March 14, 2017 – PwC today released its tri-annual M&A Integration Survey, now in its 20th year, which has tracked the integration strengths and weaknesses of public-company M&A since 1997.
With increasingly diverse and multigenerational workforces, and most industries undergoing some form of digital disruption, today’s business leaders find it more prudent to buy than to build talent and capabilities they need to join the ranks of the disruptors. By definition, that means many of today’s deals require integrating a completely different type of organization with capabilities far outside the acquirer’s core.
“Dealmakers are more ambitious than ever before. They’re using M&A not only to improve the bottom line, but to stretch their business, adding new and often unfamiliar capabilities,” said Gregg Nahass, partner in PwC’s Deals practice and author of the study. “Reaching into unknown territory for growth is, of course, riskier than combining organizations that have a lot in common.”
PwC’s 2017 M&A Integration Survey found that companies are getting better at achieving certain goals, but they are still struggling to reach others—namely because their expectations are changing. The report explores the challenges that today’s dealmakers are facing, along with what dealmakers are getting right about integration and where they need to improve.
Companies are achieving greater financial and operational success with their deals, but strategic success is getting harder to come by. Transformational deals continue to increase with over half (54%) of the respondents now reporting these types of deals, which is a direct correlation to the decreasing percentage of respondents who report “strategic success.”
Financial results and synergies captured are improving based on respondents who reported “very favorable” or “favorable” results for profitability, cash flow, revenue capture and cost capture. In addition, the speed of integration has improved with 88% of respondents reporting the time to achieve leadership alignment took six months or less.
Integrating information technology and across functions and geographies continue to be among the most difficult challenges for business leaders to overcome during a deal. People integration also remains a big challenge with less than half (45%) reporting “significant success” in retention and very few reporting favorable results when it comes to employee morale and understanding.
Companies are focusing on integration earlier in the M&A process and shifting integration skill sets to meet their deal needs. Dedicating resources to centralized, cross-functional areas with high complexity can also increase deal success. Executive compensation and incentives are increasingly being tied to deal performance and driving greater deal success. This year’s survey also found that deals tend to perform better with dedicated leadership and personnel.
“Ultimately, success requires leadership to take a coordinated approach to integration, with a focus on fostering a cohesive culture. Early planning, rapid execution, and long-term commitment to integration completion improve the odds that M&A will meet objectives and deliver value,” added Nahass. “After all, if people across the organization aren’t on board with the transaction strategy, integration execution will likely falter.”
In late 2016, PwC surveyed a total of 151 respondents from a sampling of Fortune 1000 companies that had completed mergers or acquisitions in the previous three years.
32% were at the senior executive management level with titles including CEO, President, COO, CFO, CIO, EVP, and SVP
67% were VPs from corporate development, strategy, sales and marketing, operations, IT, finance, and HR
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