Success in M&As only comes after the deal

Merger and acquisition (M&A) activities have, in the last three decades, become an important element of growth strategy for many corporations. According to the annual PricewaterhouseCoopers Deal Confidence Survey, more than 71 percent of CEOs rate post-deal integration as being a concern.

For 76 percent of respondents, managing the balance of integration while delivering core business is the toughest challenge, 58 percent see ambitious targets set in acquisition plans as hard to achieve and 56 percent of respondents have problems with understanding of impact of cultural issues on integration. Companies begin to realize that the success of the deal is significantly influenced by postdeal integration efforts. Czech M&A activities have a much shorter history; however, the trends are similar to those in markets abroad.

The Czech M&A market is experiencing a continuous increase in the number of transactions. In 2006, companies closed an increased number of deals on the local as well as international markets, when the Czech business environment attracted 269 disclosed deals and 44 transactions were realized by Czech companies abroad, representing an increase of 11 percent and 76 percent, respectively. The highest number of transactions by Czech companies was realized in Slovakia, Poland and Germany. While deal planning and execution are usually performed satisfactorily, post-deal integration becomes a challenge for many of them, spanning more issues and critical aspects than any other part of a deal. While companies and markets should learn from mistakes made by others, acquirers in both the Czech and international markets mistakenly omit concentrating on several major factors for a successful post-deal integration. Specifically, Czech acquirers are often confronted with the quality of integration planning and appropriate timing. The best approach is to start integration planning at the same time as due diligence execution, meaning just after the target selection. At that time, the acquisition strategy is set and requires a solid justification of the proposed benefits and intended deal. That is why the integration planning should start along with due diligence. However, if integration planning starts much later, sometimes even after signing a purchase agreement, the deal could become more risky and costly than intended.

Approaches to integration Integration issues could arise in any of the crucial areas such as finance, operations and continuity, strategy, human resources or information technology support. However, companies rarely succeed in addressing the issues. In short, there are three approaches for post-deal integration.

* Some companies do almost nothing to prepare for the integration. Once the integration occurs, performance and morale crash, customers leave and competitors take part of the market share.

* Most of companies do something: primarily they establish social contact between the management of the target and the acquirer. Response to rumors is reactive; there are reflexive reactions to problems that arise, and initiatives are unaligned. Middle management starts empire building. * Rarely do corporations start integration planning in advance, set clear direction, or manage uncertainty and risks. Thus they don’t effectively build defenses against predators or establish a robust integration framework supported by an integration project office.

Factors of the successful integration The success of any post-deal integration depends on the speed of integration, sound integration strategy and deal objectives. Other crucial elements are attention to “day one” requirements, communication, leadership and accountability and rigorous change and project management.

Speed is considered to be pivotal, as there is obviously no value in delay, and speed may capture a higher return on deal investment, help exploit postdeal opportunities, reduce organizational uncertainty, and achieve a faster buy-in from the target’s employees.

Integration strategy helps to identify integration priorities and sets the requirements for key integration milestones. Focusing on value drivers is another key requirement for a successful and high-quality post-deal integration. These factors are generally followed by requirements that management needs to meet in order to maximize the benefits of the deal. These needs are closely connected with communication, timely action and culture in the early days of integration. Managers need to pay close attention to the “day one” requirements that need to be quickly identified and tackled; otherwise it takes an excessively longer amount of time to meet them. Especially in the early days of integration, when problems that arise might lengthen the lead times, top managers need to ensure that all key stakeholders are treated properly, key management positions are filled with professionals, and strategy, tactics and daily work plans are clear, and tasks are accomplished on time.

Although M&A activity in the Czech Republic is expanding, acquirers need to keep in mind that speed, quality of integration strategy and value drivers are the major prerequisites, along with culture, communication and leadership factors that need to be dealt with throughout the whole process. If acquirers fulfill these needs, the chance for deal value maximization increases. *