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M&A Integration article in Accountancy Ireland

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1) While mergers and acquisitions are growing, many fail due to companies underestimating the challenges of integration. Management often focuses on the transaction rather than integration, and cultural differences are commonly overlooked. 2) Effective integration requires a holistic strategy that addresses financial, strategic, cultural, and organizational fit. It is important to analyze culture during due diligence to identify potential issues. 3) Having a clear post-merger vision and objectives helps reduce integration time and ensures synergies are realized. Technology integration also requires planning to consolidate systems and ensure customer needs are met.

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20 m&A INtEgRAtIoN AccouNtANcy IRELAND DEcEmbER 2015 VoL.47 No.6 or most organisations,the past eight years have centred around cash-flow and survival.Now,the tide is slowly beginning to turn and organisations in certain sectors are re-focusing on growth, expansion and succession planning.Mergers and acquisitions (M&As) are therefore back on the boardroom agenda. While M&A activity is growing steadily, failure is surprisingly common. As a large number of organisations will complete just one or two acquisitions in their lifetime, management may have limited or no experience of the M&A process.Management teams often believe that they can plan and manage the M&A process themselves but due to a lack of experience and resources,they can make poor integration decisions as a result. This causes a lot of relationships to disintegrate and acquisitions to fail. Organisations also often assume that, once the acquisition is complete, the benefits will automatically follow.This is not the case as just one third of all M&A integration projects achieve their objectives. Other typical reasons for failure include: losing key customers and talent; overestimating potential synergies; underestimating cultural differences;allocating insufficient resources and budget to the integration process; knowledge gaps, which can be driven by confidentiality issues; and failure to properly analyse market and competition reaction to the M&A. While carrying out a merger or acquisition, the running of the existing organisation can take a back seat.Management teams often choose to focus their time and energy on completing the transaction and dealing with the process of integration planning, implementation and subsequent integration problems.These issues can be stressful, complex and time-consuming for already busy executives,hence the high failure rates.Study after study has shown that much time and money is spent analysing and negotiating with targets in the pre-acquisition stage.The most important factor in successful M&A activity,however,is effective integration into the parent organisation – something that is often neglected until it’s too late. key suCCess faCtors Research has shown that 80 per cent of organisations with a properly planned,aligned and executed integration strategy ultimately achieve integration success.A clear pre- and post-M&A strategy will deliver significantly higher long-term value,while a well-executed integration process can generate a competitive advantage.To achieve a competitive advantage, organisations must develop a holistic structured approach to integration planning that provides clear goals and objectives for candidate selection, negotiation and integration. While a holistic approach is required, the pre-acquisition analysis stage typically focuses on the financial and strategic fit of the target organisation with little or no attention paid to the two issues that cause the better together? Now mergers and acquisitions are back on the corporate agenda, executive teams need to pay close attention to integration management if a deal’s full value is to be captured,writes Dr Nicholas Ingle. F 103409_ACCOUNTANCY_IRELAND_December 2015 23/11/2015 09:23 Page 20
m&A INtEgRAtIoN AccouNtANcy IRELAND DEcEmbER 2015 VoL.47 No.6 21 diligence process,prioritise the cultural issues that could put synergy realisation at risk. assessmeNttools Organisations can choose from a broad spectrum of cultural assessment tools and techniques,which range from very simplistic checks to detailed analysis techniques. An example of a simple early-stage check is to ask your executive team and trusted advisors to use three adjectives to describe your organisation and potential target organisation’s culture.Using this technique,you can identify potential opportunities and problems quickly. As the deal progresses, determining the degree of post-acquisition integration required depends on two primary cultural variables – the level of integration required (i.e. standalone, partial, or full) and the organisational culture types being merged.The following simple organisational culture assessment will help identify the culture types being merged at an early stage: Power culture: typically autocratic and power-centred, with an emphasis on individual decision-making.This organisation is suppressive towards challenge. role culture: typically bureaucratic and hierarchical with an emphasis on formal regulations and rules.This organisation values efficiency and standardised customer service. task culture: focuses on team working and commitment.There is a degree of flexibility “80 pER cENt of oRgANIsAtIoNs wIth A pRopERLy pLANNED,ALIgNED AND ExEcutED INtEgRAtIoN stRAtEgy uLtImAtELy AchIEVE INtEgRAtIoN succEss. ” majority of integration problems – cultural and organisational fit. That said,integration is a balancing act that occurs over the lifecycle of the M&A process. While parent organisations will want to preserve what is unique and successful about the acquired firm, they will also wish to leverage their own capabilities.To do both successfully, organisations must incorporate financial,strategic,cultural and organisational integration tasks. Aligning financial and