www.pwc.de
Making Deals
Successful
PwC’s M&A Integration
Survey 2013
Preface
Preface
“Surprisingly, we managed the
integration and grew together.”1 Is
integration success blind luck or a
manageable and transparent process?
The respondents’ opinion is clear – while
the overall and general integration
direction and parameters are predefined
in many cases, detailed measures and
approaches that lead to integration
success are often unclear.
Our latest M&A Integration Survey
provides you with an overview of the
challenges serial acquirer face, the
experiences they make and the different
motives they have when integrating
companies. We noticed that value
creation methods in transactions are
consistently evolving – intrinsic growth
and operational improvement have
become more important deal drivers.
Acquirers usually do not complete a
transaction without having a clear
vision for the merged companies. This
is a positive trend which is supported
by the survey results and increases the
chances for the newly formed business
to flourish. However, signing the
contract and preparing the closing does
not determine the end of the transaction
process. We noticed that, in practice, the
subsequent integration execution efforts
are still underestimated.
It is important to master the approach
for essential integration tasks like
the stabilisation of daily business,
motivation of employees, harmonisation
of functions, and realisation of quick
wins. But to reach new levels of
excellence and transaction potential,
integrations must go far beyond these
tasks. Being in a time of change,
structural and organisational
transformations allow companies
to reorganise the business, gain
flexibility, and meet changing markets’
expectations. Conducting full-potential
transformational M&A Integration
projects will help to maximise the
enterprise value.
We would like to thank the survey
participants, who supported us by
completing our questionnaire. Their
contribution enabled us to develop
credible findings and a consolidated
view on the M&A Integration landscape.
We believe you will find the survey
results interesting and enlightening.
Your M&A Integration Survey team
Our experience shows that M&A
Integration is a well-known phrase in
the transaction business, particularly
for serial acquirers who keep large
specialised departments at hand for this
task. However, we also see that many
post-closing processes are still in need
of professionalisation utilising qualified
M&A approaches and integration
methods.
1
Survey participant.
Making Deals Successful 3
Contents
Contents
List of figures............................................................................................................5
About this survey......................................................................................................7
Key highlights...........................................................................................................8
ADirection setting – lay the foundations and concentrate
on individual deal value drivers........................................................................ 10
BThe path to deal success – detailed planning, stringent execution
and constant monitoring................................................................................... 14
1 Integration activities and timing.......................................................................15
2 Complexity of an integration............................................................................ 17
Deep dive: Diligence makes the difference.........................................................18
3 Success metrics.................................................................................................20
Deep dive: Professional support – not initially planned for
but explicitly needed.......................................................................................23
CFunctional diversity – apply customised approaches for different
functions and keep an eye on the urgency of change........................................24
DThe rocky road to synergy realisation – bottom-up planning,
clear responsibilities and profound knowhow...................................................26
Deep dive: Acquirers pay for synergies.............................................................29
ENine issues to be addressed and not always easy to solve..................................32
Contacts..................................................................................................................33
4 Making Deals Successful
List of figures
List of figures
Fig. 1Sector of respondents...............................................................................7
Fig. 2Importance and level of achievement of success
factors classifying an integration as successful....................................... 11
Fig. 3External growth like gaining new customers and
products are the most important strategic aspects.................................12
Fig. 4Sales and profitability are the financial objectives
deal makers focus on..............................................................................13
Fig. 5Many activities are planned pre-deal but not actually
approached during the integration.........................................................15
Fig. 6Most deal makers start planning their
integrations in a timely manner............................................................. 16
Fig. 7
The overall integration time needed is underestimated......................... 16
Fig. 8Returning to daily business determines the end of an
integration for more than half of the respondents.................................. 17
Fig. 9Highest complexity for survey respondents stems from
complex legal structures and cross-border integrations......................... 17
Fig. 10Almost all deal makers use the results of the
due diligence post-closing......................................................................18
Fig. 11Nearly 20% of the survey participants did not develop
any integration plans during the due diligence phase.............................18
Fig. 12The favoured due diligence reports for M&A Integrations
expose operational, commercial and financial aspects...........................19
Fig. 13Most of the survey respondents make use of
success metrics during an integration....................................................20
Fig. 14The majority of the deal makers rely on financial-related
success metrics to measure their integration success..............................21
Fig. 15Monthly quantification of success metrics is
most common for the survey participants..............................................22
Fig. 16The integration success is tracked and monitored
for one or two years post-closing............................................................22
Fig. 17The most inquired consultancy service
is professional project management.......................................................23
Making Deals Successful 5
List of figures
Fig. 18Core business processes show lower levels of
integration depth than non-core processes.............................................25
Fig. 19There is a discrepancy between the importance of synergies
over the course of an integration and the actual achievement................27
Fig. 20There is no predominant reason for failing
in synergies, but rather a variety of motives...........................................28
Fig. 21Deal makers report on a bundle of dissynergies.....................................28
Fig. 22Acquirers pay a premium on target companies
justified by expected synergies..............................................................29
Fig. 23More than half of the respondents expect synergies
between 7 and 12% of the target’s revenue............................................29
Fig. 24Deal makers are too optimistic in assessing the
timing when synergies become effective................................................30
Fig. 25
6 Making Deals Successful
In many cases expected synergies have been overestimated..................31
About this survey
About this survey
“Making Deals Successful” is the latest
study exploring the trends, challenges
and triggers of M&A Integrations in a
rapidly changing deals environment.
