Buying outside your core to get growth - what do you do to deliver deal value?

23 May 2017

By Erika Schraner and Andrew Howard

Companies are seeking growth outside their core through over 50% of their M&A deals. That’s a radical shift from 2010 when less than 30% of deals were transformative (see PwC’s M&A Integration Survey). Yet, are companies ready for these different types of deals? It is well known that these acquisitions are the hardest to integrate and sometimes, the question is how much to integrate and when.

Each target is unique with its own specific history, rituals and procedures and each negotiation between buyer and seller takes a unique path. It is therefore vital that deals have their own strategies including an integration strategy. And while there is no one size fits all in deals, having a clear and fit for purpose integration strategy is a necessary foundation for success.  We developed an integration strategy framework (as shown in the matrix below) that encapsulated the different integration strategies for different deal types to guide companies in developing the right integration strategy and help aligned the executive team around it.

Deal Talk 3

The two-axis consider first the relative acquisition size compared to the buyer and second its economic distance from the purchasers core business. Assessing where an acquisition fit on the framework helps to prioritise what is pivotal for the success of the integration and creates a clear perspective for the ensuing discussions. A strong articulated strategy can also help shorten the time it takes to achieve leadership alignment on the combined operating model and create a compass through deal value delivery.

PwC’s M&A Integration Survey also revealed a substantial shift in senior leadership involvement.  Leadership is critical to making the more complex integration happen, and with the bar for achieving M&A deal value so high, C-suite executives are increasingly accountable for the success. There has been a large swing in just 6 years with 63% of survey respondents in 2016 having tied CEO compensation to achievement of M&A goals, up from just 28% in 2010.

Deal Talk 2

Our experience shows that companies often lose integration momentum between 6 to 12 months after transaction close. This can be simply down to a lack of discipline and robust integration processes to manage the long haul. The excitement of the chase is enthralling and creates its own energy source, completing the integration requires resilience and buoyancy, so linking Executive incentives should help the leadership stay focused for the long haul and delivery all of the deal value.

As companies do more deals and become serial acquirers the likelihood is it will lead towards a transformational arena where the complexity rises and success increasingly depends on strong coordinated leadership over the entire integration process. An integration strategy will be key, so do not be tempted to do the same as last time because it worked, this is not a one size fits all problem.

Our full 2017 M&A Integration Survey can be found here.

To discuss more about the issues raised, please share your thoughts below or schedule a meeting here to discuss your situation in confidence.

 

Erika Schraner |  Partner, UK Leader for M&A Integration
Profile | Email |  +44 (0)7738 845284

 

More articles by Erika Schraner

Andrew Howard |  Senior Manager
Profile | Email |  +44 (0)20 7212 6135

 

More articles by Andrew Howard

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