Post-Merger Integration: what to expect in 2016? Boston Consulting Group’s predictions

 

paroles-experts-visuHeightened regulatory risks, a financial community on the look-out and the importance of getting the timing right. Interview with Axel Reinaud, Senior Partner responsible for PMI (Post-Merger Integration) issues at Boston Consulting Group, and Jérôme Hervé, Senior Partner responsible for Private Equity.

“Two factors explain the growth in acquisition activity seen in 2015: the flood of liquidity from the ECB and the still fragmented industrial landscape. In TMT, European players are restructuring their portfolios. The pharmaceutical groups are themselves looking for little nuggets. No sector is escaping the acquisition wave”, asserts Axel Reinaud.

Will it continue into 2016? For Jérôme Hervé, there’s no doubt. “Maybe with a slight slowdown, but the backdrop remains very favourable to the corporate consolidation rationale.” In that case, what lies in store for the many business leaders who are soon to embark on post-merger integration?

Rigour pays off

“Post-merger integration is a sometimes traumatic exercise that hates uncertainty and approximation.” To manage increasingly complex transactions, the BCG teams have systematised their approach. For Axel Reinaud, the successes of the BNP Paribas Group, whose integration strategy he advises, are proof that “rigour pays off”. “All the group’s acquisitions have worked, whether it’s Fortis, executed in a weekend, or the buyouts in Poland and Turkey.”

Count on three years rather than a year and a half

The prevailing trend for the two Partners: integration takes time. “The failure of the merger between Publicis and Omnicom shows that an agreement between CEOs is not enough.” Defining a governance model won’t work magic. Many integrations fail in this way because the mergers are half-done. “After a couple of months, you think it’s fine because you’ve changed the logo and the teams are side by side. But when you break up the integration teams, then you take the risk of letting the organisation dive into a new level of complexity.” The conclusion? “Even if top management wants to move on to something else, you shouldn’t let go too soon.”

The financial community is looking for value creation

An acquisition relies on a strategic thought process: extending the product range, entering a new country, etc. “If the value creation logic consists of only eliminating the overlap of the two organisations, you miss a part of the business potential and risk creating disorder.” For Axel Reinaud, the success of integration depends on the “ability of the leader to be rigorous about value creation”. A factor that is also in favour with investors. “All the work done to specify the baseline of the transaction goes down extremely well with the financial community. The CEO must give clear indications to the market.”

Between fifty and a hundred decisions per day

During the integration, managers must take difficult decisions at a rate which doesn’t really suit them. “It’s better to make a decision than to give yourself an extra three months and bog down the process”, sums up Axel Reinaud. “A Post-Merger Integration has two companies which, together, must take between fifty and a hundred decisions per day. We set up a decision-making machine, prioritising the strategic issues.”

The difficulty? To move quickly, without rushing. “The first phase defines the broad guidelines: build the baseline, set up working groups, etc. It’s important to spend some time on this – between six and eight weeks – to carefully plan the start of the work.” The next phase, deployment, requires military precision. “You need to simultaneously ensure the pace and coordination of the whole process.” Without that, the organisation seizes up.

Increasingly rigorous regulators

“Regulatory risk management is becoming increasingly important”, Jérôme Hervé states. Integration is carried out in a legal context that must be controlled. “To avoid compliance issues with one or other regulation, the only solution is to be even more thorough than usual, both in Due Diligence and in execution.”

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