How does EY Buy & Integrate approach mitigate the risk of value erosion in M&A

Source: Dealogic and EY analysis
Note: 2023 represents data values from Jan’23 to Sep’23

According to EY analysis, from January to September 2023, deal values declined by 34% and 35% respectively when compared to the same periods in 2022 and 2021. Deal volume also decreased by 17% and 14% in comparison.

Navigating the current intricate M&A landscape poses numerous challenges, leading to a global M&A failure rate between 60% and 80%. While external factors like geopolitical risks, stringent regulations, and rising inflation have become less dominant, transaction-related issues, both pre and post-deal, have gained prominence. These include inadequate pre-deal integration considerations and challenges during the integration phase.

In the 2023 Buy & Integrate Barometer survey for Europe West, 62% of participants pinpointed synergies and post-deal activities as vital in pre-deal evaluations to reduce risks and achieve anticipated deal value.

This concern is underscored by the reality that between 70-90% of deals fail to meet their targets, primarily due to late synergy identification, insufficient due diligence, and inadequate post-deal and integration emphasis.

Post-deal integration is intricate. Functions and processes across organizations often misalign with stakeholder agendas. Thus, for enduring success, it's essential to

1. Recognize the pivotal roles in post-deal integration, ensuring appropriate resources and skills are in place.
2. Strategically design post-deal execution. The B&I Barometer survey identifies this phase as the most challenging in the entire transaction process.

Factors contributing to integration failures include:

1. Absence of a clear deal rationale, strategic direction, and financial goals.
2. Retention challenges concerning key clients.
3. Overemphasis on integration at the cost of daily business operations.
4. Personnel-related issues: engagement, accountability, retention during restructuring.
5. Conflicts in blending company cultures and ineffective communication.
6. Lack of dedicated personnel responsible for integration success.
7. Subpar project governance and control mechanisms.
8. Misjudgments in potential value, integration cost, and complexity due to insufficient due diligence.
9. Unmet synergy targets owing to inadequate planning and monitoring.
10. Misalignment of final operating models, integration operations, and decision-making amidst diverse teams and cultures.

In light of these challenges, EY has curated a comprehensive methodology for the entire Buy and Integrate process. This multi-faceted approach encompasses strategy formulation, due diligence, synergy evaluation, and Integration Management Office (IMO) establishment.

As shown below, the typical buy-side transaction lifecycle spans from deal strategy to execution throughout the due diligence process that requires tactical focus on outcomes to achieve the deal’s objectives; EY follows a holistic approach to help clients to move faster and more efficiently through this very complex journey.

EY underscores the following integral elements for successful integration:

1. Comprehensive analyses during the due diligence phase.
2. Explicit integration strategy based on the deal's rationale.
3. Design of the final operating model as a benchmark for integration planning and Day-1 readiness.
4. Clear communication of vision, aligning messages with stakeholder themes.
5. Coordinated organizational design and talent programs.
6. In-depth customer analysis for key client retention.
7. Robust synergy programs for efficient transitions and synergy achievement.
8. Establishment of IMO with clear governance.

B&I is an extraordinarily complex process, and the EY methodology is built around six core elements: i) Vision and Integration strategy; ii) IMO and Governance; iii) Value Creation and Synergies; iv) Business and Functional Integration; v) Operating Model and Organization Design; vi) Change Management and Communication.     

For successful Buy and Integrate outcomes, meticulous planning and execution are paramount. EY has the expertise to ensure this.        

Special thanks to Andrea Scialpi, EY Europe West Buy and Integrate Leader and Maria Fusco, EY Director, Transactions Diligence, for their contributions to this article.