Last year saw the value of M&A activity in Europe alone exceed 1.3 trillion euros and this boom shows little sign of slowing. Yet, in a recent survey conducted by Hay Group, just nine per cent of European business leaders stated that they felt their M&A was ‘completely successful’ in delivering the shareholder value they expected.
 
So what is the key to unlocking M&A success?
Our experience suggests that M&A success is based on looking as closely at the intangible elements of company performance, such as the quality of client relationships, leadership capability, business cultures and workforce engagement, as at tangible company assets such as financial performance or property portfolios.
 
In spite of this, 90 per cent of business leaders polled confirmed that they focused primarily on the potential for integrating finance and IT systems and on identifying cost-reduction synergies during due diligence.
 
First things first – due diligence: the challenge
Failure to audit intangible assets increases the risk of making a wrong acquisition. What’s more, identifying and measuring intangible assets within the acquired company will manage the risk of the two companies failing to become aligned and ultimately determine the time it takes for the new organization to start delivering return on investment.
 
Yet, reviewing and integrating intangible assets presents a tough challenge: 70 per cent of those who acquire believe that access to the necessary human capital data and business culture intelligence on target companies is currently too difficult while half cite the need for a robust form of reporting on human capital and other non-financial assets.
 
Two-thirds of the business leaders Hay Group interviewed saw internal performance indicators such as workforce performance as more reliable indicators of success than financial or other company performance data.
 
Corporate governance – get the right people
An essential component of any organization’s intangible assets is the team that will be leading the merger or acquisition. It is essential that this team conveys a positive image and demonstrates the right behaviours from day one. It is vital then that the right team is appointed quickly and aligned around the new strategy. Too frequently however, board appointments are made according to criteria other than merit. Factors cited include the desire to see both former organizations reflected in the new executive team. Often too the impulse is to minimize job losses among close colleagues and retain the people with whom they are comfortable.
 
Communicate, communicate, communicate
Care must be taken to ensure that your people remain engaged. Misleading or no communication from the boardroom post announcement often results in the most talented employees – key assets – becoming demotivated or worse still, leaving..
 
Culture clash
Culture is not an HR issue but a business one. Cultural integration has to be part of strategic planning even before the deal goes ahead. Merging companies may share geographic boundaries, come from the same industry and speak the same language but differences in structure, business processes and decision making, if not planned for, will hamper the new organization’s ability to deliver value to customers and shareholders.
 
Many of the businesses surveyed fail to analyse culture before closing the deal, as a result over 70 per cent of employees opposed the merger – 50 per cent of them actively.  
 
It is vital to the success of any merger or acquisition that different cultures are identified so that the gap between them can be understood and then addressed accordingly via a programme of informal and formal integration activities - for people at all levels of both organizations.
 
Keep your eye on the ball
With all energies focused internally on defining a competitive business strategy, architecture and operating model, it is easy to lose sight of customers.
 
Creating the right conditions for smooth integration, delivering on this strategy to achieve the required objectives as well as ensuring that from your customers’ point of view it is ‘business as usual’ is no easy task.  An objective perspective can play a critical role here.  An expert view of the assets and interests of both companies involved, the issues and challenges faced before, during and after the acquisition, will speed upof integration and the sustained success of the new company.
  
The CEO’s M&A checklist
The three issues any CEO should focus on in the initial 90 day period of M&A integration are:

1.  Engaging leadership teams at all levels. Make sure that you have the right team to steer business strategy and execute the merger. Align leadership teams around new the new corporate strategy, involving key leaders early on in developing integrated management processes. Establish performance objectives and reward systems to deliver rapid and smooth integration.
 
2.  Ensuring workforce engagement. This is critical to ensure that everyone is focusing on the continued delivery of value to customers and ‘business as usual.’ Measure engagement levels and provide clear and open communications, taking steps to secure the right levels of compensation for key people.
 
3.   Integrating business cultures. The first step is to define the different cultures in order to understand the gap between them, but it is also important to organise formal and informal integration activities.
 
Hay Group research
Hay Group’s forthcoming Dangerous Liaisons report will deliver the results of a research program of which there were three elements. Some 200 senior European business leaders who have experienced a major merger or acquisition during the past three years were interviewed. Desk research was also conducted into the largest M&As to take place in Europe over the same period. Finally, qualitative research amongst 300 global employees of merging organizations was carried out on behalf of Hay Group by the Sorbonne.
 
For more information on how Hay Group partners with merging organizations to create successful integration activities visit: http:www.haygroup.com/ww/Issues.
 
To order a copy of the forthcoming Dangerous Liaisons report contact: claire_elliott@haygroup.com