DOCSLIB.ORG

Post-Merger Integration What Are the Keys to a Successful Merger?

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Post-Merger Integration What Are the Keys to a Successful Merger? POST-MERGER INTEGRATION WHAT ARE THE KEYS TO A SUCCESSFUL MERGER? www.wavestone.com In a world where knowing how to drive transformation is the key to success, Wavestone’s mission is to inform and guide large companies and organizations in their most critical transformations, with the ambition of a positive outcome for all stakeholders. 2 FOREWORD In increasingly competitive and global By analyzing the results of this survey and markets, many companies continue to gathering other relevant project feedback pursue external growth as a means to from Wavestone experts, we’ve identified strategic development. In fact, France’s the main reasons for failure but also the mergers and acquisitions (M&A) market good practices and critical success factors has returned to pre-crisis levels—with more in three key areas of post-acquisition than 1,500 transactions in 2018. integration programs: But, despite this high number of fusions, / Integration strategy and merger pro- companies should not underestimate the cess steering, complexity involved in merging businesses / Technological integration, (in terms of synergies, structural and / Change management. cultural changes, etc.), something that must often be achieved to short timescales and In this insight, we present the results and by management and operational teams that main learning points from the study. rarely have significant experience of what’s needed. It’s clear that such high-stakes exercises are still often poorly executed: only 40% of them create the expected level of value. What makes these mergers so challenging? And how can such challenges be overcome? To answer these questions and help inform decision makers, Wavestone’s teams interviewed over 100 business leaders who have taken part in such exercises. PHILIPPE PESTANES Partner at Wavestone, Strategy 2 3 AUTHORS PHILIPPE PESTANES BENJAMIN GAUTIER Benjamin, a manager at Philippe, the Wavestone Wavestone, has spent over partner in charge of the six years developing his company’s strategy offering skills in the field of strategy and its Consumer Goods & and transformation consul- Services Practice, has over ting. He has considerable 20 years of strategy and expertise in market analy- transformation consulting sis, growth and innovation experience. Over the course of his career, Philippe strategy, and transformation and performance-im- has worked on a wide range of business challen- provement programs. He regularly works on M&A ges—from strategic analysis to improving opera- projects (due diligence, post-acquisition integra- tional performance. tion, etc.) for corporate clients and investment He has led numerous projects on business-model funds. In parallel, he lectures in strategic manage- development, the definition and launch of new ment at several institutions, including Université offerings, and the steering of strategic transforma- Paris-Dauphine, ESSCA, and the PSB Paris School tion programs—including several business mergers. of Business. He is the author of the book, Pro en He works with leading players in the consumer Stratégie [“Be a Strategy Pro”] (éditions Vuibert), goods and services sectors (retail, fast-moving a practical guide designed to help senior leaders consumer goods, e-commerce, telecoms, media, and managers define and implement their orga- entertainment, etc.) and with investment funds, nization’s strategy. to evaluate and implement their investment and [email protected] M&A strategies. [email protected] This insight was produced with contributions from Louise Brouquier and Perrine Larroche, and draws on the experience of Laurent Bellefin, Sylvain Franchini, Romain Gagliardi, Sarah Lamigeon, and Guillaume Raoux. 4 SUMMARY 06 Mergers: contexts and issues 13 Merger integration strategy and steering 29 Technological integration 37 Change management 42 Conclusion 4 5 MERGERS: CONTEXTS AND ISSUES 6 6 7 Mergers: contexts and issues After a difficult period during the financial By pursuing such fusions, companies aim crisis (where the value of deals fell to to meet one or more of their strategic €69bn in 2010, compared with €166bn objectives, in particular consolidating their in 20011), the M&A market has again seen core business (for 77% of respondents), high levels of activity in recent years. In accessing new markets (for 67%), and 2018, in France, there were over 1,500 establishing themselves in geographical mergers—with the associated investments areas (56%). totaling over €140bn2. The strategic objectives most frequently cited by respondents were: Consolidating the core business (and increasing market share) 77% Accessing new markets (products, services, distribution channels, etc.) 67% Establishing the business in new geographical