Post Merger Integration (PMI)underscores the ... - Roland Berger

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Roland Berger Strategy Consultants Keys to REALIZING synergies Culture Sustainability Speed Efficiency Selection: New formula evaluates synergies But how can effective actions to tap synergies be identified systematically? Do you look from one end of the value chain to the other? Sort them by revenue potential, cost-cutting potential or opportunities to improve the product portfolio? Roland Berger has developed a new formula for the selection of synergy levers that allows evaluation to be aligned with the individual situation. It distinguishes between tops and flops and can be applied to all aspects of the company either vertically (along the value chain) or horizontally. Four criteria are critical to realizing synergies: Efficiency: What is the (monetary) value of the synergy? Speed: How quickly can actions unfold their full impact? Sustainability: Is it a one-time effect or a permanent saving? Culture: Will employees be able to understand and accept the action? The Roland Berger study comes to an unequivocal conclusion: Successful PMI projects directly reflect how much importance is attached to these four criteria when selecting synergies. Not only are the criteria applied significantly more frequently in successful cases: They are also crucial in achieving that success. True, experience counts for much. Yet the crucial factor is always to scour both sides of the alliance in search of potential. As obvious as that may sound, reality shows that it clearly isn't. The Roland Berger study shows that, in a third of cases, the failure of mergers is attributable to lack of cooperation on synergy management. In successful M&As, such shortcomings are hardly ever encountered (only 5%). Decisions about what is to be done usually get taken from the top down – a process that, as a rule, is completed in a matter of weeks. The outworking of these decisions then takes place from the bottom up and can take months. Only then are potential actions prioritized. Several rules of thumb apply: Quick and easy takes precedence over slow and complicated. To begin with, speed of implementation beats optimized costs. Priority is given to actions that keep customers and employees on board. Swift revenue gains can silence the skeptics, give a boost to supporters and allay the fear of job losses. Risk discounts too can help shrink overblown expectations down to more realistic dimensions. Alignment: The mix is what matters Keeping a close eye on costs is an important part of synergy management. Making a fast buck is not all there is to it, however. "It is not enough just to look at financial synergies," notes Joachim Hofmann, PMI manager at German power line provider SAG. Synergies that make production more efficient or streamline the organization of global production networks can have a faster impact on the new corporate entity than, say, much-hyped attempts at vertical integration or drives to slash overhead costs. Though frequently underestimated, mutual dependencies and interrelationships between individual actions are equally critical to the success of an M&A venture.
content Post Merger Integration A matrix developed by Roland Berger clearly shows which of these levers operate in isolation and which only work in connection with other levers. The issue of a global production footprint, for example, is more closely intertwined with vertical integration and the topics of management than, say, production efficiency. On the other hand, overhead costs are the most important lever with which to influence the latter. Knowing exactly how different levers affect each other raises their efficiency. The key is to test every action early on to be sure it will work in practice. It is not unusual for the workforce initially to feel blown away by the fresh winds blowing from board level; and it is important to remember that uncertainty can paralyze or even sink even the best attempts at integration. Top performers in particular quickly feel slighted or left out – and then just go, taking their knowledge with them. "The biggest mistake," SAG manager Hoffmann says, "is not getting these people to buy into the process." At least as bad is the fact that there is so little leeway for most M&As. This places an inordinate strain on the organization, which disconnects from the move – or obstructs it – rather than playing its part. For those charged with driving mergers, the pressure to succeed is sometimes enormous. Careers depend on it. Yet pressure leads to resistance. Influence, jobs and money – lots of money – are at stake. And time is money. Actions taken too hastily are just as counterproductive as false promises, however. They alienate employees and kindle uncertainty among other stakeholders. Experience teaches us that synergies that are not realized within two years at the latest will probably never be realized. It follows that the time frame for PMI projects should neither be excessively tight nor over-generous. The ideal schedule will map out in detail what happens when. To this end, it should reveal interdependencies between individual actions and clearly show who within the organization is responsible for what. Milestones break the journey down into manageable stages. A detailed schedule will always build on a readymade foundation: the integration plan produced by the due diligence test. This is the phase in which the initiator of the transaction carefully and systematically gathered, checked and analyzed the detailed data concerning a potential investment, takeover or merger candidate, or in which the said candidate disclosed this data. What may look easy on paper is in fact a tour de force that pushes many an organization to its limits and beyond. Everything seems to be being restructured, realigned and modified all at the same time – and that while the ship is still going full steam ahead. Companies can apply themselves as intensely as they like to getting their mergers completed. They can be as disciplined and rigorous as they like about leveraging potential synergies to ensure sustainable positive performance. The stark reality nevertheless remains unchanged: Even the best theories are never an exact science. There are pitfalls at every turn. That is why schedules are there to be adapted. What must never be adapted, however, are the milestones defined for the PMI process – if only in the interests of maintaining credibility. Any departure from this proven principle could put the entire project at risk. IF YOU HAVE ANY QUESTIONS, PLEASE FEEL FREE TO CONTACT US: Thomas Rinn, Partner +49 711 3275-7349 thomas_rinn@de.rolandberger.com Oliver Knapp, Partner +49 711 3275-7213 oliver_knapp@de.rolandberger.com Christian Böhler, Senior Consultant +49 89 9230-8017 christian_boehler@de.rolandberger.com think:act CONTENT …ditors: Prof. Dr. Burkhard Schwenker, Dr. Martin C. Wittig Project management: Dr. Katherine Nölling Layout: Roland Berger Media Design Roland Berger Strategy Consultants GmbH Am Sandtorkai 41 20457 Hamburg +49 40 37631-4421 news@rolandberger.com www.think-act.info
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