By making a thorough selection of the
survey participants, we tried to provide
you with the most valuable insights. The
findings reflect the experiences of more
than 300 deals.
We created an online survey to facilitate
the process for the participants and
to make it as easy as possible for
them to provide us with their unique
experiences and knowledge about
M&A Integration. We ensured that all
participants had in-depth knowledge of
the transactions they were reporting on.
Fig. 1Sector of respondents
Deals
Industries
34%
Of the surveyed respondents, 44% were
at the executive level with such titles
as CEO, CFO, Head of M&A or Head
of Strategy. The remaining 56% were
senior managers in the areas of M&A
and Post Merger Integration.
12%
6%
6%
>300
6%
Executive level
participants
Industrial
Products
15%
Technology
Financial
Services
Automotive
9%
Chemicals
Healthcare
Retail and
Consumer
6%
6%
Media and
Telecommunication
44%
Senior management
56%
Transport
and
Logistics
Companies listed
Revenue
3%
3%
12%
16%
100–250 mil
250–500 mil
750 mil–1 billion
1–1.5 billion
15%
18%
12%
21%
1.5–5 billion
5–10 billion
10–30 billion
> 30 billion
59%
Note: The respective answers of the „best-in-class“ survey respondents are marked
in grey.
Making Deals Successful 7
Key highlights
Key highlights
8 Making Deals Successful
Key highlights
A Direction setting – lay the foundations and concentrate
on individual deal value drivers
Deal makers should not choose generic methods to achieve their integration
objectives. Different industries, business models, company sizes, and products
require distinct and customised approaches to achieve the full value of the
transaction. Being realistic and focusing on the topics that really matter to your
individual deal will bring lasting integration success. All this needs to stand on a
solid basis comprising guiding principles and governance structures (page 10–13).
B The path to deal success – detailed planning, stringent
execution and constant monitoring
Integrations require merger-specific and focused activities – performed at the right
time during the transaction – to achieve the full value-add to the companies. Strong
management commitment/sponsorship and a clear project setup with governance
structures are the activities utilised most by the respondents. In addition, the
definition of the target operating model, empowerment of the right internal
resources, and avoidance of disruption to daily business are not less important.
To measure the integration progress and success, nearly all survey participants
installed financial related success metrics (page 14–23).
C Functional diversity – apply customised approaches for
different functions and keep an eye on the urgency of
change
Integrating companies on the whole or in part is highly complex – it requires a
comprehensive approach to build the big picture as well as a detailed idea of how to
integrate all relevant individual business functions. “Functional diversity” is the key
word. A “one-size-fits-all” approach does not lead to the ideal results. The survey
results show that supporting functions reveal higher levels of integration and are
more often approached than core business functions (page 24–25).
D The rocky road to synergy realisation – bottom-up
planning, clear responsibilities and profound knowhow
Realising synergies in the context of transactions is one of the most decisive topics
deal makers need to manage. It is not only about monetising synergies; in fact,
successful management comprises the precise analysis and determination of
adequate levers of synergies accompanied by the assignment of clear responsibilities
and extensive functional and process knowhow. They usually do not just happen.
The achievement has to be planned in advance: ideally during the pre-deal phase
and definitely before singing. Keeping this in mind, synergies can boost the
performance of the deal. However, deal makers report a great discrepancy between
the relevance of synergies as a success factor and the actual achievement of the
planned synergies (page 26–31).
Making Deals Successful 9
Direction setting – lay the foundations and concentrate on individual deal value drivers
ADirection setting – lay the foundations and
concentrate on individual deal value drivers
10 Making Deals Successful
Direction setting – lay the foundations and concentrate on individual deal value drivers
Figure 2 differentiates between the
importance of the respective factor and
the degree of achievement. Especially in
the areas of generating synergies, many
companies show room for improvement.