areas 56% Diversifying the business portfolio 44% Acquiring new skills (technological, industrial, patent-related, etc.) 33% Taking a position upstream or downstream in the value chain 23% Others 3% 1. Fusions&Acquisitions Magazine 2. Option Finance 8 Usually complicated (as a result of / What are the challenges associated a requirement to achieve synergies, with merger operations? develop organizational structures, support / What distinguishes mergers that cultural harmonization, etc.), and with a achieve their ROI objectives from need to deliver to tight timescales while those that fail to do so? ensuring business continuity, Post-Merger Integration (PMI) is one of the most / What are the keys to delivering a difficult challenges a business leader may successful merger? have to face. A relatively rare event in a leader’s career, These are the questions we set out to it requires responses and approaches that answer in this study, and to which we are quite different from those deployed provide some of the answers. in day-to-day management. And it’s clear that such high-stakes exercises are still often poorly executed and struggle to generate the value expected. In fact, only 40% of respondents in our survey said they had met or exceeded their return on investment (ROI) targets. The overall ROI objectives were: % of respondents 27% 31% 13% 14% 15% EXCEEDED ACHIEVED PARTIALLY NOT NO ACHIEVED ACHIEVED VIEW EXPRESSED 8 9 SCOPE OF THE STUDY In order to identify the key success human resources, and information systems. They also represent a range of factors in a merger, we interviewed about company sizes (with a minimum revenue a hundred managers and senior leaders of €100m), operating in France’s main who have been involved in at least one business sectors (industry, services, high- M&A program within the last five years. tech, banking and insurance, etc.). Those interviewed work in business Lastly, the mergers studied had values functions that are closely involved in such ranging from less than €10m to over €1bn programs: senior management, strategy, and represented a broad range of business transformation, finance and administration, settings and merger types. Business sectors of the companies surveyed: 26% 18% 14% 13% INDUSTRY SERVICES HIGH-TECH BANKS INSURANCE 107 MUTUALS, FINANCIAL SERVICES RESPONDENTS 11% 9% 4% 3% 2% RETAIL, FAST MOVING PUBLIC WORKS, ENERGY, UTILITIES MEDIA, TRANSPORTOF CONSUMER CONSTRUCTION, ENTERTAINMENT PEOPLE GOODS, REAL ESTATE OR GOODS, LUXURY SECTOR LOGISTICS Respondents’ business functions: 28% 21% 20% 20% 7% 4% DIRECTOR OR CEO/VICE PRESIDENT/ DIRECTOR OR DIRECTOR OR STRATEGY DIRECTOR, OTHER FUNCTION HR MANAGER MD/COO MANAGER, IT MANAGER MERGER,ACQUISITION FINANCIAL/ TRANSFORMATION/ ADMINISTRATIVE FUNCTION 10 Revenues of the companies surveyed: 6% BETWEEN €100m AND €250m 20% BETWEEN €250m 50% € AND €500m OVER €1.5bn 24% BETWEEN €500m AND €1.5bn Value of the merger transaction: 18% 7% 16% 25% 14% 20% OVER €1bn BETWEEN BETWEEN BETWEEN LESS THAN NO VIEW €500m €100m €10m 10m€ EXPRESSED AND €1bn AND €500m AND €100m 10 11 MERGER INTEGRATION STRATEGY AND STEERING 12 12 13 Integration strategy and steering of the merger process Aligning ROI and synergy objectives with All too often, the economic objectives the reality on the ground take into account only a partial view of the reality on the ground, as well as An integration program must reflect underestimating some of the operational both the merger’s objectives (strategic, difficulties (change management, financial, etc.) and its main features (scope workstream coordination, etc.); this can and degree of integration, timescales, lead to overestimation of the potential etc.); but also—and above all—it must take benefits. Estimation of the potential for account of the operational realities. value creation may also be overstated in A recurrent economic driver for mergers order to gain shareholder buy-in. Such is the potential for synergies between the overestimation only increases the risk of businesses involved. As a result, ROI and failure. synergies are usually considered to be the two key indicators to track the success or failure of a merger; in our survey, 92% of the mergers that achieved their value creation objectives also achieved the expected synergies. But these indicators may also be contributory factors to failure. «During the due diligence phases, assessments of synergies are often carried out in top-down mode; this takes a fragmented view of the reality on the ground, which, in turn, leads to overvaluation of the potential benefits» LAURENT BELLEFIN Partner at Wavestone, Digital & IT Strategy 14 Once the objectives and features of the 41% of respondents achieved 100% of the merger have been aligned with the reality expected synergies in finance functions, on the
Load more

Recommended publications
  • Glossary of Terms for Budget Publications
