EY: M&A type impacts post-merger integration approach
Post-merger integration is an outdated expression. Starting your integration after closing was common practice in the previous century and it did not work out well. Then what is your blueprint for integrating the new business into your existing activities? How and to what extend should you integrate? Prior to making a deal and before taking any M&A decision you should consider this. The answers to those questions lie in the deal rationale. What do you aim for by buying a company?
There are three types of deal rationales, they each have a specific approach:
Consolidators. Deal rationale: improve performance of your existing business model
These deals are about achieving economies of scale. The pending acquisition of Ziggo by Liberty Global is a classic example of such a deal rationale. You should integrate fast to increase market share and profits. Cost reduction is crucial. Do it as soon as you can. Postponement is only making it more difficult. Make sure to focus on operational excellence in your existing business pre-merger as well.
Portfolio builders. Deal rationale: expansion of your existing business model
This deal rationale is aimed at filling gaps in your product portfolio or geographies. A typical example is the acquisition of Eyeworks by Warner Bros. Here you should integrate selectively. The due diligence should provide you with the input for a custom-made integration process.
Industry disruptors. Deal rationale: transform your existing business model
When your goal is to import a new business model you should rather protect than integrate the newly acquired business. Often the managers of your existing business are not very supportive to the newcomer. The reason can be limited understanding of the new business model, cultural differences or even internal competition because the newcomer is cannibalizing your existing market positions. The acquisition and integration of industry disrupters is tricky. Dutch publishing company TMG bought Hyves in 2010 for €43 million. Once the business was a market leader with >10 million social networking accounts. End 2013 all accounts were closed and Hyves was transformed into a gaming platform.
An article from Arjan Groen, Partner at EY’s Mergers & Aacquisition practice.