This is no significant change compared
to our 2009 survey results where one
quarter of the participants have not
been satisfied with the realisation of
their synergy potentials. Employee
satisfaction and the adherence of the
predetermined project timeline are
notably less relevant for the acquirers.
Our project experience shows
that many deal makers apply
unrealistic assumptions, insufficient
implementation strategies, and
inappropriate metrics when prioritising
their success factors. Some might be of
greater importance at the beginning of a
transaction some more to the end. What
counts is to focus on your individual
deal preferences that matter most.
Fig. 2Importance and level of achievement of success factors classifying an
integration as successful
How important do you classify the respective success factor and to what degree did you
achieve the factor?
4
Financial
objectives
85%
Strategic
objectives
78%
3
Synergy
objectives
Importance
What drives your integration project to
success? The determination of success
factors is crucial not only to measure
the integration performance but also
for strategic direction setting. Not
surprisingly, the survey participants
stated strategic, financial, and synergy
objectives as their most important
success factors to achieve the full
integration potential (Figure 2). A high
degree of achievement with strategic
objectives is not unusual; in many cases,
they are achieved at the moment both
parties agree on the deal. However, a
more detailed view is necessary to get an
integrated picture on these objectives.
75%
Operational
objectives
66%
63%
Retention of
keyemployees
2
1
High employee
Adhered
timeline 28% 29% satisfaction
1
2
3
4
Achievement
Bubble size reflects the percentage of participants applying the
respective success factors as indicator for successful integrations.
Making Deals Successful 11
Direction setting – lay the foundations and concentrate on individual deal value drivers
potential competitors is a very common
strategic goal of deal makers. In many
cases, deal makers achieved or even
overachieved the set objectives. These
optimistic results reflect the fact that
many strategic objectives are achieved
at the moment the deal is closed and
do not need further integration efforts
(Figure 3). However, to reach new levels
of strategic and operational excellence
buyers need to undertake distinct
actions post-deal.
The following section breaks down the
strategic and financial success factors
into more detail. The results show,
that buyers focus on “external growth”
as their main strategic transaction
objective. The prospect of integrating
new products into their portfolios and
the desire for new customers are the
main drivers for the participants. This
holds true for both the best-in-class
companies and the total peer group.
Additionally, an increase in market
share accompanied by a reduction of
Fig. 3External growth like gaining new customers and products are the most
important strategic aspects
What were your strategic objectives and to what degree have they been achieved?
72%
New customers
New customers
86%
10% 5%
Net achieved: 86%
New products
62%
New products
11%
78%
11%
Net achieved: 89%
Increase in market share/reduction of competitors
Increase in market share/
reduction of competitors
59%
18%
76%
6%
Net achieved: 94%
New technologies/R&D knowhow
48%
New technologies/
R&D knowhow
7%
86%
7%
Net achieved: 93%
New sales channels
48%
79%
New sales channels
14%
7%
Net achieved: 79%
New markets
41%
34%
21%
67%
New markets
New management
capabilities/professional
competence
Enhanced reputation
25%
Net achieved: 67%
8%
New management capabilities/professional competence
80%
20%
Net achieved: 80%
Enhanced reputation
17%
83%
Net achieved: 100%
Overachieved
12 Making Deals Successful
Achieved
Partly achieved
Not achieved
Direction setting – lay the foundations and concentrate on individual deal value drivers
In general, participants state more
difficulties in achieving financial
objectives than strategic ones. The
most relevant financial success factors
are sales and profitability (Figure 4).
Focusing on those two, it becomes
apparent that more than half of all
responses indicated only a partial or
non-achievement of set targets. This
might arise from frictional losses
in the beginning of a transaction,
inappropriate integration activities
or too optimistic target setting.
Fig. 4
Just building a combined company does
not increase profitability – one has to
change and optimise processes, systems,
and structures to reach new levels of
economic viability. To boost sales – one
needs to be aware of cannibalisation
effects within the newly combined
product portfolios and increased needs
to achieve cross-selling potentials.
However, transactions are good triggers
to initiate such changes and turn
arounds.
Sales and profitability are the financial objectives deal makers focus on
What were your financial objectives and to what degree have they been achieved?