    GLOSSARY OF TERMS ADOPTED EXPENSE AND REVENUE BUDGET: A BUDGET CODE: A 4-character code assigned to a financial plan for the City and its agencies for a fiscal schedule within an agency which identifies the year, setting forth operating expenditures and allocation made in such schedule in terms of its anticipated revenues, following due authorization accounting fund class, unit of appropriation, through the charter-mandated process. responsibility center, control category, local service district and program. ALLOCATION: A sum of money set aside for a specific purpose. BUDGET GAP: The difference between estimated expenditures and revenues for a future fiscal year. ANNUALIZATION: The impact of a new appropriation or expenditure reduction on the basis of a full year. For BUDGET LINE: An identified amount allocated for a instance, if an employee is terminated halfway through specific purpose in the expense budget supporting the fiscal year, the budget reduction in that year will schedules for each budget code within a unit of equal half the employee’s annual salary. The appropriation. Budget lines are used to provide “annualized” reduction is the full amount of the detailed information on the number of positions, titles, employee’s salary. salaries and other expenses in a budget code. ANNUAL RATE: Sum of the salaries paid to the full- BUDGET MODIFICATION: A change in an amount in time active employees in a title description. any budget line during the fiscal year. APPROPRIATION: A general term used to denote the BUDGET STABILIZATION ACCOUNT: An amount authorized in the budget for expenditure by an appropriation which applies excess revenues to prepay agency.
    [Show full text]
  • Preparing a Short-Term Cash Flow Forecast
    Preparing a short-term What is a short-term cash How does a short-term cash flow forecast and why is it flow forecast differ from a cash flow forecast important? budget or business plan? 27 April 2020 The COVID-19 crisis has brought the importance of cash flow A short-term cash flow forecast is a forecast of the The income statement or profit and loss account forecasting and management into sharp focus for businesses. cash you have, the cash you expect to receive and in a budget or business plan includes non-cash the cash you expect to pay out of your business over accounting items such as depreciation and accruals This document explores the importance of forecasting, explains a certain period, typically 13 weeks. Fundamentally, for various expenses. The forecast cash flow how it differs from a budget or business plan and offers it’s about having good enough information to give statement contained in these plans is derived from practical tips for preparing a short-term cash flow forecast. you time and money to make the right business the forecast income statement and balance sheet decisions. on an indirect basis and shows the broad categories You can also access this information in podcast form here. of where cash is generated and where cash is spent. Forecasts are important because: They are produced on a monthly or quarterly basis. • They provide visibility of your future cash position In contrast, a short-term cash flow forecast: and highlight if and when your cash position is going to be tight.
    [Show full text]
  • Joint Analysis Enacted 2021-22 Budget July 13, 2021
    Joint Analysis Enacted 2021-22 Budget July 13, 2021 Table of Contents BACKGROUND ..........................................................................................................3 INTRODUCTION ........................................................................................................3 BUDGET OVERVIEW ..................................................................................................3 Budget Shaped by recovery from covid-related Recession .............................................. 3 Investments focus on relief and recovery for californians................................................ 4 CALIFORNIA COMMUNITY COLLEGES FUNDING ..........................................................5 Immediate Action Package ............................................................................................... 5 Proposition 98 Estimates.................................................................................................. 6 California Community Colleges Funding Levels ............................................................... 6 Changes in Funding .......................................................................................................... 7 Local Support Funding by Program ................................................................................ 17 Capital Outlay ................................................................................................................. 21 State Operations ...........................................................................................................
