History is littered with disastrous mergers – here’s how to avoid one

Sometimes even the most promising mergers can go awry. History is littered with disastrous corporate marriages, such as the $37 billion (€34 billion) merger between Daimler and Chrysler that left the former selling the latter for just $7 billion nine years later. Microsoft’s $7.2 billion acquisition of Nokia’s mobile phone operation in 2014 was equally ill starred and within two years it was sold off for just $350 million.

“Successful integration of an acquired business is difficult. Significant change is taking place across different groups of people and challenges can emerge across a wide range of areas, and often where you’d least expect them to,” says Paul Tuite, deals leader with PwC Ireland.

“These challenges can include client and talent retention, marketing and rebranding, combining operations, legal and regulatory issues, systems and technology consolidation, as well as bridging cultural differences.”

PwC Ireland corporate finance partner Laura Gilbride notes a recent study carried out by PwC and Mergermarket which pointed to the need for a comprehensive value-creation plan.

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“Ensure a thorough and effective process for conducting the deal with the necessary diligence and rigour in the value-creation planning process across all areas of the business,” she advises. “Consider how each of these support the business model, synergy delivery, operating model and technology plans.

“For acquisitions with significant value lost relative to purchase price, 79 per cent didn’t have an integration strategy in place at signing, 70 per cent didn’t have a synergy plan in place at signing and 63 per cent didn’t have a technology plan in place at signing. Clear and early communication with stakeholders is critical, and dedicated resources are needed for the all-important post-acquisition phase to ensure all the benefits are realised.”

Culture is critical, according to Catherine Hicks, senior associate, Corporate and M&A, with Dillon Eustace.

“Personalities and cultural differences are frequently cited as a significant reason for the failure of an acquisition,” says Hicks. “Part of the success of an acquisition will depend on the buyer’s ability to understand the target’s culture and the personalities in its management team.

“It may also involve education of both the buyer’s and the target’s management about each other’s organisation and culture to raise awareness of the differences and likely difficulties in the context of the buyer’s overall aims and objectives for the business.”

Post-deal integration can prove a challenge, even for the most experienced consolidators in the market, says EY corporate finance partner Ronan Murray.

“It is important that detailed conversations take place between the buyer and seller pre-acquisition to agree on an integration and growth strategy,” he says.

“It is becoming common practice for the buyer to include a contingent element for post-deal integration in their offer,” adds EY corporate finance partner Fergal McAleavey. “This is an effective method to keep the seller incentivised to realise the synergies between the two entities.

“Ensuring that management have identified areas of product, customer or supplier overlap early in the process will unlock cost and revenue synergies post deal and ensure that deal value isn’t eroded.”

Louis Desmond, senior manager, M&A-Integrations and Divestitures, with Deloitte, advises buyers to focus on people. “The talent of a business tends to be its biggest asset in most cases,” he says.

“Integrations can be uncertain times for people and present a considerable people flight risk – if the teams are not clear on the objectives of the deal and the integration programme, or fear for their jobs, they will vote with their feet.

A buyer should be coming out of operational and commercial diligence pre-closing with an integration roadmap of what’s going to happen – and when – post closing

—  Barry Madden, Focus Capital Partners

“Clear, timely communications on the vision and objectives of the programme can address a lot of these concerns and, where difficult decisions do need to be made, keeping this window as small as possible to avoid disrupting the rest of the team is key.”

Preparation is critically important, says Focus Capital Partners managing director Barry Madden.

“Post-acquisition is the wrong time to at look pre-acquisition planning. From the transactions we have completed, the ones that seemed to have successfully integrated have early post-merger integration in common. A buyer should be coming out of operational and commercial diligence pre-closing with an integration roadmap of what’s going to happen – and when – post closing.”

BDO corporate finance partner Katharine Byrne believes the process itself should be integrated.

“You need to ensure that the M&A team, the due diligence team and the integration team are all aligned,” she says. “The people at the first meeting need to be there right the way through to the end. It’s not just about the transaction and getting the deal done – you need to make sure everything you want to achieve from it is addressed.”