Organisations can improve the results of their mergers and acquisitions (M&A) if they pay more attention to performance management. This includes setting effective KPIs, managing these KPIs throughout the M&A life cycle and using metrics for future deals. This is the result of research done by consulting firm Mercer among 70 multinationals, with several million workers on the payroll.
In the research, titled ‘The Well-Prepared Deal maker’, Mercer analysed the way multinationals deal with measuring the success of their acquisitions. For this research, around 80 M&A experts and senior HR professionals were interviewed.
The research report shows that companies – as soon as they are in an M&A context – are falling short in their performance management. 80% of those surveyed said they do define milestones and measurable KPIs prior to the completion of a deal, however, post-transaction evaluations often do not occur. One-third of the respondents admitted not to measure if an acquisition has had the hoped-for result. Companies also indicated that they struggle with the complexity of KPIs, and only in half the cases past experiences (KPIs; lessons learned) are used as input for future acquisition projects.
According to Mandy Schreuder, Global HR M&A consultant and Principal at Mercer, this relates partly to the resource management process that is used in a transaction. “The issue is that this often occurs ‘ad-hoc’, and that employees who help guide an integration process will do this on top of their regular work. As a result, pressure is almost always put on the successfulness of the process. It also explains why in retrospect almost never an evaluation takes place. Once the project is finished, people are again dragged into the issues of the day. Great pity, because such an evaluation is incredibly important to do the next acquisition better and cheaper.”
M&A Performance Management Framework
In the report, Mercer also looked at a best practice approach for M&A performance management. The consultants recommend the use of two broad categories of metrics: business case metrics and integration metrics. The first measures the progression of the transaction versus ‘deal rationale’ and the identified synergies. Integration metrics focuses more on the operational aspect of the progress, and are generally activity-driven, time-based, and of course fed back to deal strategy.
The consulting firm advises to cover at least four relevant areas per category and project phase. Schreuder explains: “While the business strategy of organizations determines the specific approach for the M&A metrics, experience shows that any deal must include, at least, metrics with respect to financial data, customers, operations/technology and people. To keep things manageable, no more than three to five metrics should be defined for each area.”
According to Schreuder, another essential aspect is the concept of dynamic KPI management. “The approach should allow a shift in metrics for each project phase. Our experience shows that agile and dynamic measures – assessed throughout the process – allow companies to reap the benefits of unexpected opportunities for value creation.” Especially important is to use metrics that are established during the whole M&A life cycle. Focus should not only be on closing the deal, but also on how to determine the successfulness of a deal after the integration phase. Finally, the M&A-expert emphasizes the importance of integrating lessons learned for future situations. “This can be a great advantage for future M&A teams.”