Research suggests that up to 75% of mergers and acquisitions consistently fail to deliver the expected results to their stakeholders. It’s critical for both sides to achieve the true valuation for their businesses and steer clear of common pitfalls that lead to unsuccessfully capturing the real value of the integration.
Mergers and Acquisitions remain the most popular method of corporate growth within the accounting sector. Stakeholders reasons for the undertaking may include:
- An increase in market share and associated power
- Protection of market share by weakening or eliminating competitors
- Acquisition of new services, products, capabilities or technologies
- Strengthening of the business by growth of core service revenue
- Geographical expansion to develop a stronger regional or national brand
- To achieve critical mass to allow greater leverage and economies of scale
- Skilled staff and or Management buyout
However, the real benefit of M&As in the marketplace remains uncertain with plenty of anecdotal reports suggesting that that target firm’s shareholders may gain more than the acquiring firm’s shareholders as the transition from two to one firm proceeds. Having “bigger is better” as the only goal will often can lead to acquisitions that are disruptive and fall short of expectations.
Vertical mergers are more likely to achieve value creation, as they have the potential to create stronger synergies through the integration of services that are complimentary in the eyes of the consumer. There is real value to be achieved from combining compliance and advisory services, or from combining data collection and analysis services.
For smaller firms looking at horizontal integration, it’s often reasonable to assume that, at best, the performance of the new firm will simply match the performance expectations for the two ‘stand-alone’ companies. With an increasing number of sole practitioner firms seeking to exit the industry and or to consolidate with other firms, what actions can the buyers of such firms take to maximise the value of integration and synergies?
Collaboration – Don’t assume ‘our way is better’ than theirs
It’s easy to adopt the high road and assume that with a purchase of fees comes the assumption of superiority in leadership and management. Often, there are real opportunities to be identified for changing the way things are done. If nothing else, the merger or acquisition provides the opportunity to critically evaluate both the strengths and weaknesses of underlying performance of both firms in relation to workflow management, client relationship management and team management. An independent assessment of strengths and weaknesses can be a great starting point towards an inclusive approach to transition and the development of a new cultural identity. This should be the over-riding objective during a horizontal integration.
Communication – Don’t assume clients don’t want to know
Clearly, the first message to client of both the predecessor and successor firms should be one of reassurance in respect of relationship management, service levels and fees. However, the perceived sensitivity of client toward change can often result in a paralysis of intent, where any change in client communication is minimised for the fear of loss of clients and fees. A more sensible approach would be to clearly identify, up front, the strategic reasons for the merger and the benefits that will accrue to clients. If it’s value you’re selling, then you should be communicating the new value proposition as soon as possible following the merger. This is especially so with vertical integration.
Take time – but not too much time – to assess the situation
There’s often an urgent need to rationalise, streamline and eliminate duplication in the weeks and months following merger. Of course, the transition process of ‘discovery’ where both parties assess and understand each other is important following M&A. However, it’s impossible for all potential issues and challenges to be identified up front during due diligence. Time to assess team and individual personalities and behaviours and to establish some ground rules for the new relationship is essential for success. However, this process should not last any longer than 3 months.
The process of communication and engagement should commence immediately once the deal is finalised, before the handover or market announcement, with a strategic and operational plan of action in relation to branding and marketing, client and team engagement, service and systems integration and financial management.
Consider these 7 questions as you start to focus on post-merger integration:
1. What are the strategic objectives and timeframes for these objectives for both parties involved in the merger? How will synergies be harnessed for the benefit of the new firm?
2. How will leadership and management conversations and decisions be managed to ensure that there is true collaboration and engagement with all stakeholders?
3. What will the new firm look like and how do the partners communicate the new firm’s branding and value proposition to both groups of clients?
4. How will client relationship, workflow management and financial management systems be integrated to ensure that all information is shared as quickly as possible?
5. What opportunities exist, adding value to existing clients and bring in new clients through the merger and how will these opportunities be developed?
6. What opportunities exist to extend the marketing reach of the new brand beyond the reach of either previous brands and how will these opportunities be developed?
7. What are the challenges and roadblocks that are likely to arise as the transition commences and what can be done to address these proactively.
There’s little doubt that, whilst M&As are successful in achieving some benefits for both affected parties, the real value of M&A is often unrealised simply due to lack of detailed strategic and operational planning.
The strategic approach that ‘if we tread carefully, it will be alright’ is not a proactive one and will often result in unrealised opportunities, misalignments of culture and post-acquisition roadblocks. By implementing a strategy of dynamism, flexibility and keeping an arms distance implementation process (to alleviate the emotional factor), an effective M&A transition strategy can maximise the new company’s value.
Dale Crosby | firstname.lastname@example.org