The Complete Guide to Mergers and Acquisitions

Process Tools to Support M&A Integration at Every Level

Timothy J. Galpin

• Publisher: Jossey-Bass
• Year: 2014
• Print ISBN:
  9781118827239
• Edition: 3
• eBook ISBN:
  9781118827024
• Topic: Business
• Subtopic: Organisational Behaviour
• Index: Business

Ease the M&A process with a more effective integration plan

The Complete Guide to Mergers and Acquisitions is the ultimate handbook for planning and managing post-merger integration. Packed full of "how to" guidance, tools, templates and resources that have been put to the test on numerous due diligence and integration efforts around the world, The Complete Guide to Mergers and Acquisitions has been the go-to guide for firms seeking to maximize the value of their deals since the release of the first edition in 1999.

Poor integration management virtually ensures that a merger or acquisition will fail to meet financial and strategic goals. The Complete Guide to Mergers and Acquisitions provides the information that enables firms to quickly and prudently capture projected cost and revenue synergies, and to move the combined organization forward. The book addresses strategic deal considerations, due diligence, integration management, people dynamics and cultural integration, common integration mistakes, communications strategies, and provides actionable steps toward creating measurable, positive results throughout the integration process. The updated third edition contains new information and tools to help firms in any industry manage deals of all sizes, including:

• Results of The State of M&A Integration Effectiveness Survey, 2014
• A new chapter on the M&A process deal stages, with an expanded Deal Flow Model
• Findings of substantial M&A research from various studies in multiple industries and organizations, supporting the concepts presented throughout the book
• New and revised tools and templates for due diligence, integration, and results measurement and reporting
• New case examples of recent transactions
• Highlighted 'Key Principles' throughout each chapter
• A summary of key points at the end of each chapter
• Discussion questions addressing the key themes of each chapter
• A 'rapid assessment' diagnostic regarding the key elements of each chapter, which can be completed for any organization
• A revised chapter on taking your M&A game to the next level – essential requirements for building M&A capabilities into a consistently successful enterprise competency

Merger and acquisition activity across the globe continues to grow, and is also playing a major role in the development of expanding markets. A well-managed integration effort is essential to success, and failure means a tremendous waste in terms of time and money, as well as the rapid destruction of shareholder value. The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level, Third Edition is an invaluable resource to guide firms in managing M&A integration and maximize the value of their deals.

Chapter One
Integration: Where Deal Value Is Realized

It's Merger Monday…

…Among other transactions, another mega-merger was announced today—this morning, industry leader Your Company announced an initial agreement to merge with industry giant Their Corporation. During a joint press conference, the two companies' CEOs described the combination as “a true merger of equals.”

The two went on to state, “It's too early in the deal to begin planning for integration, but we are confident that the new company will be stronger together than either company could be on its own. This combination will benefit everyone involved including our customers, shareholders, and employees alike. We will communicate more about the merger to our stakeholders as we have more information to share. Our plan to combine the two companies is essentially to ease the changes in. We will freeze the two organizations for at least a year and, once things settle down, we'll see what we have in the way of products, operations, systems, and people. Once our employees and customers get comfortable with each other and the new entity, we'll then start integrating the two businesses.”

Sound familiar? Announcements like this have appeared in the business media so frequently for the past few decades that mergers and acquisitions have become part of daily business. Even after the financial crisis of 2008, total global M&A deal volume reached US$2,215 billion for 2013 (Mergermarket, 2014). Moreover, merger and acquisition activity is forecasted to increase as economic conditions and confidence in various regions around the globe improve (Ernst & Young, 2013). Deloitte's third annual (2012) Corporate Development survey of 309 professionals involved in M&A at their companies—representing heads of corporate development/M&A, CFOs, CEOs/presidents, and board members—found predictions of an increase in both merger and acquisition and strategic alliance activity over the next two years. Nearly half the respondents (46 percent) expected an increase in mergers and acquisitions activity. The study also found that executives in the manufacturing sector are the most bullish on M&A prospects, with more than half responding that they expect an increase in strategic alliance transactions driven by investment in emerging markets (Wall Street Journal, September 15, 2013).

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Key Principle

Even after the financial crisis of 2008, M&A volume is still at high levels and will continue to grow as economies and confidence in various regions around the globe improve.

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Buyer Beware!

Ultimately, for a merger or acquisition to be considered a success, the NewCo (the term we will use throughout our discussions to designate newly formed entities resulting from M&A transactions) must increase shareholder value faster than if the companies were separate. However, in spite of continued high deal volumes, most M&As still fail to accomplish many of the strategic objectives so optimistically projected in the initial announcements.

