Successful merger : lets make no mistake about the objective

After 15 years, in our capacity as consultants with SterWen, spent watching businesses with their reconciliation projects, we have often noticed how large the gap was between the euphoria of the decision and the lesson in humility learned, some years later, by the final results of the operation

We will not regurgitate the figures that everyone knows, which, according to the cases in point, the sources and, in particular, based on what they want us to know, highlight the incommensurable benefits gained from acquisition operations or mergers as far as creation of value is concerned or create smoke and mirrors with regard to the bewildering number of disappointments told to us by those who have been burned by the whole operation.

These are the silent figures. They lie through their omission. They don’t tell us why certain operations meet with success whilst others meet with absolute failure. The only remarkable thing is that the successes are not, at first glance, necessarily those which one would have imagined and vice versa.

What a pity that the acquisitions or mergers in which the due diligence have been the most well researched, with the most detailed business plan, the most unanimously approved strategies, are not those which are always the most successful in the long term... It would be so much more reassuring for our well-structured minds, trained according to the most sophisticated theories....

However, let us be sure that a badly prepared and evaluated operation does not have the opposite results and - thankfully - neither is a guarantee of success ! Whichever way it happens, to meet with success in this area is very unexpected.

Must one conclude from this that one must put an end to our well-oiled processes of selection, our best practices of elaborate business plans, our proven methodology of due diligence and auditing ? Of course not, but one must keep in mind that the use of these techniques is only a necessary condition, but in no way sufficient. Once these phases have been completed, nothing is complete, nothing is finalised, and the worst (most difficult) is still to come.

The financial world in which we have become complacent, reassures us that it is permissible to be surprised when the implementation plans do not lead to the desired results : over-estimation of synergy, over-favourable economic assumptions, over-optimistic speed of execution, under-estimation of restructuring costs, insufficient cognizance of human and social factors, mobilisation. The list is long. However, everything had been well calculated, well thought out, are we not all in agreement around the table?

Well that’s just it; an alliance or a merger does not take place around the table.

Without falling into a rather inappropriate naive optimism on the subject, the fact of the matter is that many such operations are carried out with purely financial objectives, when the condition for success and therefore the sole objective should be the industry. The financial performance that results from this is only the result of the success of the execution itself of this industrial project and under no circumstances, an end in itself.

In order to change this, we believe that a merger can be based on a simple idea : value is created by the actual operation itself and not the mere notion of it.

Everything is there. With the best preparation possible, an execution, even if only slightly under-estimated, buries, irredeemably, the dreams of IRR, of cash flows and the creation of value of which the paper weight and quality of slide presentation of consultants’ reports have convinced us to embody the final truth.

It is definitely the execution of the plan which proves to teams, customers and investors the merit in deciding on a merger. It is the execution itself which will give structure to the merger, refine it and re-align it to the realities of the environment with a view to being a success.

The synergies between the competencies, the activities, the products the markets can exist on a latent level, but it is only once the project has begun that these synergies will be revealed. Direct benefits and clear objectives is all important to the motivation of the operational teams to ensure the implementation of a simple and structured approach.

As far as the operational approach towards a merger is concerned, the correct order of words is the following: keep it simple, do not hurry, give precise explanations, leaving no room for doubt, motivate and delegate, never underestimate the operational problems and feelings of the teams, and adapt to the environment, always and at all times.

In our world which forms a beautiful part of all that shines, we must be sure about which successes to celebrate. Wisdom would dictate that we celebrate successful mergers, rather than the decisions to create the mergers, even if the former comes later and in cruelly fewer numbers than the latter.