Merger Mystery

PIPC founder and VP Pip Peel asks whether more cross-border M&As equal more botched integrations...

Pip Peel PIPC

Square Mile, January 2011

Last month, Pepsi’s $4.1billion acquisition of Russia’s Wimm-Bill-Dann brought worldwide cross-border M&A totals to $843.2billion for the year – up 54 per cent from full year 2009. This was closely followed by a flurry of deals involving British companies in a variety of sectors, from oil and gas to pharmaceuticals and chemicals.

The UK, for one, has been a prime target for overseas investment. In fact, more than half of M&As targeting UK-listed companies in the first quarter of 2010 were backed by overseas bidders.

This upturn brings with it an air of excitement across the banking and advisory sectors. Equally, shareholders are welcoming these mergers as they can, and should, improve a group’s transparency, sharpen its focus and lead to benefits from the much publicised operating cost savings.

There is, however, one caveat. If the merging businesses rush headlong into crunching themselves together, cut corners and fail to recognise the complexity of managing the programme correctly, all the strategic reasoning behind the merger is thrown out the window. It’s well documented, and our research concurs, that over 50 per cent of mergers fail to deliver the business benefits promised to investors. And, when it comes to cross-border M&A, there is even higher potential for botched integrations.

So what can be done to ensure that any plans to merge are not left to run wild and end up costing billions in lost revenue and stock value?

In the first instance, many companies fail to dedicate the resources and expertise to making sure these benefits are realised. Almost as soon as the deal is signed, a dedicated integration team should be established reporting directly to the Board with the authority and accountability for making things happen. This team should ensure that there are clear and transparent communications to both company’s customers, staff and regulators.

The importance of this was highlighted by a OnePoll survey released towards the end of 2010. It found that because of a lack of clarity in comms, the majority of the public is opposed to the BA/Iberia merger even though it makes commercial sense.

Equally, if the newly merged company fails to turn its attentions to its people quickly, an inherently stressful situation can be exacerbated; leading to an increased culture shock and even trench warfare.

Putting communications to one side, the integration team must pick the fastest, least complex approach or strategy to getting to the end-state. It may not necessarily be the most elegant or the prettiest, but the urge to fix every minor operational issue as you go must be resisted. Then, the combined company must move to one standard operating model and scale it up to ensure it can cope with the volume of the newly combined business.

Finally, a robust governance framework needs to be implemented so that there is no doubt about roles, responsibilities, reporting lines and decision making throughout the integration programme.

The cost of a botched integration to the company and its shareholders can be severe. Doing the deal is only a part of the battle. Driving the integration programme and realising the benefits is as important, even if it’s somewhat less exhilarating!

Pip Peel is Founder and VP at PIPC, a global management consultancy which has delivered some of the largest post merger integrations in corporate history.