Plural spoke to companies from both buy-side and sell-side to understand approaches to post-merger integration.
The interviews conducted formed part of a Media Acquisition report with Collingwood Advisory, providing an M&A outlook for 2022-24.
Integration as a value creation tool
All respondents saw post-merger integration as a tool for value creation. However, their approach varies.
Individual buyers’ approach to delivering value is very diverse and always tailored to each specific deal.
Integration strategies vary from “hands off” to a 100-day plan, agreed pre-deal.
Approaches also differ within the business. Integrating “hard synergies” such as cost and back office typically has a more standardised approach and timeline. However, for commercial synergies such as product launches, the approach, timeline and success levels are much more varied.
Measuring integration success
The majority of businesses do not have a standardised way of measuring integration success. A minority of respondents report against goals set in the acquisition plan prior to closing the deal.
For others, success factors include the delivery of commercial synergies, retention of key employees, the acquisition of new skills/capability to enhance customer value (NPS/UX), cultural alignment and brand identity
Who is responsible for post-merger integration?
For a third of respondents, the corporate development team are responsible for the delivery of the integration plan.
1/4 of respondents split the integration responsibilities between multiple individuals, either at C-suite level or functional heads
Often the individual responsible for integration is one step removed from the business. This can create a disconnect between seller and buyer, hinder the success of the integration and therefore impact the potential value created.
However, the approach differs for large-scale acquisitions. Here, respondents were more likely to dedicate a separate resource, internal or external to ensure integration success.
What are the common challenges faced during post-merger integration?
Three clear themes emerged when we asked buyers and sellers what their biggest integration challenges have been:
- Data and Technology
- Commercial Synergies
As one respondent put it, the challenge is “culture, culture, culture”. Culture is consistently cited as the most critical challenge for companies on the buy side. Similarly, sell-side companies talked of the importance of cultural challenges. The key difference between these two groups is timing – sell-side companies consider cultural alignment much earlier in the exit process.
So, what can be done? Cultural due diligence can uncover core values, and operating styles, and establishes what is important to sellers, buyers and their teams. Trust and transparency between buyer and seller are essential to the success of a deal. Communication is key and needs to be consistent.
Data and technology
Data compliance and governance is increasingly seen as a challenge for both buyers and sellers. Navigating data regulation changes and understanding how data can be used, particularly in acquisitions that span different countries, or when synergies involve geo-clones or cross-selling globally, is a growing concern.
Buyers need to understand how compatible and scalable the technology is before the deal closes. When acquiring a new business model or digital capability, technology becomes an even greater consideration.
Respondents stated that commercial synergies are a vital driver of value creation, but are harder to execute on than anticipated. Sellers cite differences in, or a lack of clarity on, operating processes, particularly in sales, as barriers to successful integration. Greater focus on these aspects earlier in the relationship was a common learning.
The Impact of Covid-19 on post-merger integration
For many buyers, Covid-19 highlighted insufficient capability to fully integrate remotely. Culturally, some sellers still feel like a separate business. People issues such as retaining key talent, agility and digital capabilities have become more pressing.
The pandemic also caused larger technology problems for both buy and sell side businesses. Businesses see an increased need to be agile and invest in digital capabilities in order to move to meet changing consumer needs.
The need for a fully mapped out plan, agreed by both parties pre-close, is vital in an era where maintaining business as usual is more challenging.
Integrating New Business Models
Due to the pandemic, many businesses across the media and events sectors are integrating a different model and/or digital capabilities. Integration becomes more important in this case because it’s not ‘plug and play’.
When integrating digital-first businesses, it is important to understand the new business model. A greater focus on technology, capabilities and risk is required for integration to be successful. To mitigate this, buyers should understand operations and workflows in detail, before a deal closes.
Full M&A Outlook for 2022-2024
The report, written by Collingwood Advisory and Plural Strategy, covers market trends, valuation ranges, investment criteria, integration perspectives and recommendations.