by Sean Richie

Measurement is the key to M&A success

Apr 29, 20097 mins
IT LeadershipIT StrategyMedia and Entertainment Industry

Accumulated business experience, backed by extensive research, tells us roughly half of all merger and acquisitions (M&A) fail to deliver the business value they set out to achieve. That’s a bad enough statistic in a growing economy, in a recession like we have now it could be literally fatal.

How can we increase the chances of M&A’s working out? There is strong evidence that companies with established policies for better post-merger integration increase their chances of success by as much as 50 per cent.

So what’s going wrong here? Without doubt, one of the major reasons for merger failures is a lack of reporting transparency and communication about deliverables, which seems to be a multiple point of failure, all the way from project manager to the board and key stake-holders.

Ultimately, this is your problem as a C-level manager and no-one else’s. Customers are not concerned about your ‘acquisition indigestion.’ They expect a business as usual approach and patently if you cannot give them what they want they will go elsewhere.

A big factor here is that organisational decision-makers rarely get a ‘single version of the truth,’ and so make decisions based on poor visibility of the underlying numbers. Not having financial data entered in a consistent manner across your newly expanded enterprise, plus having to chase for management information has all too often resulted in companies struggling to track benefits in relation to what was targeted at the outset.

Business leaders are being very badly served by continuing to rely upon anecdotal evidence and sketchy documentation to establish whether the organisational restructuring has translated to improved chances of success for the new organisation. Clearly, it is essential that businesses derive as many operational efficiencies as possible from their M&A activity. A merger and acquisition situation presents management not only with the opportunity to review and choose between the existing systems, infrastructures and assets, but also to identify the key attributes they need in the new, larger enterprise being formed. Thus the company sees the merger and acquisition situation as an opportunity to embark on a major cost-reduction exercise.

So how can organisations ensure any planned merger and cost-reduction programme has a good chance of crossing the finish line? Making decisions solely on the best and most accurate numbers you can get is key and here good reporting is your best aid. By agreeing on a single benefits tracking and reporting methodology across a company from the outset, for instance, M&A teams could spend more time monitoring the results of their post-merger integration initiatives and less time creating tools to track and manage results. This will help them better understand what they have, how it all fits together and where there are any gaps – which could turn out to be the most important finding of all.

The task is all too often carried out by a series of stand alone spreadsheets with no proper workflow. That’s more than disappointing, frankly it’s sloppy and just diminishes your chances of carrying this off – and with today’s technology there’s really no excuse.

With today’s workflow software, for instance, you get an audit trail, so thus a foundation of trust in the accuracy of the figures. Mergers and acquisitions (and their associated cost-cutting programmes) are often long, drawn-out affairs – and may be expected to run over many years. Project managers will move on. Added to this, they are often run by project management office teams, and project leaders, whose remit is temporary. As a result, an audit trail is essential.

All the time spent in creating measures for recognising benefits of your prospective merger is wasted if the reported numbers are inaccurate, even on one occasion, or if there is a lack of trust in how the information is being captured and tracked. Proper workflow and a clear and simple approval process is thus recommended to verify numbers that are to be reported – and to ensure that data is being entered in the same way.

These aren’t the only factors. Throughout the benefits assessment process which forms such a critical part of the merger plan, buy-in from stake-holders is essential to ensure the support required to gain strong user acceptance of the overall initiative. Senior management engagement is especially critical, as it sets the agenda by agreeing objectives and being the driving force behind ‘getting the job done’.

If the merger plan is to get the buy-in necessary to meeting such objectives, the stake-holders in an organisation need to understand what the benefits of the merger are going to be, what it means to them, how it will influence working practice, and how it will improve their ability to deliver against ongoing targets and goals. Not doing this is again, inimical to any chances of M&A success.

The involvement of the business is thus a key success factor in not only shaping and implementing cost savings, but instilling an ethos of cost control and management as an ongoing value and identifying a clear vision of the future for staff at the newly-merged entity.

Strategic commitment to your merger plan and cost-cutting initiative, buy-in from the board, communication, energy and drive to implement the plan, commitment to the programme, change in culture regarding sustainable cost improvements and accountability for the results: these are all factors that make a successful integration programme a likely outcome – and they all hinge on good reporting and effective communication.

Reports including format, calculations, frequency, and audience should be agreed before benefits tracking begins to ensure that the required data is being captured in the correct format. If reports take a day or more to create and process, as has traditionally been the case, the investment becomes significant: so does the probability of error. Bear in mind that the audience for reporting on integration programmes is often broad, so it is useful to have reports filtered with data applicable to each audience. By agreeing on a single benefits tracking and reporting methodology across a company cost reduction, teams can spend more time on generating benefits and less time creating tools to track and manage their results. In addition, having a single consistent process and tool reduces time spent training and stake-holder management time required in vetting report formatting.

Clearly, in any merger situation, stakes get raised: tracking post-merger integration and cost-reduction programmes is critical. This need for rigourous assessment of potential cost reduction programmes has become a key issue in merger and acquisition transactions, for both business performance and compliance reasons.

It goes without saying that if all the above elements are in place – a good up-front benefits agenda that’s secure, comprehensive and driven by user and management – cannot in itself guarantee your post-merger integration won’t fail. But, without doubt, one of the major reasons for such failures is a lack of reporting transparency and communication about deliverables from project manager to board and stake-holders. So with clear, defined objectives – and an avoidance of any approach that limits user adoption or impairs a truly integrated approach – organisations embarking on M&A activity in 2009 for what may really be ‘once in a lifetime’ opportunities may have a significantly higher chance of achieving a successful outcome that delivers real, sustained business benefit.

Mergers and acquisitions have traditionally involved intricate planning over several months or even years. So while in recent weeks the economic climate has meant that this tradition has been dispensed with by many, let’s not forget that it is not just about surviving this year. It’s about making it through tomorrow in the best shape you can.

About the author:

Sean Richie is Head of Product Development at business consulting and technology services company Concentra.