96%
85%
Sales
Sales
8%
44%
48%
Net achieved: 52%
Profitability
Profitability
9%
36%
45%
9%
Net achieved: 45%
Cost reduction
42%
35%
27%
64%
Cost reduction
Cashflow/liquidity
optimisation
Working capital
optimisation
36%
Net achieved: 64%
Cashflow/liquidity optimisation
11%
56%
33%
Net achieved: 67%
Working capital optimisation
14%
43%
43%
Net achieved: 57%
Overachieved
Achieved
Partly achieved
Not achieved
Making Deals Successful 13
The path to deal success – detailed planning, stringent execution and constant monitoring
BThe path to deal success – detailed
planning, stringent execution and
constant monitoring
14 Making Deals Successful
The path to deal success – detailed planning, stringent execution and constant monitoring
1 Integration activities and timing
Lessons learned are quickly forgotten –
It is common sense to learn from your
previous mistakes and set goals how
to improve integrations in future
transactions. The survey findings reveal
that many of the participants initially
planned to undertake certain activities
but reduced this number drastically
during their integrations.
The results show that management
commitment and sponsorship is
initially planned but fully performed
and executed by only three quarters.
Comparable results can be found for
other activities (Figure 5). This supports
our hypothesis from the previous section
saying that focus on your individual
value drivers is key. Buyers should
concentrate and prioritise activities that
are most important for the respective
phase of the deal. This helps to allocate
resources and tasks efficiently and
reduces negative implications on the
deal. Remarkable is that the need
for professional support is often
underestimated.
Fig. 5Many activities are planned pre-deal but not actually approached during
the integration
Which activities should be of primary focus in an ideal integration, and which activities did
you actually approach?
Management commitment/sponsorship
100%
71%
Clear project structure/setup, responsibilities, governance
76%
91%
Definition of Target Operating Model
65%
44%
No disruption of daily business
65%
47%
Selection of the right internal resources
62%
41%
Core business function integration
62%
56%
Speed in executing
44%
59%
Speed in decision making
53%
26%
Change management
41%
53%
Incentivisation of responsible persons
29%
38%
Non-core business function integration
29%
27%
Support through external consultants
12%
Activities planned
35%
Activities actually approached
Making Deals Successful 15
The path to deal success – detailed planning, stringent execution and constant monitoring
time delay of approximately six months.
The majority of participants report
that it takes them between seven and
18 months post-closing to complete
their integration activities (Figure 7).
The experience shows that in today’s
M&A market the players know when
to initiate integration activity, but it
is still difficult to estimate the time to
completion. This is noteworthy because
A positive signal is that many deal
makers start their integration planning
activities before signing (Figure 6). The
gained flexibility in time management
till closing enables deal makers to
thoroughly plan and prepare all
integration activities necessary to
perform a frictionless transition.
However, the overall time needed for
integrations is underestimated with a
Fig. 6
half of the participants have conducted
more than eight transactions. In the end,
returning to daily business determines
the end of the integration for more than
half of the deal makers (Figure 8). This
should be considered critically, however.
Many unapparent but not insignificant
integration activities may still not be
finally concluded when returning to
daily business.
Most deal makers start planning their integrations in a timely manner
When did you start planning your integration?
Percentage of respondents
#1
Fig. 7
#2
83%
9%
17%
6%
Pre-signing
At signing
Between signing and
closing
After closing
The overall integration time needed is underestimated
How much time did you plan for the finalisation of your integration activities and how long did it actually take?
50
40
in %
30
20
10
0
1–6
7–12
Time planned in %
16 Making Deals Successful
13–18
Time needed %
19–24
25–30
31–36
> 36
The path to deal success – detailed planning, stringent execution and constant monitoring
2 Complexity of an integration
What drives the complexity of an
integration? The results are not clear
(Figure 9). The highest complexity
for survey participants stems from
“complex (legal) structures” and “crossborder integrations” of the merging
parties followed by “complex business
models” and “cultural differences”.
But complexity is not unusual during
an integration and can be managed
watching out for the right activities,
resources and timing. Being aware of
and proactively addressing the most
common pitfalls make it a lot easier
for the merged companies to overcome
them.
It is not really a surprise that in today’s
economic environment companies
need to think “outside the box” and
act globally. They need to follow
their customers and the markets to
where they can best capitalise on their
products. This implies that integration
activities should not only focus on hard
integration issues (eg, legal regulations)
but should also pay attention to “soft”
barriers of a deal.
In addition, our project experience
shows that more and more deals
are completed with a focus on the
Asian market no matter the acquirer
or the target is located there. Thus,
multinational teams of experts are
required more and more to successfully
overcome these challenges.
Fig. 8Returning to daily business determines the end of an integration for more
than half of the respondents
What determines the end of the integration process?
Complete return to daily business
#3
53%
Achievement of operational objectives
#1
26%
There is no clear end
26%
Centrally determined by management
24%
Achievement of synergy objectives
#2
22%
Achievement of strategic objectives
21%
Achievement of financial objectives
15%
Fig. 9Highest complexity for survey respondents stems from complex legal
structures and cross-border integrations
Which factors drive the complexity of an integration?
