Post Merger Integration (PMI)underscores the ... - Roland Berger
Post Merger Integration (PMI)underscores the ... - Roland Berger
Post Merger Integration (PMI)underscores the ... - Roland Berger
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<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
content<br />
Fresh thinking for decision makers<br />
<strong>Post</strong> <strong>Merger</strong> <strong>Integration</strong><br />
(<strong>PMI</strong>) <strong>underscores</strong> <strong>the</strong><br />
success of mergers<br />
|ǀCulture and synergy<br />
management is critical<br />
|ǀAs are <strong>the</strong> right people,<br />
actions and plans |ǀBecause<br />
you only get one<br />
shot at getting it right<br />
November 2011
The process of professional<br />
synergy management breaks<br />
down into Several phases<br />
Starting with <strong>the</strong> discovery of effective levers and ending<br />
with <strong>the</strong> realization of defined actions. Yet <strong>the</strong> three phases<br />
in <strong>the</strong> middle – nomination, selection and alignment –<br />
are equally vital<br />
✗<br />
✔<br />
✔<br />
SELECTION<br />
Synergy levers must be selected<br />
based on <strong>the</strong>ir financial impact, <strong>the</strong><br />
speed of implementation and <strong>the</strong><br />
sustainability of <strong>the</strong> impact – always<br />
in line with <strong>the</strong> relevant corporate<br />
culture.<br />
ALIGNMENT<br />
The sequence of actions must be<br />
optimized: The right thing must be<br />
done at <strong>the</strong> right time. It is also important<br />
to identify cause-and-effect<br />
relationships between different<br />
actions, some of which may be<br />
mutually exclusive while o<strong>the</strong>rs<br />
complement each o<strong>the</strong>r.<br />
NOMINATION<br />
A <strong>PMI</strong> manager must be nominated.<br />
Successful synergy management<br />
requires clearly defined areas of<br />
responsibility and a transparent executive<br />
hierarchy.
content<br />
<strong>Post</strong> <strong>Merger</strong> <strong>Integration</strong><br />
Google ingests Motorola Mobility. Beer giant SABMiller launches a hostile takeover bid<br />
for Australia's number one beer brand Foster's. Fiat acquires a majority stake in Chrysler.<br />
US pharmaceuticals service provider Express Scripts swallows rival Medco Health Solutions.<br />
Microsoft buys Skype. And Volkswagen seeks to make a big splash on <strong>the</strong> international<br />
commercial vehicle market by snapping up MAN. Browse through <strong>the</strong> business press and it<br />
seems companies are acquiring and merging like <strong>the</strong>re is no tomorrow.<br />
The specter of recession is driving speculation and stoking up fears that European blue<br />
chips could be sold out to well-heeled investors from booming emerging countries. Outgoing<br />
RWE boss Jürgen Grossmann alarmed his shareholders by claiming that <strong>the</strong> threat<br />
of a hostile takeover hung over <strong>the</strong> energy group. Daimler chief Dieter Zetsche prefers to<br />
pacify nervous stockholders, insisting that he sees no such danger for <strong>the</strong> auto giant. For<br />
his part, <strong>Roland</strong> Koch, former Minister-President of Hesse and now head of construction<br />
group Bilfinger <strong>Berger</strong>, proclaims that "We are becoming increasingly international" – and<br />
is setting aside a billion euros for acquisitions over <strong>the</strong> next two years.<br />
Not a trace of a hangover from <strong>the</strong> crisis, <strong>the</strong>n. Thomson Financial puts <strong>the</strong> global volume<br />
of mergers and acquisitions (M&As) in <strong>the</strong> first half of 2011 at around EUR 900 billion, not<br />
including transactions in <strong>the</strong> private equity sector. That is a year-on-year increase of 50%.<br />
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants sees brisk M&A activity in <strong>the</strong> offing especially in <strong>the</strong><br />
automotive engineering, capital goods, business services and consumer products segments.<br />