Mergers and acquisitions often destroy shareholder wealth in the acquiring companies. A study by the National Bureau of Economic Research (NBER, 2014) of 12,023 transactions found that, over a twenty-year period, U.S. takeovers led to losses of more than $200 billion for shareholders. Likewise, other research has found that M&As have a failure rate of between 50 and 85 percent. For example, a KPMG study found that 83 percent of these deals hadn't boosted shareholder returns; another study, by A. T. Kearney, found that total returns on M&A were negative (Heffernan, 2012). Likewise, in a 2012 study conducted by the Canadian Financial Executives Research Foundation (CFERF), only 20 percent of finance executives who had been involved in mergers or acquisitions during the previous five years said their transactions were “very successful.” Survey respondents indicated that they determined the success of their transactions by measuring different metrics: 69 percent of respondents measured revenue growth; 63 percent of respondents measured achievement of specific synergies other than cost reduction; and 45 percent of respondents measured retention of key talent. However, executives are not deterred from future attempts at M&As. The vast majority (more than 80 percent) of the survey participants said they were at least “somewhat likely” to do another M&A in the next twenty-four months (Wall Street Journal, January 23, 2013).

Beyond the research, case examples demonstrate the high potential for failure of M&As. For example, on September 3, 2001, the day prior to Hewlett Packard's announcement of its acquisition of Compaq, HP's stock price was $23.11. After the announcement HP's stock dropped to $18.87 and stayed pretty much at that same level for the following three years, selling at $18.70 on September 21, 2004—down over 19 percent from its pre-acquisition selling price (Wheelen and Hunger, 2006). Likewise, following Quaker Oats Company's 1994 acquisition of Snapple Beverage Corporation, one of the more ill-fated M&A deals in corporate history, Quaker Oats lost $1.4 billion in just twenty-seven months. Quaker's strength in supermarkets and mass distribution was a poor match with Snapple's convenience-store market. The new owners of Snapple replaced a popular ad campaign with new marketing programs that immediately flopped. In addition, Wall Street considered Snapple's purchase price to have been about $1 billion too high. All these factors and more resulted in a $1.6 million loss for every day that Quaker owned Snapple.

Cases such as the ones just discussed are sensational and garner a great deal of public attention. Yet smaller firms are not exempt from M&A problems. It is easy to assume that the managers of smaller firms with a flatter structure would have an easier path to M&A success. Yet there is considerable evidence that this is not the case. Poor M&A performance has also been documented for small- to mid-size industry consolidations including freight hauling (Prince, 2009); cleaning services, garden supplies, and lawn services (Gilbert, 1989); and scrap metal (Marley, 2008)

One of the most compelling statistics regarding the risk that management undertakes when doing mergers and acquisitions is that M&As rank above even business start-ups as the most risky business undertaking; with over 80 percent of M&As resulting in no or negative shareholder returns (Heffernan, 2012), while 75 percent of new businesses do not survive more than five years (Hogarth and Karelaia, 2012). The high failure rate of M&As is not surprising. In fact, our most recent survey (Galpin and Herndon, 2014) found that not even a third (32 percent) of respondents believe that their company's “overall M&A capability and readiness level” is “good” or “outstanding,” whereas over two-thirds (68 percent) of respondents see the...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• List of Exhibits
• Foreword: Building M&A Integration Capabilities as a Competitive Advantage
• Preface
• The Authors
• Chapter One: Integration: Where Deal Value Is Realized
• Chapter Two: The Deal Flow Model: Pitfalls and Best Practices Throughout the M&A Process
• Chapter Three: Integration Begins with Due Diligence
• Chapter Four: Welcome to the Big Leagues of Change Management
• Chapter Five: The Merger Integration Work Streams Model
• Chapter Six: Organizing, Involving, and Coordinating Integration Task Forces
• Chapter Seven: Waging the Communications Campaign
• Chapter Eight: Don't Let Them Jump Ship: Retaining and Rerecruiting Your Key People
• Chapter Nine: Setting the Organization Cures Many Ills: Structure and Staffing Decisions
• Chapter Ten: Tracking Success: Merger Measurement Systems
• Chapter Eleven: “But They're So Different”: Cultural Integration
• Chapter Twelve: Human Capital Integration and the Human Resources Function
• Chapter Thirteen: Merger Repair
• Chapter Fourteen: Taking Your M&A Game to the Next Level
• Resource A: Sample Task Force Charter*
• Resource B: Integration Planning Template*
• Resource C: Executive Summary—The State of M&A Integration Effectiveness Survey, 2014
• References
• More From Wiley
• Index
• End User License Agreement