Complex (legal) structure
#1
67%
Cross-border integration
#2
64%
Complex business models of the integration parties
58%
Cultural differences
56%
Insufficient/inappropriate qualification of internal resources
52%
Number of stakeholders
48%
No clear intergration governance/rules, no clear project
33%
Legal regulations
27%
Tight timeline
#3
24%
Making Deals Successful 17
Deep dive: Diligence makes the difference
The first thing to be completed in
the course of a transaction process
is a thorough due diligence covering
different views on the target. Getting a
comprehensive picture of what you are
purchasing is a requirement for future
success. The survey results show how
important due diligence has become
for any deal, and in particular, for the
subsequent integration phase. The due
diligence findings reveal upsides and
highlight potential challenges and risks
in the transaction. One should use them
to kick-start a successful integration
project and to leverage the transaction
progress.
Fig. 10 Almost all deal makers use the results of the due diligence post-closing
Did you use the results of the due diligence phase for the subsequent integration?
39%
Used extensively
55%
Used selectively
6%
Not used
Fig. 11Nearly 20% of the survey participants did not develop any integration plans
during the due diligence phase
Were integration plans developed as part of the due diligence phase?
23%
Extensively developed
18 Making Deals Successful
58%
Selectively developed
19%
Not developed
Figure 10 shows that the majority of
deal makers use the results of the due
diligence post-closing. In addition,
most of the respondents started to
develop integration and synergy
plans during this phase (Figure 11).
Concerns about future sunk costs in
the case of a potential deal break-up
are not vindicated; the tremendous
positive effects for the potential deal
and subsequent integration process
outweigh these fears. Regardless of
this fact, other stakeholders involved
require due diligence reports, and it
would be irresponsible for the buyer not
to conduct a thorough “investigation”
of the target. In addition, over the last
few years due diligence has evolved
from being a pure “risk report” to an
opportunity-driven roadmap to deal
success.
The favoured due diligence reports
for integrations expose operational,
commercial and financial aspects
(Figure 12). It is not surprising that
the operational and commercial due
diligence focus on fundamental aspects
for the upcoming integration process.
Another fact stated by respondents is
that deal makers know what specific
kind of report they need, and thus, focus
on those with the highest value-add
for their individual transaction. Time
and money constraints impede them
conducting numerous analyses to back
up their decisions.
Fig. 12The favoured due diligence reports for M&A Integrations expose
operational, commercial and financial aspects
The results of which type of due diligence showed the biggest value-add for the
subsequent integration?
Operational DD
77%
Commercial DD
63%
Financial DD
61%
IT DD
52%
Human Resources DD
39%
Legal DD
31%
Tax DD
27%
Environmental DD
20%
Making Deals Successful 19
The path to deal success – detailed planning, stringent execution and constant monitoring
3 Success metrics
What gets measured gets done – this
holds for complex transactions and
integrations in particular. The survey
results show that these who do not make
use of any metrics or key performance
indicators as part of their integration
are in the minority. This can be seen as
a positive development compared to our
2009 survey where this number was
significantly higher (Figure 13).
Fig. 13Most of the survey respondents make use of success metrics during an integration
Do you use success metrics to measure your integrations?
2009
2013
73%
27%
91%
9%
Used success metrics
Have not used
succes metrics
Used success metrics
Have not used
succes metrics
When it comes to measuring the
integration progress, deal makers
rely on the following financialbased metrics: profitability, revenue
development, and one-off costs
(Figure 14). That applies to the
best-performing companies too.
But why profitability? In the end,
every transaction needs to pay off.
20 Making Deals Successful
Profitability includes the economic
power of a company – applied to
different industries, geographical
regions and business functions – in one
easy-to-measure metric. It is interesting,
though, that two out of three survey
participants work for listed companies
for which stock price development is the
most irrelevant financial criterion to
measure integration success.
The path to deal success – detailed planning, stringent execution and constant monitoring
Fig. 14The majority of the deal makers rely on financial-related success metrics to measure their integration success
Which success metrics did you use to measure whether the integration was successful or not?
Which financial related success
metrics did you use?
Profitability
89%
Revenue
Which non-financial related success
metrics did you use?
