- November 19, 2019
- Posted by: Ramkumar
- Category: Mergers And Acquisitions
M&A Integration as a Catalyst for Transformation
A M&A integration is not only an opportunity to achieve synergies but a great time to bring the right changes. Successful acquirers get this right in almost all their deals. Delivering transformation changes is not easy. Organizations resist changes. Mergers can help achieve this. M&A integration create both excitement and anxiety for stakeholders generating not only uncertainty but also facilitates openness to new paths of working. At the same time, the majority of M&A integrations destroy value, so buyers that see acquisitions as an opportunity to reset their business can defy the odds and create incremental value.
The way the acquirer approach integration is crucial. Successful buyers have a clear vision of what qualifies as a differentiated transaction and use the merger as an impetus for accomplishing that vision. Without the idea, transformation is much harder to achieve.
M&A Integration vs. Transformation
A merger does not naturally lead to a transformation. Acquisitions can lead to significant organizational changes and shifts, but transformation need not be the result always. During an integration phase, there will be disruption immediately in the initial stages, and uncertainty will be high. The integration team resolves these uncertainties to ensure business continuity. They capture value from the merger by managing the integration risks. Failure to resolve integration issues can lead to deals that look good on the paper but fail to create value and in many cases, erode value. At the same time integrating two companies after a merger does not amount to a transformation.
A trigger event initiates a transformation that compels a company to make a step-change in business performance. The catalyst can be anything from a company looking to improve its share price to a significant merger transaction that creates an imperative for change. This stimulus presents an opportunity to make bold decisions that otherwise would seem difficult. Successful companies recognize these transformative opportunities.
Shifting from Operational to Transformational
For integration to act as an impetus for transformation requires business leaders to change their existing mindset. In a transformational combination, the process of joining two firms should be within the context of industry trends, customers, and competitors. The initiative needs to be designed within a strategic framework to identify areas that can provide or lead to new sources of value. A value is a fundamental shift in the company’s ability to win in its chosen markets. An integration should provide more value than just absorbing the acquired business. A merger should offer the opportunity to transform both companies. In this initiative, the company needs to align each function within its broader vision.
For instance, an acquisition can provide the opportunity to transform its back-office overhead costs. Instead of eliminating redundant roles within each organization, the company should work on a comprehensive overhaul of all back-office functions. The company should benchmark best practices for overheads and set a driving goal to curtail costs across the board.
A transformative acquisition should contemplate how the integration can be a platform for change. People with the right skills should recognize transformation opportunities. They should comprehend the difference between integration and transformation skills. Post-merger Integration focuses on processes and implementation to ensure business continuity and drive synergies. A transformation needs a broader set of abilities.
M&A Integration for Transformation M&A
A transformation change comes from a position of strength. Before and after the acquisition is the time when organizations are ready to accept new changes. Successful companies take advantage of this situation.
At this current period, when M&A activity is at an all-time high is a ripe period for transformational integrations.
In successful companies, leaders make the right decisions. The best leaders get transformation decisions right. They make transformational changes at the time of significant acquisition integration.