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Make it or break it: driving value through integration - EY - Global

Make it or break it: driving value
through integration

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There is no such thing as an integration honeymoon. Driving value must start early and without delay.

Summary: The success or failure of a transaction’s integration depends largely on the level of preparation and readiness of key functions and stakeholders. Focusing on drivers of value early, combined with a disciplined, agile, repeatable approach to transaction execution increases the potential of enhancing value and may help avoid costly mistakes.

The honeymoon is over

A client was tasked with her first integration assignment. "The deal is now closed, and the integration honeymoon is over. Now I have to do something," she said.

Although she was asked to manage the integration, she was not brought into the deal until just before close. As a result, she did not have a full understanding of the strategic imperatives for doing the deal, could not get access to all the information necessary to fully understand potential risks and prioritized opportunities, and was mandated to ensure that the deal delivered on its promises.

She added "... because we have not been able to get our arms around the real drivers of value, my greatest fear is that we miss simple things up front and that we may never be able to recover missed opportunities."

However, the client knew that the transaction could succeed if the integration team focused on the strategic rationale of the deal.

In this scenario, the team could:

  • Get a firm handle on the levers of deal value creation and the various risks
  • Put in place a comprehensive plan
  • Organize the right resources to execute the plan
  • Track, measure and assess deal performance aligned to the strategic rationale

She just needed to act as soon as possible.

Our client was dealing with the challenges that are often faced by many executives once a deal is closed:

  • Am I as prepared as I could be for day one operations?
  • Do I have the right team to achieve planned synergies or have I involved operational business managers and key support functions such as tax early enough in the process?
  • Do I feel valuable time and value was lost as a result?

Overconfidence can be costly

Achieving integration success is a complex undertaking where very little should be taken for granted.

In practice, overconfidence in the deal arena is typically accompanied by failure to develop and implement a structured approach to tracking and evaluating deal performance. This can lead to costly mistakes and lost value.

Consider the following:

  • Management at a large international engineering firm believed its recent acquisition was a complete success. However, post-deal analysis revealed that the deal has delivered value of 35% below plan.
  • Issues included:

    • A lack of broad participation in assessing deal synergies
    • No assignment of accountability for synergy-focused integration
    • Failure to accurately assess deal costs and "dis-synergies"

    Going forward, the company is taking significant steps to transform its deal capabilities and processes.

  • During its valuation and bidding processes, a multinational energy company identified synergies amounting to almost US$1b. However, nearly three quarters of the way through its planned integration process, detailed analysis showed that the company could verify the capture of no more than two-thirds of this anticipated value.
  • Immediately, this knowledge is helping the company refocus its ongoing integration efforts. For the longer term, the company will use these insights to update and improve its processes, including detailed modeling and ongoing performance tracking and evaluation.

  • A large acquirer found both good news and bad news. Among the positive findings, the company discovered that tying synergy capture to incentive compensation planning was providing an effective means of focusing attention and resources.
  • However, the company did not properly plan or budget for the synergy capture effort and, as a result, a number of "easy wins" were not achieved as attention was diverted elsewhere.

    Not a bad deal overall, but the company now recognizes the importance of planning and prioritization.

Pressure to deliver maximum value

Companies invest substantial amounts of capital in acquisitions. With restrictions on the availability of capital there is significant pressure for transactions to deliver maximum value.

Yet detailed examinations of deal performance show that too many integrations - and therefore the transactions themselves - fail to live up to their promised expectations.

Sometimes this is due to shifting fundamentals, but in many more cases the shortfalls are largely avoidable. There is no such thing as an integration honeymoon. Driving value must start early and without delay.

Disciplined, dynamic approach enhances deal value

A growing number of leading organizations are deriving substantial value from their acquisitions. Such companies are discovering that a disciplined, iterative, agile and repeatable approach to transaction planning and integration prevents costly problems and enhances deal value.

A dynamic approach to integration considers three phases of the acquisition process:

This disciplined approach:

  • Enhances a company’s ability to bring a new business online
  • Focuses the organization on identifying and unlocking as much value from the new assets as possible
  • Improves agility by providing the means for detecting variances from plan and enabling mid-course corrections
  • Helps companies transform their transaction capabilities from a set of routine steps into a consistent source of competitive advantage


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Contact

  • Americas
    Jeff Perry
    Americas Operational Transaction
    Services Leader
    Tel: +1 312 879 5316
    Email: jeffery.perry@ey.com

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    Yew Poh Mak
    Asia Pacific Operational Transaction
    Services Leader
    Tel: +86 21 2228 3002
    Email: yew-poh.mak@cn.ey.com

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    Max Habeck
    EMEIA Operational Transaction
    Services Leader
    Tel: +49 40 36132 25277
    Email: max.habeck@de.ey.com

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    Ken Smith
    Japan Operational Transaction
    Services Leader
    Tel: +81 3 5401 6663
    Email: kenneth.smith@jp.ey.com
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