Employee satisfaction/fluctuation
63%
86%
82%
56%
9%
Customer satisfaction
One-off costs of the integration process
64%
Cashflow/liquidity optimisation
43%
Headcount restructuring
(core business functions)
47%
29%
Change in market share
46%
Capex/working capital
25%
Market reputation
32%
Fixed costs degression
21%
Headcount restructuring
(non-core business functions)
21%
Stock price development
4%
Financial-related success metrics
The non-financial metrics show a
balanced set of applied criteria with a
slight focus on employee satisfaction
and fluctuation. Although easy to
measure, our project experience shows
that management does not pay much
attention to provided data and analysis
Non-financial-related success metrics
No success metrics have been defined
regarding key employees and workforce
(Figures 14). However, the best
performing deal makers concentrate
more on the “people-side” of the deal
and shift their preferences to customer
and employee satisfaction rather than to
market share and reputation.
Making Deals Successful 21
The path to deal success – detailed planning, stringent execution and constant monitoring
When it comes to the frequency with
which metrics are measured, the
majority of the participants quantify
their metrics on a monthly or quarterly
basis for 13 to 24 months postclosing. The on-going tracking of the
integration success is inevitable and a
positive development compared to our
recent survey findings. A period less
than 13 months does not adequately
reflect the time lag needed to observe
any positive or negative changes
(Figure 15/16).
Fig. 15Monthly quantification of success metrics is most common for the survey
participants
How often did you measure success metrics during the integration?
63%
20%
3%
Weekly
7%
3%
Monthly
Quarterly
Yearly
Not regularly
3%
Once at the
end of the
integration
Fig. 16The integration success is tracked and monitored for one or two years
post-closing
How long did you use success metrics to measure your integration process post-closing?
33%
30%
10%
10%
7%
7%
3%
1–6
months
22 Making Deals Successful
7–12
months
13–18
months
19–24
months
25–30
months
31–36
months
< 36
months
Deep dive: Professional support – not initially
planned for but explicitly needed
As shown in Figure 5, deal makers
often do not initially plan for external
consultants to support their integration.
However, during the process, many of
them face problems due to a lack of deal
and integration experience. The PwC
experience shows that internal costs
that turn out higher than planned for
and compulsory one-time investments
are very common, but often unplanned
for. Therefore it may makes sense that
deal makers bring in professional service
firms to provide process, functional
and industry knowhow and to carry out
integration activities.
The demand for service providers is
beyond dispute and indispensable,
though many deal makers are
serial acquirers and show plenty of
experience. But where is the assistance
most required? The most requested
consultancy service is professional
project management (Integration
Management Office) followed by support
for finance and accounting functions
and IT (Figure 17). Unsurprisingly, many
companies usually reveal sufficient
in-house expertise to cover upcoming
challenges in core functions – simply
because that is their value-adding
business. The picture changes when
considering the companies reporting
superior deal success. They hardly need
support in project management activities
but in change management issues.
Fig. 17The most inquired consultancy service is professional project management
63%
Integration Management Office (IMO)
50%
50%
#3
In which business functions did you need external support?
IMO
75%
80%
47%
13%
7%
Finance/controlling/accounting
#3
67%
20%
13%
IT
#2
#2
5%
Other
Other
Finance/
controlling/
accounting
20%
60%
20%
20%
Process planning
IT
67%
17%
17%
HR
38%
36%
Process planning
36%
27%
Synergy management
82%
34%
34%
25%
Change management
(incl. communication)
Organisational design
21%
Management functions
13%
After sales
13% Procurement
9% Sales/marketing
9%
Change management (including communication)
#1
Synergy management
34%
#1
HR
Production (incl. quality)
18%
82%
9%
9%
Organisational design
50%
25%
25%
Management functions
67%
17%
17%
After sales
50%
50%
Procurement
25%
75%
Sales/marketing
67%
33%
Production (including quality)
100%
R&D
33%
Extensive support
67%
Normal support
Little support
9% R&D
Making Deals Successful 23
Functional diversity – apply customised approaches for different functions and keep an eye on the urgency of change
CFunctional diversity – apply customised
approaches for different functions and
keep an eye on the urgency of change
24 Making Deals Successful
Functional diversity – apply customised approaches for different functions and keep an eye on the urgency of change
Upon closer inspection of the functional
level, it is clear that some functions are
more commonly integrated than others.
The results show that finance and IT are
the most common functions that deal
makers approach (Figure 18).
Fig. 18Core business processes show lower levels of integration depth than
non-core processes
How long did it take to integrate the respective business process and how deep was the
level of integration?
3
Other corporate functions
Management
functions
Finance
Integration depth
72%
81% 78%
Procurement
1
HR
50%
1
After Sales
Marketing
84%
84%
Sales
IT
88%
59%
Production
63% R&D
2
Integrating companies on the whole
or in part requires a comprehensive
approach to create a big picture as well
as a detailed idea of how to integrate all
relevant business functions. A “onesize-fits-all” approach does not lead
to ideal results. On a functional level,
the integration time and degree vary.