The scarcity of domestic targets is leading more and more predators to look beyond <strong>the</strong>ir<br />
national borders. Recently, an objection raised by <strong>the</strong> US Department of Justice only just<br />
thwarted <strong>the</strong> most spectacular of <strong>the</strong>se projects. Accordingly, American network provider<br />
AT&T will, due to fears of market domination by <strong>the</strong> resultant telephony colossus, not be<br />
allowed to buy Deutsche Telekom subsidiary T Mobile USA after all. Not for <strong>the</strong> time being.<br />
Yet <strong>the</strong> failure rate seems almost as high as <strong>the</strong><br />
takeover rate<br />
The stream of "dream weddings" such as that of Daimler and Chrysler has long since dried<br />
up. The list of failings is long and damning: The price was not right. Legal obstacles were<br />
underestimated. Hidden threats were ei<strong>the</strong>r overlooked or played down. In interviews<br />
conducted as part of <strong>Roland</strong> <strong>Berger</strong> Strategy Consultants' study "Synergy Management in<br />
<strong>Post</strong> <strong>Merger</strong> <strong>Integration</strong>s", 84% of respondents regard corporate culture as an "important"<br />
or "very important" tool with which to realize synergies. Tellingly, however, only half of <strong>the</strong>m<br />
believe that sufficient attention is genuinely paid to this criterion in <strong>the</strong> M&A process.<br />
Many mergers never even get off <strong>the</strong> ground. <strong>Roland</strong> <strong>Berger</strong>'s analyses show that, in 2010,<br />
barely 74% of <strong>the</strong> trumpeted M&As were ever actually consummated. As late as 2008, more<br />
than 80% of <strong>the</strong> happy couples still at least made it to <strong>the</strong> altar. Even that, however, was no<br />
guarantee that one plus one would add up to more than two.<br />
The biggest stumbling block is going about integration and synergy management <strong>the</strong><br />
wrong way. According to <strong>the</strong> <strong>Roland</strong> <strong>Berger</strong> study, this is <strong>the</strong> one factor to which 80% of <strong>the</strong><br />
respondent experts primarily attribute <strong>the</strong> failure of acquisitions. O<strong>the</strong>r reasons are also<br />
cited, but play a far less significant role. They include culture shocks that drain all <strong>the</strong> energy<br />
from <strong>the</strong> new entity, exorbitant acquisition prices and <strong>the</strong> egos of <strong>the</strong> chief executives in-<br />
Global volume of mergers<br />
and acquisitions in <strong>the</strong> first<br />
half of 2011<br />
900<br />
000<br />
000<br />
000<br />
Year-on-year increase of 50 %<br />
Source: Thomson Financial<br />
Euro
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Three insider tips for<br />
successful postmerger<br />
integrations<br />
Nomination:<br />
Find <strong>the</strong> right head<br />
✗<br />
✔<br />
✔<br />
Selection:<br />
Choose <strong>the</strong> right actions<br />
Alignment:<br />
Do <strong>the</strong> right things at <strong>the</strong> right time<br />
volved. All <strong>the</strong>se factors can leave a merged or merging enterprise unable to exploit its new<br />
opportunities. In some cases, <strong>the</strong> entire transaction is quite simply a mess. There is no<br />
structured process, no leadership, not enough time and not enough manpower. Above all,<br />
<strong>the</strong>re is an inability to identify synergies well in advance and <strong>the</strong>n leverage <strong>the</strong>m in <strong>the</strong> right<br />
order and at <strong>the</strong> right time. In o<strong>the</strong>r words, <strong>the</strong>re is an inability to do precisely those things<br />
that would make <strong>the</strong> new company more efficient and more competitive. And because no<br />
planning is done for what comes after <strong>the</strong> merger, chaos all too often reigns.<br />
Conversely, post-merger integration (<strong>PMI</strong>) draws on past experience to anticipate and<br />
eliminate perceivable weaknesses and pitfalls at an early stage. Synergy management is<br />