strategic elements throughout the M&A process is critical to success but in a professional practice merger, real value will only be realised if cultural and organisational integration is included.Yet, poor cultural integration is the number one reason why M&As fail. Myriad reasons for such failures have been identified: management may not get the opportunity to analyse culture in the pre-acquisition stage;they may not have the necessary expertise in-house to complete the integration process successfully; and they simply might not want to analyse the culture. Cultural issues don’t go away,however,and in reality cultural clashes are common in the M&A process as organisations often do things in fundamentally different ways.This creates frustration and anxiety among staff while trust, which is critical to success,slowly erodes.The result is demoralisation followed by a decrease in productivity, which in turn prevents the realisation of synergies. In the worst case scenario,organisations could face an exodus of key talent from the organisation and dissatisfaction among – or loss of – key customers. At this point, the value of the merger or acquisition is at risk. Cultural integration clearly isn’t something that can wait until after the deal is done. It needs to be at the fore of executives’thoughts and the acquiring organisation needs to look at every aspect of its operation,assess its own culture and determine the vision for the combined organisation. In doing so, the organisation will be in a position to better identify suitable candidates and, in the due and employee autonomy,and this organisation fosters a creative environment. Person culture: the emphasis is on the individual, and personal development is encouraged. By categorising the organisations involved using this culture assessment matrix, management teams will be able to identify potential cultural clashes and opportunities at a glance.This information can then be used to set the integration agenda in accordance with their vision for the integration but be warned, detailed cultural analysis is critical to success. thiNk aboutteChNology Having a strategic IT capability can lead to a competitive advantage and a critical post- merger objective may be the smooth transition to a chosen IT platform.IT might also play a critical role in a broader range of deliverables including the successful conclusion of the merger or acquisition;the delivery of value;the realisation of synergies; and responding to changes in customers’ needs.The ongoing integration challenge for IT is to identify how much can be saved by consolidating systems,data and staff. If you are a professional firm engaged in a single merger or acquisition, pick the best system from both firms, identify any desired additional functionality and note it for implementation at a later date. key obJeCtives The key to M&A success is to adopt a holistic approach to integration. By creating a clear vision and strategy supported by a set of aligned strategic, financial, cultural and organisational objectives, organisations will reduce integration delivery time, realise synergies,prevent value leakage and create a competitive advantage. Dr Nicholas Ingle is CEO at SMARTT Partners,an M&A integration management consultancy. Dr Nicholas Ingle is CEO at SMARTT Partners,an M&A integration management consultancy. 103409_ACCOUNTANCY_IRELAND_December 2015 23/11/2015 09:23 Page 21

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M&A Integration article in Accountancy Ireland

  • 1. 20 m&A INtEgRAtIoN AccouNtANcy IRELAND DEcEmbER 2015 VoL.47 No.6 or most organisations,the past eight years have centred around cash-flow and survival.Now,the tide is slowly beginning to turn and organisations in certain sectors are re-focusing on growth, expansion and succession planning.Mergers and acquisitions (M&As) are therefore back on the boardroom agenda. While M&A activity is growing steadily, failure is surprisingly common. As a large number of organisations will complete just one or two acquisitions in their lifetime, management may have limited or no experience of the M&A process.Management teams often believe that they can plan and manage the M&A process themselves but due to a lack of experience and resources,they can make poor integration decisions as a result. This causes a lot of relationships to disintegrate and acquisitions to fail. Organisations also often assume that, once the acquisition is complete, the benefits will automatically follow.This is not the case as just one third of all M&A integration projects achieve their objectives. Other typical reasons for failure include: losing key customers and talent; overestimating potential synergies; underestimating cultural differences;allocating insufficient resources and budget to the integration process; knowledge gaps, which can be driven by confidentiality issues; and failure to properly analyse market and competition reaction to the M&A. While carrying out a merger or acquisition, the running of the existing organisation can take a back seat.Management teams often choose to focus their time and energy on completing the transaction and dealing with the process of integration planning, implementation and subsequent integration problems.These issues can be stressful, complex and time-consuming for already busy executives,hence the high failure rates.Study after study has shown that much time and money is spent analysing and negotiating with targets in the pre-acquisition stage.The most important factor in successful M&A activity,however,is effective integration into the parent organisation – something that is often neglected until it’s too late. key suCCess faCtors Research has shown that 80 per cent of organisations with a properly planned,aligned and executed integration strategy ultimately achieve integration success.A clear pre- and post-M&A strategy will deliver significantly higher long-term value,while a well-executed integration process can generate a competitive advantage.To achieve a competitive advantage, organisations must develop a holistic structured approach to integration planning that provides clear goals and objectives for candidate selection, negotiation and integration. While a holistic approach is required, the pre-acquisition analysis stage typically focuses on the financial and strategic fit of the target organisation with little or no attention paid to the two issues that cause the better together? Now mergers and acquisitions are back on the corporate agenda, executive teams need to pay close attention to integration management if a deal’s full value is to be captured,writes Dr Nicholas Ingle. F 103409_ACCOUNTANCY_IRELAND_December 2015 23/11/2015 09:23 Page 20