Support functions generally require
shorter timeframes for integration.
Longer integration periods are required
for integration of core processes, such
as research and development, sales, and
production (Figure 18).
75%
91%
2
Duration of integrations
Non-core business function
In general, respondents focus on support
and administrative functions when
conducting integration activities. This
shows no change to previous survey
results. It is underpinned by the fact that
it is far more challenging to integrate
value-adding processes that cause
fundamental structural changes within
the organisation.
3
Core business function
Bubble size reflects the percentage of participants applying the
respective success factors as indicator for successful integrations.
This does not hold true for IT, revealing
a special integration challenge.
Experience shows that harmonising and
integrating the IT infrastructure and
landscape take longer than any other
business process. It is not unusual that
IT processes, networks, systems, and
infrastructures require years to be fully
harmonised.
However, integration activities come
with tremendous upsides. Being a time
of change, structural and organisational
transformations allow companies to
deploy quick wins, realise synergies or
even reorganise the company.
Making Deals Successful 25
The rocky road to synergy realisation – bottom-up planning, clear responsibilities and profound knowhow
DThe rocky road to synergy realisation –
bottom-up planning, clear responsibilities
and profound knowhow
26 Making Deals Successful
The rocky road to synergy realisation – bottom-up planning, clear responsibilities and profound knowhow
The study reveals a discrepancy
between the relevance of synergies as
a success factor for transactions and
the actual achievement of the desired
synergies (Figure 19). Most of the serial
acquirers classify synergies as a success
factor, but only half actually achieved
to put them into practice. This leaves
plenty of room for improvement.
This cannot be satisfying, as synergies
can play a decisive role for the future
development of the merged companies.
However, one should not overweight
the impact of synergies; how they are
planned in the pre-deal phase is crucial
to the extent to which they are achieved
afterward. Deal makers should be
prepared for possible downturns and
question whether all cost savings are
due to synergy effects. They should
be realistic and critically evaluate
and involve the respective business
functions.
Fig. 19There is a discrepancy between the importance of synergies over the
course of an integration and the actual achievement
76%
46%
24%
Synergies as a success factor
Yes
54%
Synergies achieved
No
But why is it so difficult to achieve
synergy objectives? Incorrect planning?
Inappropriate measures? Slow
execution? Probably a mixture of all.
Synergies usually do not just happen.
Their achievement has to be planned
thoroughly in advance: ideally during
the pre-deal phase and definitely before
signing. It starts with the definition
of synergy areas, which are usually
aligned to respective business functions.
Data are gathered to set the right
measurement parameters, followed
by the analysis and identification
of relevant synergy potentials. Are
there double-counts or cross-effects?
Later, the actual synergy measures are
approved and implemented. That is a
complex process that requires a mix of
functional and process knowhow and
profound deal experience. Otherwise,
upsides may turn into cost drivers.
Making Deals Successful 27
The rocky road to synergy realisation – bottom-up planning, clear responsibilities and profound knowhow
Figure 20 shows the most common
reasons respondents reported for
failing to reach planned synergies.
There is no predominant reason, but
deal makers encounter a variety of
causes. Looking on the dissynergies the
survey participants faced during their
integrations “cost increase” is ranked
first followed by “increased employee
fluctuation” and “loss of key employees”.
As with the reasons for failing there is
no predominant lever for dissynergies
(Figure 21).
Fig. 20There is no predominant reason for failing in synergies, but rather a variety of motives
What were the reasons for failing to reach the planned synergies?
50%
48%
42%
41%
38%
8%
Inappropriate
synergy levers
Insufficient
implementation,
execution and
planning
Frictional losses
Missing management
support/sponsorship
Too little time
Insufficient/
inappropriate
qualification of
resources
Fig. 21 Deal makers report on a bundle of dissynergies
Which types of dissynergies have been occurred?
41%
39%
37%
33%
32%
29%
18%
Cost increase
Increased
employee
fluctuation
Loss of key
employees
Employee
dissatisfaction
Unused
opportunities
Revenue
decrease
Frictional
losses
28 Making Deals Successful
Deep dive: Acquirers pay for synergies
Do acquirers pay a premium on target
companies just because they expect
planned synergies? Yes, they do. The
results show that nearly all participants
justify paying a premium for possible
upside effects (Figure 22). This is
interesting considering the fact that half
of the respondents only partly fulfilled
their desired synergy expectations.
Figure 23 shows the percentage of the
target’s revenue that deal makers plan
to achieve in synergies. Interestingly,
the best-in-class respondents are far
more moderate with their synergy
assumptions compared to all
respondents.
Fig. 22Acquirers pay a premium on target companies justified by expected
synergies
Did calculated synergies justify the purchase price?