at <strong>the</strong> heart of this process. Done professionally, synergy management enables measurable<br />
progress in <strong>the</strong> search for, prioritization of and implementation of activities in which <strong>the</strong> two<br />
merged entities can sustain and add value toge<strong>the</strong>r. The whole principle of change management<br />
is posited on this foundation. There is seldom time to experiment. Companies that<br />
team up usually have a chance to succeed – but just <strong>the</strong> one. A new consulting model crafted<br />
by <strong>Roland</strong> <strong>Berger</strong> Strategy Consultants ensures that this one-off opportunity is exploited<br />
to <strong>the</strong> full. The model is rooted in insights gained from a broad spectrum of national and<br />
international projects. <strong>Roland</strong> <strong>Berger</strong>'s recent large-scale study injected fur<strong>the</strong>r valuable<br />
knowledge. As different as industries, companies and <strong>the</strong>ir cultures may be, <strong>Roland</strong> <strong>Berger</strong>'s<br />
systematic model can be tailored to each unique set of circumstances and applied – to<br />
powerful effect – in almost every situation.<br />
The process of professional synergy management<br />
breaks down into five phases<br />
Starting with <strong>the</strong> discovery of effective levers and ending with <strong>the</strong> realization of defined<br />
actions. Yet <strong>the</strong> three phases in <strong>the</strong> middle of <strong>the</strong> process are equally vital. Frequently<br />
underestimated, <strong>the</strong>y largely determine whe<strong>the</strong>r <strong>the</strong> companies concerned ultimately<br />
achieve <strong>the</strong>ir goals, lose <strong>the</strong>ir way in a maze of specifications or simply run <strong>the</strong>mselves<br />
into <strong>the</strong> ground.<br />
Nomination: Successful synergy management requires clearly defined areas of responsibility<br />
and a transparent executive hierarchy. Ideally, a <strong>PMI</strong> manager with direct access to<br />
top management will be at <strong>the</strong> helm. Under <strong>the</strong> aegis of <strong>the</strong> steering committee, <strong>the</strong> <strong>PMI</strong><br />
manager spearheads <strong>the</strong> first set of integration teams.<br />
Selection: Synergies must be selected based on <strong>the</strong>ir financial impact, <strong>the</strong> speed of implementation<br />
and <strong>the</strong> sustainability of <strong>the</strong> impact – always in line with <strong>the</strong> relevant corporate<br />
culture.<br />
Alignment: The sequence of actions must be optimized: The right thing must be done at <strong>the</strong><br />
right time. It is also important to identify cause-and-effect relationships between different<br />
actions, some of which may be mutually exclusive while o<strong>the</strong>rs complement each o<strong>the</strong>r.<br />
At most companies, <strong>the</strong> problem is not a lack of insight but failure on <strong>the</strong> implementation<br />
side. They know <strong>the</strong>ir weaknesses full well. What many often lack is simply <strong>the</strong> knowledge,
content<br />
<strong>Post</strong> <strong>Merger</strong> <strong>Integration</strong><br />
experience and resources to do <strong>the</strong> right thing under what is often crushing time pressure.<br />
Almost every second company that took part in <strong>the</strong> <strong>Roland</strong> <strong>Berger</strong> study "Operations<br />
Efficiency Radar 2010" expects acquisitions to lead to profitable growth. At <strong>the</strong> same time,<br />
four out of ten admit that <strong>the</strong>ir <strong>PMI</strong> skills are not nearly adequate in some cases. Preparation<br />
for potential mergers thus suffers, as does implementation after <strong>the</strong> event – and this at a<br />
time when alien worlds (and worldviews) are clashing for <strong>the</strong> first time, and when language<br />
and communication problems are putting spanners in <strong>the</strong> works. Often, <strong>the</strong>se factors alone<br />
