Quick IT integration enables increased Shareholder Value after a Merger or Acquisition

2015 was a record-breaking year for M&A activity, and many predict 2016 will continue to build on this momentum. Companies see mergers and acquisitions as a quick way to insource innovation and increase the strength of their competitive market position. Armed with robust cash reserves and pushed by shareholders to stay the (potentially disruptive) competition at least one step ahead, they leverage the low interest rates to expand their IP, product portfolio, customer base and geographic reach through mergers and acquisitions.

When working an M&A deal, shareholders and executives all set high hopes on creating a higher cumulative shareholder return through this transaction due. Additional values through synergies gained from combining the two businesses can be created on decreasing cost as well as increasing revenue. Often the math behind cost synergies is easy: consolidation of all kinds of functions leads to increased efficiency, more buying power and a reduction of overhead costs.

“Revenue synergy is often the most difficult to realize”.[1] According to a study performed by L.E.K. Consulting who analyzed the performance of more than 2,500 M&A deals between 1993 and 2010, nearly 60% of companies ended up destroying shareholder value instead of creating the highly anticipated returns. When they examined what the winners did, it turns out that the 40% of companies who managed to create more combined shareholder value than apart had a strong focus on execution, outstanding planning and speedy integration. Companies who failed to integrate quickly after deal closure were much more likely to destroy shareholder value.

Among companies there are big differences in preparedness: with some companies an IT integration project comes as an ad-hoc event, while others have dedicated teams and processes in place as well as framework agreements with key suppliers enabling them to quickly scale up resources, capabilities and geographic reach during the execution of the integration activities. Also technological readiness plays an important role, with virtualization and software defined everything as key enablers.

While “Speed of post-M&A integration” covers a broad spectrum, in my next posts I want to focus on a few very important IT-related managerial focus areas that I’ve seen as key enablers in becoming increasingly better in merger and acquisition activities.

[1] https://www.lek.com/our-publications/lek-insights/mergers-and-acquisitions-manda-strategy-strategies-how-to-win