Integration Success: Ensuring an M&A Deal Offers Real Value

A competitive industry filled with convergence, technological changes, ongoing disruption, and pressure to stay competitive has pushed dealmakers to maximize the value of every deal they undertake. So it stands to reason that creating value should be a key priority with every transaction. Yet a recent PwC report shows that many deals fail to create any value at all.

‍Key Report Findings 

Some key findings of the report include:

• Many transactions create little or no value, even when deal makers assert that they do. Half (53%) of buyers and sellers (57%) under-performed compared to industry peers for 24 months following deal completion.
• Prioritizing value creation can help maximize deal value. Divestors and acquirers who prioritize value surpass industry benchmarks by a respective 6% and 14%.
• Priorities are often mixed. Sixty-six percent of acquirers assert that value creation should be an early priority, but only 34% of acquirers say it actually was.

Ensuring Deals Create Value 

The report points to a handful of strategies that can build value:

1. Create a comprehensive value creation plan, with clear goals and benchmarks. This should be a blueprint, not just a to-do list. Design a thorough process for completing the deal, and plan for due diligence and integration. The overwhelming majority of sellers say that the tax and legal structure of the deal could have been improved, and that there were better ways to extract working capital. Likewise, most buyers assert that the deal either did not have an integration plan at signing, or that it lost value.
2. Focus on strategic intent. You must have a clear strategic vision, and should align deals to long-term goals instead of snapping up opportunistic deals. Almost all buyers say that a deal was part of their long-term strategic plan, but many sellers do not approach deals in this way. Working with a professional advisor can help ensure the deal remains on track, and that it takes you closer to strategic goals.
3. Know the importance of culture. Cultural misfits are a key reason deals fail at integration. You must manage people and cultural factors from the very beginning, not treat them as an afterthought, or as a problem that will solve itself. Failing to understand cultural issues can prove catastrophic. Almost all sellers say they could have derived greater value from a sale by working more closely with management. Likewise, 82% of companies say they lost more than 10% of their staff following the transaction. They assert that this cost significant value, and that in many cases it even destroyed the deal.

Businesses that want their deals to succeed should not assume they will be the exception to the rules above, or that the deal will be successful without planning and expert insight. Deal making is challenging, even in the best circumstances. The right strategic plan, knowledge of the market, and attention to common reasons for deal failure can position you for a successful integration.