can make a mockery of all <strong>the</strong> high-sounding plans and projections. Unrealistic deadlines,<br />
vain haggling over titles and positions, lack of resources and negligent controlling can all<br />
too quickly derail <strong>the</strong> entire process.<br />
That is not what structured integration and synergy management looks like. The latter nails<br />
down and operationalizes synergies ahead of any takeover or merger. It adheres to a master<br />
plan, is subject to strict but transparent management principles and is at all times subject<br />
to close monitoring, leading to clear, measurable outcomes. Above all, it motivates <strong>the</strong> entire<br />
team to buy into <strong>the</strong> project.<br />
Nomination: <strong>PMI</strong> needs leadership<br />
The leader who masterminds integration is <strong>the</strong> key. <strong>PMI</strong> managers hail from top management<br />
echelons. They are excellent communicators, experienced, tolerant, prudent and able<br />
to make decisions. They have built up a tightly meshed network of information and relationships<br />
throughout <strong>the</strong> group, are widely recognized for <strong>the</strong>ir performance and command<br />
respect as can-do free thinkers. More important still is to get <strong>the</strong>m involved in all acquisition<br />
and merger planning from an early stage. The <strong>Roland</strong> <strong>Berger</strong> study also shows that <strong>the</strong>se<br />
people devote 100% of <strong>the</strong>ir capacity and attention to extensive integration projects, and at<br />
least 50% to partial integration projects. Ideally, <strong>PMI</strong> managers report straight to <strong>the</strong>ir CEO.<br />
"That gives <strong>the</strong>m <strong>the</strong> freedom and <strong>the</strong> standing within <strong>the</strong> organization that <strong>the</strong>y need,"<br />
says <strong>PMI</strong> manager Georg Schulz of international building materials group Holcim. He should<br />
know: His company generates most of its growth through acquisitions.<br />
Full-time PmI Manager<br />
wanted<br />
71%<br />
Ideal<br />
37%<br />
Reality<br />
71% of all participants want<br />
a full-time <strong>PMI</strong> manager, but only<br />
37% see this realized<br />
The above profile may read like <strong>the</strong> résumé of any top executive. For post-merger integration,<br />
however, it is absolutely essential. Experience consistently shows that <strong>the</strong> higher <strong>the</strong><br />
level of personnel involvement in synergy management, <strong>the</strong> earlier <strong>the</strong> <strong>PMI</strong> manager is<br />
involved in an acquisition and <strong>the</strong> more he or she is able to contribute his or her expertise,<br />
<strong>the</strong> greater are <strong>the</strong> prospects for success. "A full-time <strong>PMI</strong> manager is a definite success<br />
factor," agrees Reinhard Fasshauer, head of Group Project Portfolio Management at financial<br />
service provider Talanx. He is far from alone in taking this view. Three out of four of <strong>the</strong><br />
managers queried in <strong>the</strong> <strong>Roland</strong> <strong>Berger</strong> study are convinced that <strong>PMI</strong> managers should be<br />
released to dedicate <strong>the</strong>ir full energies to this task. However, <strong>the</strong> study finds that this is <strong>the</strong><br />
case only in one third of all transactions. Rolf Erfurt, Director Operations & Performance<br />
Improvement at Canadian aircraft manufacturer Bombardier, is ano<strong>the</strong>r man who knows <strong>the</strong><br />
value of such a position: "You will only be able to leverage synergies later on if <strong>the</strong> <strong>PMI</strong><br />
manager is involved from <strong>the</strong> outset." Nearly every second respondent in <strong>the</strong> <strong>Roland</strong> <strong>Berger</strong><br />
study comes to <strong>the</strong> same conclusion: In <strong>the</strong> case of successful takeovers, <strong>the</strong> <strong>PMI</strong> manager<br />
was nominated before negotiations even commenced.