38%
Yes
58%
Yes, partly
4
No
Fig. 23More than half of the respondents expect synergies between 7 and 12% of
the target’s revenue
What were the calculated synergies of target’s revenue in per cent?
> 15%
25%
13–15%
4%
10–12%
33%
7–9%
29%
#2
4–6%
8%
#1
1–3%
0%
N/A
8%
Making Deals Successful 29
The rocky road to synergy realisation – bottom-up planning, clear responsibilities and profound knowhow
Evaluating and planning synergies is
essential. However, the right timing
is no less important. Figure 24 shows
that deal makers are too optimistic in
assessing the timing when synergies
will become effective. A time delay
of six months in synergy realisation
is the rule. Most respondents are able
to realise their planned synergies
between 13 and 18 months post-closing.
Noticeable is that a remarkable number
of participants take more than three
years to achieve synergies. It takes many
organisational and structural changes
to deploy positive effects and even
longer until these are reflected in the
company’s financial numbers. However,
the best performing companies are able
to assess the time required for synergy
realisation very accurately. Their
planned and achieved timeframe is
between 13 and 18 months post-closing,
too. But they were aware of this before
and do not have to suffer from any time
delays or postponements.
Fig. 24Deal makers are too optimistic in assessing the timing when synergies become effective
What was your planned timeline to realise the full synergy effects and how long did it actually take?
40
35
30
in %
25
20
15
10
5
0
1–6
months
7–12
months
Planned time
30 Making Deals Successful
13–18
months
Achived time
19–24
months
25–30
months
31–36
months
> 36
months
The rocky road to synergy realisation – bottom-up planning, clear responsibilities and profound knowhow
Figure 25 highlights the individual
business functions and compares
expected and achieved synergies. In
many cases, possible synergies have
been overestimated. The reasons for this
are insufficient planning, incorrectly
defined and executed measures as well
as an incorrect selection of areas of
synergies. However, highest synergies
have been achieved in core processes
like sales, procurement and production.
In these functions, it is more difficult to
realise quick wins, but once synergies
are achieved, they have the greatest
financial impact. Deal makers should
balance between costs and benefits
while keeping an eye on the big picture.
Surprisingly, IT- related synergies have
generally been underestimated.
Fig. 25 In many cases expected synergies have been overestimated
In which business functions did you expect the highest synergies and in which did you
actually deploy the highest?
Sales/marketing
83%
80%
Procurement
62%
58%
Production (including quality)
35%
46%
Finance/controlling/accounting
23%
35%
Management functions
31%
27%
IT
27%
31%
R&D
27%
23%
HR
16%
14%
After sales
8%
12%
Other
35%
38%
Highest expected synergies
Highest achieved synergies
Making Deals Successful 31
Nine issues to be addressed and not always easy to solve
ENine issues to be addressed and not
always easy to solve
„Making Deals Successful“ is no wishful
thinking. This is what the report and
especially our project experience show
us. Deal makers reveal good transaction
performances; they know how to
approach integrations and what the
major pitfalls are.
However, the deal environment is
rapidly evolving resulting in entirely
new challenges and ways how to
accomplish integrations successfully.
People
So, never rest in developing and
enhancing your integration approach,
activities, methods and tools to achieve
integration excellence.
Below we summarise nine issues
you should always keep in mind
and question yourself if you have
addressed them correctly during your
integration(s).
Value
Risk
1. Involve your employees in the
integration process and keep them
updated during the entire time of
change.
4. Impel your integration value by
focusing on the success factors
that matter most to your individual
transaction.
7. A
lign your integration strategy and
choose sound guiding principles.
2. E
nsure a high key employee retention
and employee satisfaction.
5. A
pply customised integration
approaches for different business
processes.
8. C
onstantly monitor your integration
progress even after returning to daily
business.
3. E
stablish a structured change
management process.
6. Actively manage the synergy process
from due diligence to post-closing.
9. Install efficient metrics and key
performance indicators to measure
your integration performance.
32 Making Deals Successful
Contacts
Contacts
Thomas Menzler
Partner
Tel.: +49 89 5790-5250
[email protected]
Christian Knechtel
Partner
Tel.: +49 69 9585-3188
[email protected]
Uwe Väth
Partner
Tel.: +49 69 9585-3150
[email protected]
Authors
Michael Dornauer, Thomas Menzler and Tim Claßen
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Making Deals Successful 33
Making Deals Successful
Published by PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft
By Michael Dornauer, Thomas Menzler and Tim Claßen
February 2014, 36 pages, 25 figures, softcover
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of the authors.
© February 2014 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft.
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