    [Show full text]
  • Growing Your Business Through Mergers & Acquisitions
    Growing Your Business Through Mergers & Acquisitions Mergers and acquisitions occur when companies consolidate, usually with a larger company acquiring a smaller company, or two companies merging their business activities. There can be many benefits of M&A such as increased growth, cost synergies, complementary product and service offerings, skilled talent, new markets, increased liquidity and much more. The current economic environment may present excellent opportunities for M&A. Suitors may find opportunities to acquire companies that may otherwise not be open to being acquired. Struggling companies may find a lifeline from a merger or acquisition. Even if neither company is struggling, combining forces may give companies the ability to aggressively gain market share when competitors are just trying to maintain the business that they have. Depending on your goals and options at hand, you may want to consider M&A as part of your company’s growth strategy. This article cover some of the benefits, challenges and key things to consider with M&A. Benefits One of the primary benefits of merging companies over more traditional forms of growth is the speed with which a merger can be implemented. Growth through traditional sales and marketing simply takes time. And, the more crowded and competitive a market, the more time it can take. Mergers, on the other hand, can often grow a business much faster - as quickly as the merger can be completed. Time may not be the only benefit from a customer and revenue growth perspective. Traditional sales and marketing can be expensive and carries a certain cost to acquire a customer.
    [Show full text]
  • Debt Service Deeming Resolution Deferral of Budget Authority
    Terms and Definitions Debt Service Payment of interest on, and repayment of principal on, borrowed funds. The term may also be used to refer to payment of interest alone. (See also Means of Financing.) As used in the Congressional Budget Office’s (CBO) Budget and Economic Outlook, debt service refers to a change in interest payments resulting from a change in estimates of the surplus or the deficit. Deeming Resolution An informal term that refers to a resolution or bill passed by one or both houses of Congress that in the absence of a concurrent resolution, serves for the chamber passing it as an annual budget resolution for purposes of establishing enforceable budget levels for a budget cycle. The Congressional Budget and Impoundment Control Act of 1974 requires the adoption each year of a concurrent resolution on the budget. (See Concurrent Resolution on the Budget.) At a minimum, deeming resolutions provide new spending allocations to the appropriations committees, but they also may set new aggregate budget levels, provide revised spending allocations to other House and Senate committees, or provide for other related purposes. A deeming resolution may even declare that a budget resolution (in its entirety), passed earlier in the session by one house is deemed to have the force and effect as if adopted by both houses. Deferral of Budget Authority Temporary withholding or delaying of the obligation or expenditure of budget authority or any other type of executive action, which effectively precludes the obligation or expenditure of budget authority. A deferral is one type of impoundment. Under the Impoundment Control Act of 1974 (2 U.S.C.
    [Show full text]
  • IFRS Example Consolidated Financial Statements 2019
    IFRS Assurance IFRS Example Global Consolidated Financial Statements 2019 with guidance notes Contents Introduction 1 19 Cash and cash equivalents 61 IFRS Example Consolidated Financial 3 20 Disposal groups classified as held for sale and 61 Statements discontinued operations Consolidated statement of financial position 4 21 Equity 63 Consolidated statement of profit or loss 6 22 Employee remuneration 65 Consolidated statement of comprehensive income 7 23 Provisions 71 Consolidated statement of changes in equity 8 24 Trade and other payables 72 Consolidated statement of cash flows 9 25 Contract and other liabilities 72 Notes to the IFRS Example Consolidated 10 26 Reconciliation of liabilities arising from 73 Financial Statements financing activities 1 Nature of operations 11 27 Finance costs and finance income 73 2 General information, statement of compliance 11 28 Other financial items 74 with IFRS and going concern assumption 29 Tax expense 74 3 New or revised Standards or Interpretations 12 30 Earnings per share and dividends 75 4 Significant accounting policies 15 31 Non-cash adjustments and changes in 76 5 Acquisitions and disposals 33 working capital 6 Interests in subsidiaries 37 32 Related party transactions 76 7 Investments accounted for using the 39 33 Contingent liabilities 78 equity method 34 Financial instruments risk 78 8 Revenue 41 35 Fair value measurement 85 9 Segment reporting 42 36 Capital management policies and procedures 89 10 Goodwill 46 37 Post-reporting date events 90 11 Other intangible assets 47 38 Authorisation
    [Show full text]
  • Budget Management and Financial Reporting
    BUDGET MANAGEMENT AND FINANCIAL REPORTING BUDGET MANAGEMENT AND FINANCIAL REPORTING Presented by: AMANDA DUNLAP COMMUNICATIONS & TRAINING COORDINATOR OFFICE OF FINANCE BRUCE AIRD UNIVERSITY BUDGET OFFICER BUDGET OFFICE February 16, 2017 Part of the Certificate in University Financial Management – revised February 16, 2017 BUDGET MANAGEMENT AND FINANCIAL REPORTING TABLE OF CONTENTS Overview and Objectives ............................................................................................................ 3 Definitions ................................................................................................................................... 4 Fund/Ledger Information ............................................................................................................ 8 Accrual Accounting .................................................................................................................... 11 Budget Management (Minding the Store) .................................................................................. 12 Establishing a New Budget ........................................................................................................ 12 Budget Unit Director’s Responsibilities .................................................................................... 13 Requesting Banner Finance Access ......................................................................................... 14 Master Signature List .................................................................................................................