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Keys to REALIZING synergies<br />
Culture Sustainability<br />
Speed<br />
Efficiency<br />
Selection: New formula evaluates synergies<br />
But how can effective actions to tap synergies be identified systematically? Do you look<br />
from one end of <strong>the</strong> value chain to <strong>the</strong> o<strong>the</strong>r? Sort <strong>the</strong>m by revenue potential, cost-cutting<br />
potential or opportunities to improve <strong>the</strong> product portfolio?<br />
<strong>Roland</strong> <strong>Berger</strong> has developed a new formula for <strong>the</strong> selection of synergy levers that<br />
allows evaluation to be aligned with <strong>the</strong> individual situation. It distinguishes between tops<br />
and flops and can be applied to all aspects of <strong>the</strong> company ei<strong>the</strong>r vertically (along <strong>the</strong> value<br />
chain) or horizontally. Four criteria are critical to realizing synergies:<br />
Efficiency: What is <strong>the</strong> (monetary) value of <strong>the</strong> synergy?<br />
Speed: How quickly can actions unfold <strong>the</strong>ir full impact?<br />
Sustainability: Is it a one-time effect or a permanent saving?<br />
Culture: Will employees be able to understand and accept <strong>the</strong> action?<br />
The <strong>Roland</strong> <strong>Berger</strong> study comes to an unequivocal conclusion: Successful <strong>PMI</strong> projects<br />
directly reflect how much importance is attached to <strong>the</strong>se four criteria when selecting<br />
synergies. Not only are <strong>the</strong> criteria applied significantly more frequently in successful<br />
cases: They are also crucial in achieving that success.<br />
True, experience counts for much. Yet <strong>the</strong> crucial factor is always to scour both sides of <strong>the</strong><br />
alliance in search of potential. As obvious as that may sound, reality shows that it clearly<br />
isn't. The <strong>Roland</strong> <strong>Berger</strong> study shows that, in a third of cases, <strong>the</strong> failure of mergers is attributable<br />
to lack of cooperation on synergy management. In successful M&As, such shortcomings<br />
are hardly ever encountered (only 5%).<br />
Decisions about what is to be done usually get taken from <strong>the</strong> top down – a process that,<br />
as a rule, is completed in a matter of weeks. The outworking of <strong>the</strong>se decisions <strong>the</strong>n takes<br />
place from <strong>the</strong> bottom up and can take months. Only <strong>the</strong>n are potential actions prioritized.<br />
Several rules of thumb apply: Quick and easy takes precedence over slow and complicated.<br />
To begin with, speed of implementation beats optimized costs. Priority is given to actions<br />
that keep customers and employees on board. Swift revenue gains can silence <strong>the</strong> skeptics,<br />
give a boost to supporters and allay <strong>the</strong> fear of job losses. Risk discounts too can help<br />
shrink overblown expectations down to more realistic dimensions.<br />
Alignment: The mix is what matters<br />
Keeping a close eye on costs is an important part of synergy management. Making a fast<br />
buck is not all <strong>the</strong>re is to it, however. "It is not enough just to look at financial synergies,"<br />
notes Joachim Hofmann, <strong>PMI</strong> manager at German power line provider SAG. Synergies<br />
that make production more efficient or streamline <strong>the</strong> organization of global production<br />
networks can have a faster impact on <strong>the</strong> new corporate entity than, say, much-hyped<br />
attempts at vertical integration or drives to slash overhead costs. Though frequently underestimated,<br />
mutual dependencies and interrelationships between individual actions are<br />
equally critical to <strong>the</strong> success of an M&A venture.
