“Show me the money!” This demand, often echoing in boardrooms, might sound like a rallying cry for most mergers. However, maximising deal value demands more than a catchy slogan; it necessitates embracing five distinctive beliefs.
Look Beyond Due Diligence: Unveiling Unseen Value
The due diligence phase is vital, yet it often falls short of uncovering hidden potential post-merger. To truly maximise merger benefits, companies must move beyond due diligence’s confines. Shifting from mere validation to proactive exploration, they can discover untapped synergies — operational, technological, and market-related, that are often overlooked during pre-merger assessments. For instance, shared technology platforms, complementary distribution networks, or combined R&D capabilities can significantly amplify value creation.
Key Insight – Open the crevice to boost integration value.
No Indifferent Treatment to Revenue and Capital synergies
Senior management often focuses solely on cost synergies during merger integrations. While cost synergies are imperative for immediate bottom-line impact, it’s critical to develop a holistic synergy plan. Revenue and capital synergies can be extremely important for specific industries, for example, in growth sectors such as pharma, e-commerce, etc. A comprehensive approach to synergies strengthens the merger’s foundation, ensuring it aligns with the overarching strategic objectives of both entities.
Key Insight: Trace the most critical value levers, recognising that revenue and capital synergies may deliver more worth than cost synergies.
Achieve a LOT in the First 12 Months Post the Merger
The initial year shapes a merger’s trajectory, impacting immediate performance and long-term objectives. Early value capture establishes the groundwork for sustained success. Effective momentum in this period often correlates with prolonged success and increased shareholder returns. Conversely, delays in synergy realisation lead to integration hurdles and missed growth opportunities.
Key Insight: Achieve 30% of the value-capture in the first six months post the merger announcement and don’t lose momentum.
Chalk Out a Clear IT Blueprint
In every merger or acquisition, companies integrating their IT systems face two conflicting needs. The business wants to start cross-selling the products and services as quickly as possible to increase revenues. IT, taking a longer-term view, wants to invest time and effort in integrating the combined organisation’s systems effectively. Both goals are critical to merger success and the sooner they happen, the quicker IT can begin generating incremental value for the new business.
The first step in a successful merger of organisations, often overlooked, is to determine IT’s role in supporting the deal thesis. This important decision clarifies the business value that IT will contribute to the merger. With the business integration goals clear, the team can decide on the platform that best equips the company for future success, be it using one company’s systems, employing a hybrid mix of both or continuing to run each company’s systems independently. With that decision made, others about infrastructure, organisation, suppliers and outsourcing become easier to make.
Key Insight: Teams should have a clear idea of the combined company’s IT integration goals and platform landscape in the first 30 days. At the end of three months, they should know the shape and makeup.
Prevent Your Key Talent and Invaluable Assets from Sailing Away
Partner, Deal Value Creation,
BDO India
During mergers and acquisitions, employee retention becomes pivotal to preserving intellectual capital and client relationships. Despite the allure of such deals, employees often perceive these changes as threatening due to uncertainties about the future, loss of organisational culture, and job security concerns, leading to a potential turnover. To counteract this, offering financial incentives is a common tactic, but in isolation, it fails to rebuild long-term trust. Organisational and managerial support play crucial roles in fostering commitment and trust. Organisations should focus on reducing uncertainty through credible leadership, driving transparent communication, and sustaining professional development opportunities. Managers need to support employees by monitoring workloads, holding regular one-on-one meetings, and implementing effective performance management. These measures contribute significantly to retaining employees and safeguarding the intellectual assets essential for a successful merger or acquisition.
Key Insight: During mergers, ensure credible leadership, transparent communication, and managerial support for retaining employees.
