Have you ever worked for a company that's acquired another, or that's been acquired? Given the worldwide volume of M&A activity, most managers would answer "yes" to that question. In 2009 alone, despite the recession and the credit crunch, 5,800 deals were announced, worth $2.3 trillion -- and that was the lowest volume of M&A activity since 2004! Volume in 2010 is already significantly higher, with predictions that by the end of the year it will rise over 30%. Just in the last few weeks deals were announced by United Airlines (merging with Continental); GS Capital (buying Michael Foods); Abbott Labs (buying Piramal Healthcare); and dozens of others. In other words, no matter what the state of the economy, companies continue to merge and acquire as a pathway to growth and (hopefully) increased shareholder value.
One of the keys to creating value from an acquisition is to integrate the two companies in a way that makes it easy for people to do business both internally and with customers. But making that happen is easier said than done. Studies by various consulting firms and universities suggest that only 30% of completed M&A transactions actually pay off as expected -- and one of the reasons is that too often the integration process creates complexity instead of simplicity.
Sometimes this complexity is generated by a laissez-faire attitude toward integration. A consumer packaged goods company, for example, bought a number of brands over several years as a way of rapidly building sales volume. To keep the acquired management teams happy, each brand was allowed to run itself in a semiautonomous way. As the number of brands grew, it became increasingly more difficult to pull together the financials (which each brand was doing differently, using different systems and assumptions) at the end of every month and quarter. Eventually, the company found that it had more finance people than sales people, since so much work was required to reconcile the numbers. The company then spent several years and many millions of dollars to integrate systems that should have been put together as new brands came on board.
The opposite approach can also create complexity. Whenever an acquisition was made in a diversified health care company with many separate divisions, the various corporate staff functions would all immediately descend on the new unit and start giving instructions about the proper way of doing things. Since the managers wanted to please their new bosses, they tried to respond to everything, and ended up creating a series of complicated bureaucracies. Even worse, with all of the attention on internal process changes, many of the newly acquired companies lost focus on their customers and saw falloffs in revenue in the first year. Only when the company stepped back and differentiated between "must have" and "nice to have" processes did their integrations go more smoothly.
The reality is that acquisition integration is a difficult and challenging process -- and unless you're in a company that has built a real competency in this area there will be a certain amount of unintentional complexity. The secret to success is to not accept this complexity as a permanent condition or a necessary evil. Even if you are not a senior manager, or a member of the integration team, you can raise the question of whether your acquisition is creating complexity or building value. You also can make sure that the processes in your own area are streamlined and as consistent as possible with other similar areas; and you can do a postintegration audit (at least of your area) to determine whether the acquisition has made things simpler or more complex. After all, if you don't do something about postintegration complexity, who will?
What's your experience with acquisitions: Have you been able to reduce complexity and increase value?
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