Tech, media and telecom (TMT) companies aim high on major acquisitions, which frequently command high valuations. But most don’t fully meet their post-acquisition goals of increasing market share, accessing new markets and achieving revenue and cost synergies.
PwC’s 2020 M&A Integration Survey, combined with PwC analysis, highlights key obstacles that dealmakers face while also indicating a path forward: measures to supercharge go-to-market payoff; boost innovation; retain talent; and create a structured program to capture synergies, improve change management and align cultures.
In our survey, TMT dealmakers told us their primary goals focus on increasing revenue. It comes as no surprise that TMT is ahead of other sectors in achieving the goal of access to new technologies (51% versus 35% for all sectors). However, growth in market share tops the list of objectives, with 84% citing it as crucial. Yet only 13% report completely achieving this goal.
Other survey results further reveal unmet expectations. While TMT exceeds other industries at capturing revenue synergies, only 22% of TMT companies report “very favorable” results. Meanwhile, only 11% report “very favorable” results for capturing cost synergies, in line with the overall market. Considering how many TMT deals have aimed at combining products, content and platforms to achieve revenue and cost synergies, these results can be frustrating for dealmakers.
Why do so many TMT deals appear unable to fulfill their full potential? A look at the role of employees hints at areas where change management may be falling short.
In an industry where the battle for talent is intense — and often a major motivation for an acquisition — these are metrics ripe for improvement.
Our analysis finds that successful M&A integrations have an element in common: a well-thought out plan to span the acquisition value bridge to achieve acquisition goals. The value bridge begins with financial diligence to anchor the entry baseline. It achieves significant value through revenue synergies and innovation acceleration. And it scales up new business processes and integrates general and administrative activities for further benefits.
1. Anchor the entry baseline
Perform financial due diligence with a purpose — to truly understand the target company’s performance. Adjust its baseline EBITDA in line with a rigorous analysis of a wide range of historical and leading indicators. With this nuanced understanding of company performance as your foundation, you can start to layer on value creation levers: revenue synergies, new product solutions and cost synergies.
2. Reevaluate tax structures and funds flows
Post deal, many TMT companies have opportunities to create a more tax efficient structure for the new organization. The optimal locations for intellectual property and related transfer pricing arrangements, for example, may well have changed. Consider expected post-deal funds flows, accounting for the location of the combined company’s employees, customers and vendors. Assess the resulting net working capital requirements to help plan for local financing needs as well as currency impacts, both today and in the future.
3. Boost revenue and go-to-market synergies
Exploit go-to-market integration to drive value creation: cross-sell, up-sell and create new bundles of solutions and products. Identify opportunities for the different brands, salesforce capacities, channel programs and global footprints to create and seize new opportunities. Assess pricing practices, consider more holistic solutions for your users and customers. Avoid leakage and cannibalized sales with careful management of discount processes across the organization.
4. Empower talent to accelerate innovation
To create new, potentially disruptive solutions, talent must collaborate in new ways and challenge existing product roadmaps. You’ll need a strong market vision and the ability to make culture work for you. Culture may seem intangible, but it’s not. Your new, combined organization should identify, quantify and align culture’s five key components: leadership, teamwork, autonomy, adaptability and employee experience. Early in the process, artificial intelligence (AI) tools can help. They can analyze thousands of employee records (such as posts on business and recruitment social media) to help you understand what your employees want from culture — while also protecting their privacy. Along with new compensation structures as needed, getting culture right will can be critical to retaining and empowering key talent.
5. Rationalize G&A costs with execution rigor
To achieve and scale post-deal cost synergies, you will likely need targets, metrics and monitoring capabilities — but many TMT companies lack a formal program to monitor performance post-deal. More than 40%, for example, are not tracking cost savings. Nearly a third are not tracking integration costs. And many of those who track these measures are not doing so rigorously and with an eye to scaling up best practices. Avoid these pitfalls by setting benchmarks early. Work out a step-by-step path to your goals and monitor results for at least two years after the deal. Digital workbenches can help you identify impacts, create plans for change and track progress.
M&A integration is always challenging, especially in TMT, where the pace of change requires leadership to balance long-term vision with day-to-day flexibility. The steps outlined above can help TMT dealmakers reach this balance and achieve some of their most important M&A integration objectives.
Deals Principal, PwC US
Deals Partner, PwC US