Accelerate the M&A transition to create more value

21 August, 2018

Gregg Nahass
US and Global M&A Integration Leader, PwC US

When integrating a deal, speed clearly makes a difference. There is little value in a prolonged transition. Many companies have underperformed on the justified price and expectations set for the deal. Disappointing operating results and returns that rarely exceed the cost of capital are common. Numerous academic studies have found that most acquisitions destroy, rather than create, shareholder value. Many companies fail to recapture pre-acquisition performance levels despite valiant efforts to increase revenue, reduce expenses, and divest underperforming assets.

Execution is critical. Deals seldom fail because they are strategically invalid. Rather, failure is commonly a result of poor integration execution. In today’s world of sophisticated strategic and financial buyers, justifying the premiums needed to successfully close a deal depends on swiftly and efficiently capturing deal synergies. Speed is vital. So is focus on decisive objectives – actions that can quickly create shareholder value.

Ruthless prioritization builds early momentum

An accelerated transition speeds that value capture by ruthlessly prioritizing the pre- and post-deal actions that will deliver the fastest and greatest returns with a better chance of success. It builds early momentum by simultaneously launching small, fast-paced transition teams that sort out the timing, costs, and interdependencies of the top pre- and post-deal priorities. This is reinforced with high-stakes, self-funding incentives tied to economic value creation.

Don’t just take our word for it. Beginning in 1997, PwC began surveying companies that had recently undertaken a merger or acquisition. Over the past two decades, companies have launched the integration team into action earlier and earlier in the deal process. In 2013, only 21% of integration teams were involved during deal screening. Just three years later, that percentage rose to almost 32%. This accelerating trend helps explain the financial and operational improvements that organizations are reporting in many areas. As shown on the chart below, those companies that executed a rapid transition experienced more favorable financial results and fewer post-deal difficulties than slow-moving companies.

As many aspects of integration evolve into more science than art, here are the things you can do to help accelerate the transition and stabilize your company that can reduce business disruptions or downturns in performance:

  • Build early momentum toward the business opportunities that drove the decision to execute the transaction or other restructuring
  • Allocate resources, such as management, time, and capital, to the 20% of business and organizational actions most likely to generate 80% of the economic value with the greatest probability of success and in the shortest timeframe
  • Remove politics and personality from organization design and deployment
  • Stabilize the company by ensuring key stakeholders, employees, customers, vendors, and suppliers fully understand the necessary changes
  • Expedite behavior-based culture change consistent with the business strategy and economic value drivers
  • Implement high-stakes, self-funding, multi-year, value creation incentive plans that drive sustained creation of shareholder value

The Accelerated Transition® helps to stabilize the company and reduces distraction and disruption so key stakeholders can fully understand, support, and accept the necessary changes and their roles in accomplishing them. Through the application of proven processes and proprietary systems, organizational interrelationships can be rapidly defined, and managers quickly evaluated and deployed to capture early value.