    [Show full text]
  • GAO-19-36, FEDERAL BUDGET: Government-Wide Inventory Of
    United States Government Accountability Office Report to Congressional Requesters November 2018 FEDERAL BUDGET Government-Wide Inventory of Accounts with Spending Authority and Permanent Appropriations, Fiscal Years 1995 to 2015 GAO-19-36 November 2018 FEDERAL BUDGET Government-Wide Inventory of Accounts with Spending Authority and Permanent Appropriations, Highlights of GAO-19-36, a report to Fiscal Years 1995 to 2015 congressional requesters Why GAO Did This Study What GAO Found Congress can provide budget authority A total of $3.2 trillion in spending authority and permanent appropriations was to federal agencies and programs reported in fiscal year 2015; an increase of 88 percent from fiscal year 1994 through the annual appropriations adjusted for inflation in fiscal year 2015 dollars. Fiscal year 1994 was the last process. It can also provide budget year included in GAO’s prior work. For the purposes of this report, spending authority through laws other than authority and permanent appropriations is budget authority provided to agencies annual appropriations acts, or through through laws other than annual appropriations acts or available permanently by permanent appropriations that permit law without further legislation. These authorities include permanent the agency to obligate budget authority appropriations, contract authority, borrowing authority, offsetting collections, and without further congressional action. monetary credits or bartering. As shown in figure 1, permanent appropriations Analysis of these authorities helps were the primary driver of the increase in spending authority and permanent provide Congress with visibility into spending authority that is not appropriations. Offsetting collections authority—which includes certain fees, considered during the annual fines, and penalties—also grew.
    [Show full text]
  • Basics of Federal Budget and Financial Management
    Introduction Introduction Financial Management Course 1. Overview of the Federal Budget Process 2. The Philosophy of Appropriations Law 3. Contracts, Grants and Cooperative Agreements 4. Spending Plans, Operating Plans and Budget Execution 5. Financial Responsibilities 1 Module 1: Overview of the Federal Budget Process Module 1 Objectives • Identify the major legislation that affects the federal budget process. • Know the phases of the budget process and timeline. • Recognize the purpose of an operating plan. 2 Module 1: Overview of the Federal Budget Process The Budget and Accounting Act of 1921 • Requires the President of the United States to submit an annual budget proposal and a statement of the government’s financial condition to Congress. • Includes a budget message and a summary of reporting information on past and future budgets. • Established the Bureau of the Budget, now known as the Office of Management and Budget (OMB), which provides 1921 resources to produce the President’s budget. • Established the General Accounting Office now known as the Government Accountability Office (GAO) to provide Congress with resources to ensure accountability. 3 Module 1: Overview of the Federal Budget Process Government Performance and Results Act of 1993 (GPRA) The primary legislative framework includes three main components: Strategic Plan • Mission statement • General goals and objectives (outcome related) Performance Plan • Measurable performance goals by program activity • Operational processes, technology, human capital, and other resources
    [Show full text]
  • Budget Requirements and Annual Financial Reporting Requirements for Texas Public Community and Junior Colleges
    Budget Requirements and Annual Financial Reporting Requirements for Texas Public Community Colleges FY 2014 Due Annually by January 1st Planning and Accountability Texas Higher Education Coordinating Board Harold Hahn, CHAIR El Paso Robert “Bobby” Jenkins Jr., VICE CHAIR Austin David Teuscher, M.D., SECRETARY OF THE BOARD Beaumont Gerald T. Korty, STUDENT MEMBER OF THE BOARD Fort Worth Dora G. Alcala Del Rio Ambassador Sada Cumber Sugarland Christopher M. Huckabee Fort Worth Jacob M. Monty Houston Janelle Shepard Weatherford John T. Steen, Jr. San Antonio Raymund A. Paredes, COMMISSIONER OF HIGHER EDUCATION Mission of the Coordinating Board The Texas Higher Education Coordinating Board’s mission is to work with the Legislature, Governor, governing