content<br />
<strong>Post</strong> <strong>Merger</strong> <strong>Integration</strong><br />
A matrix developed by <strong>Roland</strong> <strong>Berger</strong> clearly shows which of <strong>the</strong>se levers operate in isolation<br />
and which only work in connection with o<strong>the</strong>r levers. The issue of a global production<br />
footprint, for example, is more closely intertwined with vertical integration and <strong>the</strong> topics<br />
of management than, say, production efficiency. On <strong>the</strong> o<strong>the</strong>r hand, overhead costs are<br />
<strong>the</strong> most important lever with which to influence <strong>the</strong> latter.<br />
Knowing exactly how different levers affect each o<strong>the</strong>r raises <strong>the</strong>ir efficiency. The key is to<br />
test every action early on to be sure it will work in practice. It is not unusual for <strong>the</strong> workforce<br />
initially to feel blown away by <strong>the</strong> fresh winds blowing from board level; and it is important<br />
to remember that uncertainty can paralyze or even sink even <strong>the</strong> best attempts at integration.<br />
Top performers in particular quickly feel slighted or left out – and <strong>the</strong>n just go,<br />
taking <strong>the</strong>ir knowledge with <strong>the</strong>m. "The biggest mistake," SAG manager Hoffmann says,<br />
"is not getting <strong>the</strong>se people to buy into <strong>the</strong> process."<br />
At least as bad is <strong>the</strong> fact that <strong>the</strong>re is so little leeway for most M&As. This places an inordinate<br />
strain on <strong>the</strong> organization, which disconnects from <strong>the</strong> move – or obstructs it – ra<strong>the</strong>r<br />
than playing its part. For those charged with driving mergers, <strong>the</strong> pressure to succeed is<br />
sometimes enormous. Careers depend on it. Yet pressure leads to resistance. Influence,<br />
jobs and money – lots of money – are at stake. And time is money.<br />
Actions taken too hastily are just as counterproductive as false promises, however.<br />
They alienate employees and kindle uncertainty among o<strong>the</strong>r stakeholders. Experience<br />
teaches us that synergies that are not realized within two years at <strong>the</strong> latest will<br />
probably never be realized. It follows that <strong>the</strong> time frame for <strong>PMI</strong> projects should nei<strong>the</strong>r<br />
be excessively tight nor over-generous. The ideal schedule will map out in detail what<br />
happens when. To this end, it should reveal interdependencies between individual actions<br />
and clearly show who within <strong>the</strong> organization is responsible for what. Milestones break <strong>the</strong><br />
journey down into manageable stages. A detailed schedule will always build on a readymade<br />
foundation: <strong>the</strong> integration plan produced by <strong>the</strong> due diligence test. This is <strong>the</strong><br />
phase in which <strong>the</strong> initiator of <strong>the</strong> transaction carefully and systematically ga<strong>the</strong>red,<br />
checked and analyzed <strong>the</strong> detailed data concerning a potential investment, takeover or<br />
merger candidate, or in which <strong>the</strong> said candidate disclosed this data.<br />
What may look easy on paper is in fact a tour de force that pushes many an organization<br />
to its limits and beyond. Everything seems to be being restructured, realigned and modified<br />
all at <strong>the</strong> same time – and that while <strong>the</strong> ship is still going full steam ahead. Companies<br />
can apply <strong>the</strong>mselves as intensely as <strong>the</strong>y like to getting <strong>the</strong>ir mergers completed. They<br />
can be as disciplined and rigorous as <strong>the</strong>y like about leveraging potential synergies to<br />
ensure sustainable positive performance. The stark reality never<strong>the</strong>less remains unchanged:<br />
Even <strong>the</strong> best <strong>the</strong>ories are never an exact science. There are pitfalls at every turn.<br />
That is why schedules are <strong>the</strong>re to be adapted. What must never be adapted, however,<br />
are <strong>the</strong> milestones defined for <strong>the</strong> <strong>PMI</strong> process – if only in <strong>the</strong> interests of maintaining credibility.<br />
Any departure from this proven principle could put <strong>the</strong> entire project at risk.<br />
IF YOU HAVE ANY QUESTIONS,<br />
PLEASE FEEL FREE TO CONTACT US:<br />
Thomas Rinn, Partner<br />
+49 711 3275-7349<br />
thomas_rinn@de.rolandberger.com<br />
Oliver Knapp, Partner<br />
+49 711 3275-7213<br />
oliver_knapp@de.rolandberger.com<br />
Christian Böhler, Senior Consultant<br />
+49 89 9230-8017<br />
christian_boehler@de.rolandberger.com<br />
think:act CONTENT<br />
…ditors:<br />
Prof. Dr. Burkhard Schwenker, Dr. Martin C. Wittig<br />
Project management: Dr. Ka<strong>the</strong>rine Nölling<br />
Layout: <strong>Roland</strong> <strong>Berger</strong> Media Design<br />
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