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UNSW Business School
Dynamics of Post-Merger and Post-Acquisition Integrations
Shayne Gary & Shanie Atkinson
February 2017, Asia-Pacific SD Conference
Contact email: [email protected]
Phenomenon: Increasing M&A activity and high performance variance
Value of worldwide M&A investments over US$5 trillion during 2016, the highest on record
Research shows poor performance for acquirers
Source: Kelly et al. 1999. Unlocking shareholder value: the keys to success. KPMG Mergers and acquisitions a global research report.
“While there has been much research on the human, organizational, and cultural aspects of M&A over the last 30 years, there have only been modest improvements in the M&A success rate.” (Marks and Mirvis, 2011: 161)”
State of M&A Research and Theory
Existing theory incomplete and not integrated Little focus on dynamics (i.e. changes over time) Limited understanding about influence of strategy implementation decisions & processes on outcomes
Mixed Methods Study
Interviewed 26 specialists w\ 200+ integrations - 21 semi-structured individual interviews - Two group workshops
Developed causal diagram capturing process theory of M&A integration Constructed simulation model to test internal validity of the process theory and enable policy tests
Four Performance Patterns Identified
1. Fulfilled Expectations
2. Synergy Creep
3. Below Forecast
4. Death Spiral
0 months
100
% of Forecast Annualised Realized Synergies
12 months
24 months
48 months
36 months
60 months
Forecast
Four Performance Patterns Over Time
Death spiral
Synergy Creep
Below Forecast
Fulfilled Expectations
Performance Pattern 1: Fulfilled Expectations Integration rolls out as planned & target synergies achieved as forecast
“The best run processes feel very simple…it is about having people on the hook all the way through…the people who are ultimately responsible for doing the integration.”
Performance Pattern 2: Synergy Creep
Synergies initially achieved as planned but over time poor tracking/monitoring results in reversal of synergies
“As soon as you turn off the tracking mechanism, you can guarantee you can see the payroll increasing month to month to month. … after 12 months you can see it just creeps up straight away. They bring contractors in first and then there are more contractors, then permanent employees.”
Performance Pattern 3: Below Forecast
Synergies achieved are below expectations
“If the synergies that you came up with up front aren’t right, if your assumptions were bad, you need to go out and find some more synergies, because we still need to realise that. People get fatigued and tired of continually trying to find and chase synergies.”
Performance Pattern 4: Death Spiral
Poor integration decisions & processes create a downward spiral that “break the business” “it is a cancer…it is debilitating…it creates a negative vibe that impacts value and performance...it is a distraction to everything and people do not want to be there and it is usually your star performers that leave…it is like a death spiral effect and it is hard to get momentum around the business to drive the integration program”
Causal Diagram: Capturing Synergies
PotentialSynergies
RealisedSynergies
SynergyRealisation Rate
IntegrationProgress Rate
CapturingSynergies
B+
+
Discovering Unachievable Synergies
PotentialSynergies
RealisedSynergies
SynergyRealisation Rate
Discovery ofUnachievable Synergies
IntegrationProgress Rate
CapturingSynergies
B+
+
IllusorySynergies
B
+
Achieving Target by Generating New Synergies
PotentialSynergies
RealisedSynergies
SynergyRealisation Rate
New SynergyGeneration Rate
Target Synergies
Synergy Gap
-
+
+
Discovery ofUnachievable Synergies
IntegrationProgress Rate
CapturingSynergies
B+
+
IllusorySynergies
B
Achieving Target
B
+
Synergy Creep or Reversal
PotentialSynergies
RealisedSynergies
SynergyRealisation Rate
New SynergyGeneration Rate
Target Synergies
Synergy Gap
-
+
+
Discovery ofUnachievable Synergies
SynergyReversal
Synergy Tracking
+
IntegrationProgress Rate
CapturingSynergies
B+
+
IllusorySynergies
B
Achieving Target
B
-B
SynergyCreep
+
