Underinvestment in post-merger integration jeopardizes value from M&A deals
Singapore, 5 February 2018
- Unrealized synergies, cultural integration and impact on business operations are top issues
Companies in Singapore are looking at M&As to secure growth but are underinvesting in merger integration post-deal. This is according to an EY poll of over 40 corporate executives in Singapore conducted in November 2017.
57% of the respondents invest less than 5% of the total deal value on merger integration activities. Twenty-one percent invest between 5% and 10% of the deal value in merger integration activities, and 21% invest more than 10%. More than half (60%) only partially integrate or do not integrate (i.e., leaving the companies to operate as they are) the acquired firms into the larger organization following the M&A deal.
Mr. Karambir Anand, Partner and EY Asean Leader, Strategy and Transformation, at Ernst & Young Solutions LLP says:
“Successful mergers hinge on early integration planning as part of due diligence when executing an M&A. Many M&A deals fail to generate – and many even destroy – value for shareholders as a result of a lack of consideration for robust post-merger integration coupled with low integration spend. Companies that successfully integrate typically invest 8 to 10% of the deal value, and form a dedicated team to drive post-merger integration activities. This enables them to focus on integration without compromising business as-usual. They are also careful not to impose their ‘normal’ on an acquired company and acknowledge the cultural differences that can be particularly pronounced in cross-border acquisitions.”
According to the respondents, the top risks that companies potentially face from sub-optimal integration are unrealized synergies (32%), cultural issues (28%) and impact on business operations (20%). Having learnt from past experiences, the two key areas that they would do differently were having a dedicated integration team (46%) and communicating the integration process more clearly to stakeholders (39%).
The majority (65%) of the respondents who plan to integrate post-deal aim to do so within 6 to 12 months of the deal. About a quarter (26%) target fast integration (i.e., integration within six months post-deal), while 10% look at an integration time frame of one to two years. Operations, followed by Sales and Marketing, were identified as the two most important functional areas for integration.
Mr. Anand adds:
“Companies may be caught between the need for speed versus thoroughness in integration post-deal. With growth as the main driver of M&As, it is not surprising that companies are prioritizing operations and sales and marketing over other back-office functions for integration. Companies must strive for speedy execution with the aim to normalize synergy initiatives into business as-usual as soon as possible. Most synergies are realized within three years of the deal – or not at all.
“As Singapore companies get more acquisitive, they must master the art and science of merger integration. Our quantitative analysis of hundreds of deals across many years shows overwhelmingly that most firms are destroying shareholder value due to the lack of integration. This holds true for large firms, as well as smaller firms with market capitalization of less than S$150 million.”
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This news release has been issued by Ernst & Young Solutions LLP, a member of the global EY organization.