Speed of integration key factor in making M&A deals successful: PwC report
Mumbai: While executing mergers and acquisitions (M&A) deals can in themselves be extremely complex, post-merger integration can also throw up major complications, resulting in some companies failing to achieve the desired results.
According to a recent survey Making M&A successful: post-merger integration by consulting firm PwC India, companies feel that employee expectations, organisational culture and IT integration are the main factors responsible for integration complexity.
Companies that have conflicting cultures and leadership styles are at risk of losing their top employees, having stretched integration periods and, ultimately, of failing to capture deal value, the report said.
“A key consideration of a successful integration exercise, from a people point of view, is having a working and realistic organisation design in place. First, while the organisational structure is the starting point, the design needs to go beyond the structure alone and address roles, levels and enabling mechanisms such as policies, processes and rewards,” said Padmaja Alaganandan, partner, people and organisation, PwC India.
Secondly, it must be appreciated that the merged entity is not going to get to this new design state overnight, said Alaganandan. “Realistic time frames, intermediate/transition structures/states and adequate support in managing the associated change will help make the design feasible,” he added.
Companies highlighted having clear and regular communication with all stakeholders as one of the top integration focus areas.
“Indian organisations, especially mid-sized promoter driven companies, are vastly different from larger corporates. In these mid-sized organisations, relationships, respect and loyalty can be far stronger incentives than monetary gains. Understanding these unique virtues, listening to stakeholder questions, concerns and issues, and proactively addressing them in thought and action are instrumental in cementing a productive, trusting and encouraging workspace,” the report said.
Aligning the acquired company’s leadership with the deal rationale, vision and goals is paramount.
“This alignment is achieved through regular and clear communication. Through its role in achieving the vision, the acquired company’s leadership lays the foundation of a successful integration,” the report added.
Faster pace of integration and milestones were also highlighted as a crucial area of integration focus, companies said. This becomes critically significant for companies in sectors such as technology, where markets are changing rapidly.
“Integration pace and milestones become even more crucial in businesses where innovations are being introduced at breakneck speed. In such cases, the opportunity cost of time is very high. Eighty percent of the respondents from new-age sectors like e-commerce (vs 53% from other sectors) have cited speed of integration as one of the most crucial factors,” the report highlighted.
However, a faster pace of integration needs to be supplemented by an effective change management programme. “The key drivers for a successful change management programme include culture, communication, leadership, organisation, policies and procedures, employee on-boarding, and incentives,” the report added.
Having a dedicated integration team to focus on these critical post integration areas can go a long way in ensuring a smoother and quick integration process that delivers the desired outcomes. Also, involving the integration teams early on can significantly improve the post-deal integration process.
“Deal teams, generally globally and more so in the highly competitive Indian market, especially with PE money chasing good key assets, are often stretched to close deals. However, buyers are increasingly seeing merit in involving integration teams early on in the process and thinking through the key integration issues before they sign on the dotted line,” said Sanjeev Krishnan, leader, deals at PwC India.