3 minute read 9 Aug 2019
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Four ways TMT companies can use the merger integration process for transformation

Authors

Kenneth Welter

EY Global Transactions Technology Leader

Experienced transaction advisor. Tech enthusiast. Husband and father. Sailor. Challenger of the status quo.

Brian Salsberg

EY Global Buy and Integrate Leader

Passionate acquisition and merger integration leader and aficionado of all things deal-related. Global citizen. World traveler. Husband. Father of two.

3 minute read 9 Aug 2019

Retaining creative talent and the innovation engine are key for TMT companies as M&A deal valuations rise.

Deal values are stable in the technology, media & entertainment and telecommunications (TMT) sector, with 2019 on pace to meet the record levels seen in 2016, as cash-rich corporates and hyperactive financial buyers are competing for targets.

Sky-high valuations underscore the need for TMT companies to find a reliable path to capture synergies, moving away from legacy playbooks toward a nimble, value-focused M&A integration strategy based on the goals of each individual deal. Integration should fuel innovation, inspire talent and catalyze the transformation needed to win as the next generation of technologies matures.

Don’t destroy your innovation engine

  • When large, mature companies buy more agile companies, they often stifle the target’s culture and innovative spirit through burdensome processes and unnecessary integration. A purposeful, deal-specific integration strategy sets the framework for what needs to be integrated now, what can be delayed and what should remain separate for the foreseeable future.
  • Develop integration priorities based on the rationale for the acquisition. Do you want to align product road maps immediately? Should back-office integration be accelerated to enable cost synergies? Should certain assets be kept separate for potential future divestment?
  • Know why you’re integrating the functions and activities that are slated for integration. What business purpose does each serve? Don’t integrate for the sake of integration.

Retain and motivate innovative talent

  • Keep a close eye on the talent that can make up a significant portion of the value from a TMT acquisition: engineering and creatives. Alienating these employees is a sure and fast way to destroy value.
  • Perform robust human capital diligence before inking the deal to understand what motivates them — and develop thoughtful and creative programs to both retain and inspire them.
  • Define what behaviours need — and need not — be changed to let creative mindsets thrive while reaping the benefits of scale and corporate control where merited.

Catalyze business transformation

  • Consider how the merger integration process can become an agent for more comprehensive transformation of key operating elements at both the acquirer and target.
  • Ask which technological advances, such as automation and robotics, machine learning and data analytics, can advance the combined company’s competitiveness during the integration, rather than trying to retrofit those later.

Be realistic — and stay focused

  • Don’t assume significant cost synergies exist until you understand the target’s business. Unlike in horizontal mergers, buyers in vertical deals lack operational experience in the markets they are entering and are likely to find fewer back-office redundancies than they expect once they dig into the target’s operations.
  • Maintain focus on the deal rationale by setting KPIs aligned to the deal and monitor them at least two years post-close. Metrics should be diverse (technical, customer-oriented, financial, employee-related) and be both historical and predictive.
  • Top executives should engage with and be accountable to the integration as long as it takes to secure the deal’s synergies.

No two deals are exactly alike, thus neither are two M&A integrations. We recommend that TMT dealmakers start the strategic planning process by considering multiple factors such as retaining exceptional talent, driving innovation, setting realistic KPIs and transforming their business in a disruptive world.

Summary

In this era of sky-high valuations, TMT dealmakers have even more to lose from shallow M&A integration and synergy realization planning. They must develop fit-for-purpose, tailored integration strategies with laser focus on capturing deal value.

About this article

Authors

Kenneth Welter

EY Global Transactions Technology Leader

Experienced transaction advisor. Tech enthusiast. Husband and father. Sailor. Challenger of the status quo.

Brian Salsberg

EY Global Buy and Integrate Leader

Passionate acquisition and merger integration leader and aficionado of all things deal-related. Global citizen. World traveler. Husband. Father of two.