Editor's Note: Take a look at our featured best practice, Post Acquisition Integration Strategy (Post Merger Integration - PMI) (79-page PDF document). XYZ is pleased to have assisted Client X's leadership in developing the following Company A Integration Strategy. The strategy represents an intense, four-week collaboration between Client X and XYZ to define the integrated end state, integration approach, synergy opportunities and Day One [read more]
Conducting PMI? Here Are the Critical 8 Decision Levers to Evaluate
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Mergers and Acquisitions (M&A) are unique and complex endeavors. These initiatives demand tailored solutions keeping in view the varying environments, ways of doing business, culture of the two combining organizations, and internal and external forces influencing the deal.
These transactions necessitate making 8 important decisions based on thorough deliberation and analysis of all relevant factors well before the integration process. These fundamental decisions and relevant factors form the 8 decision levers of Post-merger Integration (PMI). These 8 decision levers of PMI are essential for devising an optimal integration approach and, subsequently, the success of an M&A initiative:
- Form of Synergy to Be Created: Cost-cutting versus growth
- Required Pace of Integration: Quick versus steady
- Degree of Integration: Extensive versus partial
- Nature of Integration: Buyout versus a merger
- Commencement of Integration: Urgent or delayed
- Integration Project Team Organization: Clean or shared
- Decision Making Style: Implicit and prompt versus lengthy and analysis based
- Transaction Change Management: Tacit versus one that requires comprehensive actions
These decision considerations facilitate Post-merger Integration across all industries and organizations of various sizes. Let’s discuss the first 3 decision levers in detail now.
Lever 1 – Form of synergy to be created
The foremost element of a PMI is deciding on the type of synergy to be achieved through integration. The question is to either focus on achieving cost reduction or growth synergies.
If cost cutting is the objective of an M&A then the leadership of the combined organization needs to outline potential costing saving opportunities across the board. This should be followed by robust communication strategy to convey the implications of the M&A program. However, if the management’s objective is to unlock growth synergies from the acquisition, then the integration is to be treated as a strategic endeavor—e.g., understanding the customer needs, evaluating market potential, generating innovative business ideas, and developing execution plans.
Lever 2 – Required pace of integration
The 2nd lever demands from the senior leadership to determine the pace most appropriate for the integration of their newly combined enterprise—i.e., to choose between a fast track and a steadier integration approach.
A majority of executives believe that PMI should be executed as quickly as possible, so that upon completion of the initiative they could divert their center of attention back to business operations. This approach, however, involves decisions that aren’t backed by detailed analysis of facts and data, and is likely to face increased risks and uncertainties.
On the other hand, a slower pace of integration is beneficial in case of a friendly takeover or expansion in a new domain. A steadier pace of integration works well to reduce any apprehensions, cynicism, bottlenecks, and risks due to oversight.
Lever 3 – Degree of Integration
PMI necessitates gauging the appropriate degree of integration beneficial for the organization—i.e., choosing between extensive across the board versus partial integration.
An absolute focus on cost synergies warrants an extensive degree of integration across all departments and geographies. This puts extra pressure on teams in terms of work and risks dwindling enterprise focus on the customer. Committing more resources and setting the priorities right aids in offsetting the risks associated with an extensive degree of integration.
A partial integration, on the other hand, is simpler, less controversial, and predominantly warrants consolidation of sales or alignment of mission-critical processes. This typically works well in takeovers requiring new products acquisition or addition of new customer segments.
Interested in learning more about the other 5 decision levers of PMI? You can download an editable PowerPoint on Post-merger Integration (PMI): 8 Levers here on the Flevy documents marketplace.
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28-slide PowerPoint presentation
This document provides a guide and framework for best practice in post merger integration.
Post merger integration is the process of combining two separate companies in a way that quickly creates the most value and fulfils the expectations outlined in the acquisition vision.
The framework [read more]
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Gain the knowledge and develop the expertise to become an expert in Post-merger Integration (PMI). Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.
M&A is an extremely common strategy for growth. M&A transactions always look great on paper. This is why the buyer typically pays a 10-35% premium over the of the target company's market value.
However, when it comes time for the Post-merger Integration (PMI), are we really able to capture the expected value? Studies show only 20% of organizations capture projected revenue synergies and only 40% capture cost synergies. Not to mention, the PMI process is typically very painful, drawn out, and politically charged, often resulting in the loss of key personnel.
Learn about our Post-merger Integration (PMI) Best Practice Frameworks here.
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Post-merger Integration (PMI) is a highly complex process. It requires swift action as well as running the core business activities simultaneously. There is no one-size fits all approach to a successful PMI Process. However, careful planning focusing on the strategic objectives of the deal and the [read more]
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About Mark Bridges
Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.