  • 2. m&A INtEgRAtIoN AccouNtANcy IRELAND DEcEmbER 2015 VoL.47 No.6 21 diligence process,prioritise the cultural issues that could put synergy realisation at risk. assessmeNttools Organisations can choose from a broad spectrum of cultural assessment tools and techniques,which range from very simplistic checks to detailed analysis techniques. An example of a simple early-stage check is to ask your executive team and trusted advisors to use three adjectives to describe your organisation and potential target organisation’s culture.Using this technique,you can identify potential opportunities and problems quickly. As the deal progresses, determining the degree of post-acquisition integration required depends on two primary cultural variables – the level of integration required (i.e. standalone, partial, or full) and the organisational culture types being merged.The following simple organisational culture assessment will help identify the culture types being merged at an early stage: Power culture: typically autocratic and power-centred, with an emphasis on individual decision-making.This organisation is suppressive towards challenge. role culture: typically bureaucratic and hierarchical with an emphasis on formal regulations and rules.This organisation values efficiency and standardised customer service. task culture: focuses on team working and commitment.There is a degree of flexibility “80 pER cENt of oRgANIsAtIoNs wIth A pRopERLy pLANNED,ALIgNED AND ExEcutED INtEgRAtIoN stRAtEgy uLtImAtELy AchIEVE INtEgRAtIoN succEss. ” majority of integration problems – cultural and organisational fit. That said,integration is a balancing act that occurs over the lifecycle of the M&A process. While parent organisations will want to preserve what is unique and successful about the acquired firm, they will also wish to leverage their own capabilities.To do both successfully, organisations must incorporate financial,strategic,cultural and organisational integration tasks. Aligning financial and strategic elements throughout the M&A process is critical to success but in a professional practice merger, real value will only be realised if cultural and organisational integration is included.Yet, poor cultural integration is the number one reason why M&As fail. Myriad reasons for such failures have been identified: management may not get the opportunity to analyse culture in the pre-acquisition stage;they may not have the necessary expertise in-house to complete the integration process successfully; and they simply might not want to analyse the culture. Cultural issues don’t go away,however,and in reality cultural clashes are common in the M&A process as organisations often do things in fundamentally different ways.This creates frustration and anxiety among staff while trust, which is critical to success,slowly erodes.The result is demoralisation followed by a decrease in productivity, which in turn prevents the realisation of synergies. In the worst case scenario,organisations could face an exodus of key talent from the organisation and dissatisfaction among – or loss of – key customers. At this point, the value of the merger or acquisition is at risk. Cultural integration clearly isn’t something that can wait until after the deal is done. It needs to be at the fore of executives’thoughts and the acquiring organisation needs to look at every aspect of its operation,assess its own culture and determine the vision for the combined organisation. In doing so, the organisation will be in a position to better identify suitable candidates and, in the due and employee autonomy,and this organisation fosters a creative environment. Person culture: the emphasis is on the individual, and personal development is encouraged. By categorising the organisations involved using this culture assessment matrix, management teams will be able to identify potential cultural clashes and opportunities at a glance.This information can then be used to set the integration agenda in accordance with their vision for the integration but be warned, detailed cultural analysis is critical to success. thiNk aboutteChNology Having a strategic IT capability can lead to a competitive advantage and a critical post- merger objective may be the smooth transition to a chosen IT platform.IT might also play a critical role in a broader range of deliverables including the successful conclusion of the merger or acquisition;the delivery of value;the realisation of synergies; and responding to changes in customers’ needs.The ongoing integration challenge for IT is to identify how much can be saved by consolidating systems,data and staff. If you are a professional firm engaged in a single merger or acquisition, pick the best system from both firms, identify any desired additional functionality and note it for implementation at a later date. key obJeCtives The key to M&A success is to adopt a holistic approach to integration. By creating a clear vision and strategy supported by a set of aligned strategic, financial, cultural and organisational objectives, organisations will reduce integration delivery time, realise synergies,prevent value leakage and create a competitive advantage. Dr Nicholas Ingle is CEO at SMARTT Partners,an M&A integration management consultancy. Dr Nicholas Ingle is CEO at SMARTT Partners,an M&A integration management consultancy. 103409_ACCOUNTANCY_IRELAND_December 2015 23/11/2015 09:23 Page 21