Create value from your merger in five steps
To master how to manage
a merger, look no further than the global chemical industry. The $5
trillion-plus category has long used M&A to grow, shift strategic direction
and consolidate segments. It’s registering record activity this year – perhaps
surpassing 2016’s $260 billion mark – plus higher multiples and growing
interest from activist investors.
Although there is often
an implicit assumption that mergers yield value, actually realizing value is not always straightforward, with companies often taking 2-3
years to get full returns. And even then, in our experience, not everyone is
able to capture value. Duplicate structures and public criticism often play a
role.
In an attempt to create real value and
truly learn from each side, one CEO overseeing the execution of a recent merger
took a unique approach. He went a more entrepreneurship direction and allowed
the managers in areas that were performing well to control how their units
merged. The result? Real value was created by allowing some autonomy in the
process.
There are well-proven
steps that any enterprise, chemical or not, should use to capture the full
value-creation potential of its M&A moves. Our research shows that in deals
where best practices in merger management are employed, total shareholder returns rise at
least six percentage points above deals without these practices. Here are what
we call the “Fabulous Five:”
1. Build a compelling value-creation story and communicate
it clearly.
The story should include a strategic
view of where the new merged company is heading. Capture the strengths of both
companies and what it will take to build a world-class entity. Strong
communications about a clear and ambitious plan to capture value may even serve
as a “sharp repellent” against activist investors. Still, looking at a deal
through an activist lens can be beneficial to create focus on what will be
gained, presenting the short-term benefits of the deal while explaining its
long-term, value-creation promise.
2. Leverage synergies and opportunities for transformation.
Manage the combination for higher profitability and
growth, and determine the necessary organizational structure and operations
setup. To identify savings, look at overlapping activities – from product
offerings, customers, and markets served to technological capabilities and R&D
projects. Determine standalone improvements that can create significant value.
Tackle opportunities for transforming the combined company. In a recent, large
chemical deal of “equals,” where shareholders worried there might be little
value creation, a major review that dug deep into both enterprises uncovered
value well above early estimates.
3. Start early to shape the integration strategy.
The due-diligence phase is a good place to start.
Weave the integration program into the deal rationale and set priorities for it
from the merger’s strategic and value-creation logic. Make decisions early
about what and what not to integrate and at what speed. When the deal is
signed, develop an integration road map that covers the timeline and top-level
leadership appointments in particular. A CEO of a family-owned chemical company
decided early on that he wanted to shake up the sleepy culture, so he acquired
a company with visionary leadership and eventually named that CEO to succeed
him. It’s now a top 10 chemical maker.
4. Over-invest early on cultural integration.
Many mergers fall short because they fail to
recognize and act upon cultural differences or misalignment on management
philosophies. Our research shows that mergers that focus on culture succeed
three times more often than those where integrating cultures hasn’t topped the
agenda. Among other steps, organize events, including operations visits and
activity workshops, so teams from both companies can discover each other.
Address key differences head-on in management practices and processes,
emphasizing to employees the new ways of working and the rationale behind them.
5. Keep the business running.
Focus on the day and devote undistracted attention
to customer relationships on both sides. Continue to develop opportunities and
fulfill business plans from day one. This includes ongoing sales force
effectiveness and cost-paring moves. Communicate quickly to customers the
rationale and new value proposition of the merger.
An integration is
always a time of uncertainty. Competitors will certainly seize any opportunity
to poach customers and top-performing employees. Using these steps is a way to
avoid losing ground in the weeks after day one.
July 30,
2018 – by Jeremy Borot and Ulrich Weihe
https://www.mckinsey.com/business-functions/organization/our-insights/the-organization-blog/create-value-from-your-merger-in-five-steps?cid=other-eml-alt-mip-mck-oth-1808&hlkid=b0962c5076514469aa09c36c1c1b7abd&hctky=1627601&hdpid=a73eb51f-5c34-4b52-8146-e68301dba77c
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