the right combination - ey - united states · the right combination ... respondents focus on...

The right combinationManaging integration for deal success

A new EY survey

Media pack

The right combination

Contents

► Foreword► Key findings► Key stats► Cost of integration► Talent: the phony war► Integration superhero► Conclusions► Contacts


Foreword

Welcome to the 2014 EY integration survey: The right combination. Post-deal integration is an incredibly challenging process andresearch shows that one in every two deals fails to achieve its strategic aims. We hope this study can help readers understand thecommon mistakes that companies make when integrating new acquisitions and how best to avoid these pitfalls.

We interviewed 200 senior corporate executives operating across a range of sectors and geographies and involved in the dealintegration process. Their responses provide a comprehensive overview of the relationship between deal rationale and integrationstrategy, and a detailed analysis of the five key practices companies need to follow in order to deliver on their strategic goals when itcomes to integration.

The results provide vital insights into what is driving M&A in the current market and how companies are aligning their integrationstrategies with deal rationales. Our headline result is that the integration of Sales and Marketing, and Operations have become thefocus areas for corporates post-merger. The survey shows that these functions are regarded as the most important for increasinggrowth and scale.

With four fifths of respondents indicating that growth is the main reason for undertaking M&A, the priority given to integrating Salesand Marketing, and Operations suggests that companies recognize the importance of linking deal and integration strategies.

The study also reveals how these priorities for functions integrations change according to geography and sector. The significantdifferences in integration strategies in different regions is a key finding given the focus on using M&A as a tool to expand into newgeographies.

Integrating new acquisitions effectively post transaction is crucial if corporates are to realize the strategic ambitions for their deals.But companies are still making mistakes. More than a fifth of respondents say that they under-budgeted for integration costs. There isalso evidence to suggest that acquirers are underestimating staffing requirements and undervaluing the importance of IT in theintegration process.

Many companies are not extracting the full potential value from mergers that they should. We hope that the information in this reportcan help to change that.


5 key learnings

1. Concentrate on the coreWith growing scale and geographical expansion the main reasons for undertaking M&A, during the integration phase the majority ofrespondents focus on integrating front office and key operational functions. Sales and Marketing (29%) and Operations (27%) werethe functions chosen by the largest number of respondents as the most important priority. Back office functions such as Finance andIT, where reduced costs were the main benefit, ranked lower. These results indicate that companies are recognizing the importanceof integration as a key part of their strategy. Respondents also noted that the best integration processes involved defining a clearrationale from the outset and ensuring the rationale informed the integration strategy.

2. Balance the fundamentalsThe survey found that companies, on average, spent 14% of total deal value on integration. Figures from Mergermarket show theaverage deal size for disclosed value transactions over the past 12 months was €256m (US$XXXm). This suggests that theintegration costs per deal are averaging out at €36m (US$XXm). However, while the findings indicate that, on the whole, companiesare doing a good job of allocating resources to integrate functions, there is evidence to suggest they are not spending enough ontheir integration budget. Over a fifth of those surveyed stated that, in retrospect, they would have increased the size of theirintegration budget. Meanwhile, companies may be underestimating staffing requirements. Only 4% used 16 or more staff on theirintegration team. In addition, corporates seem to be undervaluing the importance of IT in the integration process.

3. Speed up, speak up and start a second waveSpeed of execution and communication were two areas identified by those polled as most in need of improvement. Four-fifths ofrespondents said speeding up the integration process was one of the things they would have done differently. In addition, 58% saidthey could have communicated more clearly the progress of the integration process to all stakeholders. Although a large proportion ofexecutives said speed was the area most in need of improvement, 60% also said that in retrospect they would have introduced asecond wave of integration.


5 key learnings (contd)

4. Never stop learningThe executives surveyed agreed overwhelmingly that evaluating the success of a deal after integration was crucial, withonly 3% saying that they took no steps to learn lessons from the process. High-level financial synergy targets were citedas a key evaluation metric by the majority of respondents (77%), with changes in capital productivity (75%) and meetingintegration targets (65%) also featuring prominently in responses. In terms of learning lessons from integration, theprovision of knowledge transfer training was the tool of choice, cited by 80% of executives.

