Scholars and Management Consultants such as McKinsey, Boston Consulting, Deloitte and others estimate the rate of failure of Mergers & Acquisitions (M&A) anywhere between 50% and 80%. Some of the primary reasons for this dismal result are identified as lack of planning of the integration, limited synergy potential (not detected during the Due Diligence), problems in executing the Post Merger Integration (PMI) process, differences in management / organizational culture, etc.
This makes the decision to acquire or to merge with another company one of the riskiest decisions in Executive Management.
The Approach (Matrix Structure)
In using the Matrix logic to address this problem we first need to determine as clear as possible what is the intended objective of the merger. This is typically taken from the submission to the shareholders when asking for M&A funding. Let’s assume the objective of the merger is to achieve synergies of EUR200 Mio p.a..
Then we need to determine the X and Y Dimensions of the Matrix. In this case the X-dimension are the sources of the synergies (e.g. Revenue synergies, Material cost synergies, People synergies, etc.). The Y-dimension is simply the value chain of the combined organization (i.e. the high-level organizational functions).
In the intersects we define the main outcomes that need to be achieved by each combined function to contribute to the synergy objective.
The illustration below provides an overview:
In order to avoid nasty surprises it is essential that the PMI Matrix as outlined above is already created during the Due Diligence process and is finalized and signed-off BEFORE the M&A agreement is finalized. In other words the complete Matrix with initiatives defined and KPI targets set is a key outcome of the Due Diligence process.
This Matrix clarifies the expected synergy potential and details (through the initiatives) how these potential synergies will be realized. It is also essential that the key executives of the new combined organization structure are familiar with the synergy targets and the initiatives and agree to them. After all they will need to implement these initiatives afterwards.
Once the M&A agreement is signed then it is merely about the execution of the agreed synergy initiatives. In the PMI Steering committee meetings the Matrix with its initiatives and KPI’s then servers as the main monitoring and tracking mechanism.
Organizations which are frequently involved in M&A activities can develop templates which will speed up the development of the PMI Matrices and Initiatives for each new M&A project.
Screenshots of an example
Example Initiative List: