Merger Integration: Delivering on the Promise - Booz Allen Hamilton
Merger Integration: Delivering on the Promise - Booz Allen Hamilton
Merger Integration: Delivering on the Promise - Booz Allen Hamilton
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Although no <strong>on</strong>e-size-fitsall<br />
formula can apply to every<br />
company’s unique situati<strong>on</strong>, in<br />
our experience four principles are<br />
<strong>the</strong> key to success in merger integrati<strong>on</strong>.<br />
They all start with <strong>the</strong><br />
CEO — before <strong>the</strong> deal closes.<br />
1. Communicate a shared visi<strong>on</strong><br />
for value creati<strong>on</strong>.<br />
2. Seize defining moments<br />
to make explicit choices and<br />
trade-offs.<br />
3. Simultaneously execute<br />
against competing critical<br />
imperatives.<br />
4. Employ a rigorous<br />
integrati<strong>on</strong> planning process.<br />
This Viewpoint outlines<br />
<strong>Booz</strong> •<strong>Allen</strong>’s approach to achieving<br />
success in merger integrati<strong>on</strong>.<br />
A Marriage Made in<br />
Purgatory<br />
From airlines to automobiles<br />
to advertising,<br />
<strong>the</strong> urge to merge has<br />
escalated steadily over <strong>the</strong> past<br />
decade. In 2000 al<strong>on</strong>e <strong>the</strong>re were<br />
9,472 merger and acquisiti<strong>on</strong><br />
(M&A) transacti<strong>on</strong>s in <strong>the</strong><br />
United States — a new record. 1<br />
Worldwide, mergers and<br />
acquisiti<strong>on</strong>s through July 20,<br />
2000 were valued at $1.7 trilli<strong>on</strong>,<br />
an 18 percent year-over-year<br />
increase. 2<br />
Although this rush to <strong>the</strong><br />
altar may have been grounded in<br />
solid synergistic potential, all too<br />
many of <strong>the</strong>se marriages quickly<br />
faltered. <strong>Booz</strong> •<strong>Allen</strong> & Hamilt<strong>on</strong><br />
recently c<strong>on</strong>ducted a study of<br />
deals that closed in 1997 and<br />
1998 and discovered that 53 percent<br />
of <strong>the</strong> deals had failed to<br />
“One of <strong>the</strong> best decisi<strong>on</strong>s<br />
we made in <strong>the</strong> merger integrati<strong>on</strong><br />
process was to maintain our focus<br />
<strong>on</strong> customer service, even when<br />
it meant slowing down <strong>the</strong> rush<br />
to exploit synergies. If we kept our<br />
customers satisfied through <strong>the</strong><br />
integrati<strong>on</strong> process, we reas<strong>on</strong>ed,<br />
it was worth delaying <strong>the</strong> savings<br />
for a couple m<strong>on</strong>ths.”<br />
— CEO, medical products<br />
and services company<br />
deliver <strong>the</strong>ir expected results. (To<br />
assess <strong>the</strong>ir post-merger performance<br />
fairly and accurately, we<br />
intenti<strong>on</strong>ally restricted our sample<br />
to those deals that had closed<br />
two or more years ago.)<br />
Fur<strong>the</strong>r analysis revealed<br />
that <strong>the</strong> more strategic <strong>the</strong> rati<strong>on</strong>ale<br />
for <strong>the</strong> merger, <strong>the</strong> greater<br />
<strong>the</strong> likelihood of failure (see<br />
Exhibit 1). Of those combinati<strong>on</strong>s<br />
that were simply intended<br />
to establish or exploit scale<br />
effects, 55 percent achieved <strong>the</strong>ir<br />
objectives. However, of those<br />
Exhibit 1. Extent to Which Deals Met Expectati<strong>on</strong>s Two Years After <strong>the</strong> <str<strong>on</strong>g>Merger</str<strong>on</strong>g> Close<br />
Combined: 55% Met Expectati<strong>on</strong>s<br />
Combined: 32% Met Expectati<strong>on</strong>s<br />
35<br />
Number<br />
of Deals<br />
30<br />
25<br />
20<br />
15<br />
Strategic mergers<br />
are more likely to fail<br />
10<br />
5<br />
0<br />
Achieve Scale<br />
Grow Existing Business Add Capabilities New Business Model<br />
Total Deals<br />
Met Expectati<strong>on</strong>s<br />
Increasingly Strategic Rati<strong>on</strong>ale<br />
Source: <strong>Booz</strong> • <strong>Allen</strong> & Hamilt<strong>on</strong><br />
1<br />
<str<strong>on</strong>g>Merger</str<strong>on</strong>g>stat.<br />
2<br />
Thoms<strong>on</strong> Financial Securities Data.<br />
2