5. Get the right manager for the jobThe survey also revealed the high value integration managers brought to their companies. The findings showed thatexecutives expect their integration managers to display a wide range of skills. Operational experience was the key factor,according to 86% of those surveyed. Respondents were eager to recognize integration managers who performed well,with the role offering career progression opportunities and financial incentives.


cited building market share and scale as a key strategic driver for undertakingdeals.

said they would speed up the pace of integration for their next deal

said that cultural factors were overestimated for deal success

said they had seen a career shortened when an integration was unsuccessfulstated that Sales and Marketing was the most important priority area duringthe integration phase. This was the highest of all functional areas.

of the deal value was the average integration budgets meaning €234.4b wasspent on integration in 2013

of senior corporate executives who undertook a significant M&A transaction inthe past 12 – 24 months cited skills and talent as the most important strategicrationale for the deal

84%

80%

29%

0%

14%

Key stats

51%


On average integration budgets ran at 14%of the deal value.

This equates to total expenditurein 2013 of

€234.4bn*

€102.7bn was in North America,

€74.6bn was in EMEA

€47.9bn was in the APACregion.

* Source: mergermarket

Cost of integration


Talent: the phony war

While companies are focusing on getting bigger and expandinggeographically, the survey indicates that corporates are not using deals asan opportunity to bring new skill sets into the business. But could thiscould be a mistake, particularly when entering new territories?

► Just 21% of executives identifiedacquiring skills and talent as a factor forundertaking their last major transaction.None of the respondents ranked it as themost important reason for a deal

► The low priority placed on bringing in keypeople through M&A stands in contrast tothe notion that in order to remaincompetitive and successful businessesneed to win the “war for talent”

► Respondents see bringing in new,talented staff as an “added bonus” of adeal rather than an underlying strategicdriver

"Operating in a new market may require skills andlocal knowledge that the acquiring company lacks.Companies may need to place more emphasis onthe talent that they are acquiring, and in particularput in place the resources to secure thecommitment of individuals that are essential to theorganization’s future success.

Without the right skills in place, a company couldstruggle to achieve its primary M&A goals, whetherthese are growth, geographic expansion or R&D.”

Max Habeck, EY Global Operational TransactionServices Leader


Integration superhero: the powers required

Key points

► 86% of respondents stated operational experience as the mostimportant professional attribute for an Integration Manager.

► 71% of respondents stated excellent communication skills as themost important professional attribute for an Integration Manager.

► 53% of respondents have seen the career of a key employeeaccelerated by a successful integration.


conclusions

► The integration process is complex andchallenging. If it's done well, it can helpbusinesses grow and succeed. However, if it'sdone badly, it can result in significant loss ofvalue


About the study

Participant profile

► Panel of more than 200 senior corporate executivessurveyed in H2 2013 on behalf of EY, by Remark,the market research division of the MergermarketGroup

► Using the Mergermarket database, Remarkidentified all thosecompanies involved in an M&Atransaction over the past two years that had anenterprise value in excess of US$450m.

► The company list was then filtered to include onlyfirms with annual revenues of US$800m or above.

► Executive respondents were drawn from theAmericas, Asia-Pacific and EMEIA regions,representing a range of industries.

► All interviews were conducted by telephone. Theresults are reported anonymously and presented inaggregate.

Our survey reveals insights into theintegration strategy of market-leadingdealmakers and the lessons theylearned from it.It further helps to understand how thestrategic rationale for large-scale ortransformational transactions shapes acompany’s integration strategy.


Demographics

Revenue splitRegion split Respondentindustry split


Tehira TaylorGlobal Media Relations+ 44 (0)207 980 [email protected]

Max HabeckGlobal and EMEIAOperational TransactionServices (OTS) Leader+ 49 (0)40 36132 [email protected]

Jeffery S. PerryAmericas OTS Leader+ [email protected]

Yew Poh MakGreater China OTS Leader+ 86 21 [email protected]

Samy WalleyoOTS Partner Europe, Middle East,India and Africa (EMEIA)+ 49 (0) 6196 996 [email protected]

Contacts

Michel DriessenUK OTS Leader+ 44 (0)20 7951 [email protected]

EY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction andadvisory services. The insights and quality services we deliverhelp build trust and confidence in the capital markets and ineconomies the world over. We develop outstanding leaderswho team to deliver on our promises to all of our stakeholders.In so doing, we play a critical role in building a better workingworld for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one ormore, of the member firms of Ernst & Young Global Limited,each of which is a separate legal entity. Ernst & Young GlobalLimited, a UK company limited by guarantee, does not provideservices to clients. For more information about ourorganization, please visit ey.com.

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