Boardroom Briefing: Mergers & Acquisitions - Directors & Boards

Six M&A Transition Principles for Boards
By Bruce Myers and Jim Peters
How boards can help ensure acquisitions deliver promised shareholder value
Bruce Myers
Jim Peters
Every study
over the
past decade
regarding M&A
value creation
has come
to the same
conclusion:
The acquiring
company,
in roughly
two-thirds of
cases, does
not realize
the planned
synergies, and
as a result
destroys some
amount of
shareholder
value.
Problems usually do not occur
during the transaction phase—where
the board is typically more heavily
involved—but during the transition
phase where rapid execution of
key priorities must be completed.
Based on our experience in the
corporate turnaround, restructuring,
and performance improvement
business, we have discovered two
fundamental M&A truths:
1. The process of integrating two
companies, whether it is termed
a merger or an acquisition,
must be treated with the
urgency and focus applied to a
turnaround situation.
2. Most companies who have
not done many acquisition
integrations will strain to find
the capacity to do the integration
while continuing to run a
successful business.
Boards can help the company
ensure it does not fall into the
two-thirds of mergers that are
unsuccessful by ensuring that their
management has thought through
the answers to some key questions
during the transition.
Our experience shows all successful
transitions have six important
elements in common: rigorous value
measurement, speed, customer
It is a massive job to
integrate the operations
of two organizations,
and expecting the
management team
to do that while
continuing to operate
the business—in effect
doing two more-thanfull-time
jobs—is a
recipe for disaster.
retention, addressing the tough
issues early, communication, and
a small experienced full-time team
focused on driving the transition.
Here are some specific questions a
board can ask its management team
to help them proactively address
these key areas.
Is There a Rigorous Value
Measurement Process in Place
to Show Monthly Progress?
The overall measure of merger
success for shareholders is the
increase in operational cash flow
(or EBITDA) that is generated by
the newly combined company.
Management must clearly define,
quantify, prioritize, and measure
the achievement of operational
cash-flow targets. This is a critical
ongoing process. While it is
understood intellectually, it is most
often fumbled in executing the
transition. Below are the three keys
to success in this area:
• Management must establish a
detailed pre-merger baseline so it
can measure the improvements
achieved. It is amazing how
many times this simple step is not
done in a rigorous way, leading
to ongoing debates regarding
actual improvement. Without a
clearly communicated baseline,
value created (i.e., the increase
in operational cash flow) is
difficult to measure. The process
for defining the original baseline
becomes more difficult as the
integration process progresses.
• Hold individuals and teams
accountable for achieving results
by assigning specific targets
and, if possible, tie incentives
to achievements as a tool for
teambuilding and focus. Incentives
can be powerful forces in
pushing managers to work crossfunctionally,
plan aggressively,
1 6 B o a r d r o o m B r i e f i n g : M e r g e r s & A c q u i s i t i o n s