits and compensation continue without interruption and that employees realize quickly that they can rely on the merged entity for day-to-day operational requirements.

Finally, IT organizations should evaluate the overall synergy of IT systems, including the enterprise architecture, hardware, net-works, data stores, technology platforms, business software, and user interfaces.

This enables companies to plan a comprehensive migration path and more accurately estimate overall savings.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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