Achieving an M&A’s strategic goals at maximum speed for maximum value

Abstract

When merging two companies, after the deal is signed the CEO faces few challenges more risky than integrating the businesses to capture maximum value. Speed is essential to successful merger integration. But it is not everything. Only 25 to 50 percent of deals create shareholder value. This is often because those managing the integration process do not know how to make trade‐offs between speed and careful planning. To keep the value of merger from evaporating, leaders need to manage the integration process actively and steer a course that leads the new organization to its stated strategic goals as swiftly as possible. Start with the strategic goals – there are two general types of mergers: (1) efficiency deals that “play by the rules” (achieve performance improvement in a merger that will have high functional overlap and high predictability of value); and (2) transformation deals that "transform the rules” (low overlap and low predictable value). Top management needs to articulate the purpose of a deal and its strategic rationale long before the merger is consummated. Four rationales are offered and discussed, the first two rationales apply more to type 1 deals and the second two more to type 2 deals. (1) Merging to capture the benefits of scale. In this type of merger, the longer you take, the more risk you incur. Success depends on very early identifying the key people to lead and removing those who will block the process. (2) Merging to expand into adjacent markets, customers, and/or product segments. The big prize comes from revenue growth. Teams from both sides must work together to develop a new marketing plan for the combined company. (3) Redefining the business for a new direction. As a framework for judgments, consider using these reference goals: focus on leading‐edge customers, make decisions quickly, and look for ways to lead change in the marketplace. (4) Re‐inventing an industry. Two initiatives in parallel are required: typical short‐term objectives (cost reduction, consolidation, divestment, etc.) and long‐term direction objectives for the new business. Details from the AOL Time Warner and the Citigroup merger cases are cited as examples. Several examples taken from Cisco System’s many mergers are cited to illustrate process points and insights.

Citation

Gadiesh, O., Ormiston, C. and Rovit, S. (2003), "Achieving an M&A’s strategic goals at maximum speed for maximum value", Strategy & Leadership, Vol. 31 No. 3, pp. 35-41. https://doi.org/10.1108/10878570310472746