boards, higher education institutions, and other entities to help Texas meet the goals of the state’s higher education plan, Closing the Gaps by 2015, and thereby provide the people of Texas the widest access to higher education of the highest quality in the most efficient manner. Philosophy of the Coordinating Board The Texas Higher Education Coordinating Board will promote access to quality higher education across the state with the conviction that access without quality is mediocrity and that quality without access is unacceptable. The Board will be open, ethical, responsive, and committed to public service. The Board will approach its work with a sense of purpose and responsibility to the people of Texas and is committed to the best use of public monies. The Coordinating Board will engage in actions that add value to Texas and to higher education. The agency will avoid efforts that do not add value or that are duplicated by other entities.
    [Show full text]
  • Lease Financing and Business Valuation E3 Not Known with Certainty—Rather, They Depend on Volume
    CHAPTER LEASE FINANCING AND BUSINESS 18 VALUATION Learning Objectives After studying this chapter, readers will be able to • Describe the two primary types of leases. • Explain how lease financing affects financial statements and taxes. • Conduct a basic lease analysis from the perspective of the lessee. • Discuss the factors that create value in lease transactions. • Explain in general terms how businesses are valued. • Conduct a business valuation using both discounted cash flow and market multiple approaches. Introduction This chapter contains two unrelated topics: lease financing and business valu- ation. Leasing is a substitute for debt financing and hence expands the range of financing alternatives available to businesses (and to individuals). However, leasing should be used only when it offers some advantage over conventional financing. We begin this chapter by discussing how businesses analyze lease transactions and what factors contribute to the large amount of leasing activity among healthcare businesses. The valuation of entire businesses, as opposed to individual projects, is a critical step in the merger and acquisition process. In addition, business valuation plays an important role when one owner is bought out by other owners and when businesses are inherited. The second part of this chapter discusses two specific techniques used to value businesses: discounted cash flow and market multiple. Leasing Basics Businesses generally own fixed assets, but it is the use of land, buildings, and equipment that is important, not their ownership. One way to obtain the use of such assets is to raise debt or equity capital and then use these funds to buy e1 e2 Healthcare Finance them.
    [Show full text]
  • Chapter 5 Chart of Accounts and Accounting Structure
    UNIVERSITY OF COLORADO BOULDER DEPARTMENTAL FINANCIAL MANAGEMENT GUIDE BUDGET TABLE OF CONTENTS - CHAPTER 8 CHAPTER PURPOSE ............................................................................ 2 I. OVERVIEW .................................................................................. 2 II. BUDGET CYCLE ............................................................................ 4 A. OVERVIEW .......................................................................... 4 B. WORKING WITH THE BUDGET THROUGHOUT THE BUDGET CYCLE ........... 5 Planning and Development .................................................. 5 Implementation ................................................................. 5 Monitoring ......................................................................... 5 III. METHODS OF BUDGETING ........................................................... 6 A. INCREMENTAL BUDGETING ........................................................ 6 B. ZERO-BASE BUDGETING .......................................................... 6 IV. BUDGETING PRACTICES BY FUND ................................................ 7 A. LEDGER .............................................................................. 7 B. GENERAL FUND (FUNDS 10, 11) ................................................. 7 C. AUXILIARY/SELF-FUNDED FUND (FUNDS 20, 26, 28, 29) .................. 7 D. GRANT AND CONTRACT FUND (FUNDS 30, 31) ............................... 7 E. GIFT FUND (FUND 34) ............................................................. 7 F. PLANT
    [Show full text]