Rising Anxiety & Talent Drain
PotentialSynergies
RealisedSynergies
SynergyRealisation Rate
New SynergyGeneration Rate
Target Synergies
Synergy Gap
-
+
+
Discovery ofUnachievable Synergies
SynergyReversal
Synergy Tracking
+
IntegrationProgress Rate
Uncertainty
-
AverageCapability
Level
VoluntaryTurnover
+-
+
CapturingSynergies
B+
+
IllusorySynergies
B
Achieving Target
B
RisingAnxiety
Talent Drain
R
+
-
R
B
SynergyCreep
Engagement
-
+
Integration Fatigue
PotentialSynergies
RealisedSynergies
SynergyRealisation Rate
New SynergyGeneration Rate
Target Synergies
Synergy Gap
-
+
+
Discovery ofUnachievable Synergies
SynergyReversal
Synergy Tracking
Integration Fatigue
-
+
IntegrationProgress Rate
-
Uncertainty
+
-
AverageCapability
Level
VoluntaryTurnover
+-
+
CapturingSynergies
B+
+
IllusorySynergies
B
Achieving Target
B
R
Burn Out
RisingAnxiety
LowMonitoring
REscaping the
Treadmill
Talent Drain
R
R
+
-
R
B
SynergyCreep
Engagement
-
+
+
Pressure to Accelerate
PotentialSynergies
RealisedSynergies
SynergyRealisation Rate
New SynergyGeneration Rate
Target Synergies
Synergy Gap
-
+
+
Discovery ofUnachievable Synergies
SynergyReversal
Synergy Tracking
Integration Fatigue
-
+
IntegrationProgress Rate
-
Pressure toAccelerate
+
+
Uncertainty+
-
AverageCapability
Level
VoluntaryTurnover
+-
+
CapturingSynergies
B+
+
IllusorySynergies
B
Achieving Target
B
R
Burn Out
B
RisingAnxiety
LowMonitoring
REscaping the
Treadmill
Talent Drain
Work Faster
R
R
+
-
R
B
SynergyCreep
+
Engagement
-
+
+
R
Stress Builds
Simulation Experiments
Parameters Varied Base Unachievable Synergy Fraction Time for Synergy Reversal Quality of Communication Fraction of new synergies from redundancy Normal fraction of achievable synergies captured Willingness to Slip Schedule Time to Change Uncertainty Time to Identify New Synergies
Simulation Results: All 4 Performance Patterns
200
150
100
50
04
44 4 4
44
4 4 4 4 4 43
33
3
3
33
3 3 3 3 3 3 3
2
2
2
2
2
2
22
22 2 2 2 2
1
1
1
1
1
1
1
1 1 1 1 1 1 1
0 6 12 18 24 30 36 42 48 54 60Time (Month)
$M/Y
ear
Realised Synergies : Fulfilled Expectations 1 1 1 1 1 1 1Realised Synergies : Synergy Creep 2 2 2 2 2 2 2 2Realised Synergies : Below Forecast 3 3 3 3 3 3 3 3Realised Synergies : Death Spiral 4 4 4 4 4 4 4 4 4
40 $M/Year6 Dmnl
30 $M/Year4.5 Dmnl
20 $M/Year3 Dmnl
10 $M/Year1.5 Dmnl
0 $M/Year0 Dmnl 4 4 4
44
4
4
4
4
4 4 4
3 3 3 33
33
3
33 3 3
22
2 22
22
22 2 2 2 2
1
1
1
1 1
1
1
1
11 1 1 1
0 6 12 18 24 30 36 42 48 54 60Time (Month)
Realised Synergies : Death Spiral $M/Year1 1 1 1 1 1 1 1 1Uncertainty about Change : Death Spiral Dmnl2 2 2 2 2 2 2 2 2Integration Fatigue : Death Spiral Dmnl3 3 3 3 3 3 3 3 3Pressure to Accelerate Realisation of Synergies : Death Spiral Dmnl4 4 4 4 4
Death Spiral Dynamics
Death Spiral Dynamics Continued 2
1.5
1
.5
0
3 3 3 3 3 3 33
3 3 3 3 3 3
2 2 2 2 2 2 2 22
22 2 2 2 2
1
1
11 1 1
1 1 1 1 1 1 1 1 1
0 6 12 18 24 30 36 42 48 54 60Time (Month)
Dm
nl
Commitment to Integration : Death Spiral 1 1 1 1 1 1 1 1 1 1Voluntary Turnover Fraction of Total Employees : Death Spiral 2 2 2 2 2 2 2Experience and Skill Index : Death Spiral 3 3 3 3 3 3 3 3 3 3
Policy Interventions: Turnaround Death Spiral
150
112.5
75
37.5
0
5
5 55
5
5
55
4
4 44
4
4
4
44
3
33 3
3
3
3
33
2
22 2
22 2
2 21
11 1
11
1 1 10 6 12 18 24 30 36 42 48 54 60
Time (Month)
$M/Y
ear
Realised Synergies : Death Spiral 1 1 1 1 1 1 1Realised Synergies : Death Spiral with double quality communication at 20 Months 2 2 2Realised Synergies : Death Spiral with double quality communication and improve governance at 20 months 3Realised Synergies : Death Spiral with double quality communication,improve governance, and slip schedule at 20 monthsRealised Synergies : Death Spiral with widespread intervention at 20 months 5 5 5
Implications for theory & practice
Implementation decisions are not one-shot choices – Degree of integration – Extent of staff redundancies – Speed of integration
Highlights previously unidentified feedback loops important in driving dynamics
– Achieving Target Synergy balancing loop – Fatigue & Burn Out reinforcing loop – Fatigue & Low Monitoring reinforcing loop – Pressure to Accelerate & Stress reinforcing loop
