Why integration is key in Merger Mania.

Author:McGee, Tom

If 2014 was the year of what some called "merger mania," 2015 is hot on its heels to steal the title if deal activity continues at its current pace. As of March of this year, U.S. companies had announced more than $308 billion worth of deals, according to Dealogic.

In January alone, deals totaled $232.9 billion, marking the busiest start to the year for M&A since 2011 (only twice has U.S.-based M&A activity gotten off to such a quick pace). With favorable market conditions, including cash on corporate balance sheets and private equity dry powder at record levels, record stock indices and improving unemployment numbers, companies across a variety of sectors are looking to M&A as a strategy to fuel their growth. Yet merging or acquiring a company is by no means easy.

To be successful, M&A typically requires a well thought-out strategy, as well as due diligence not only on the financial front, but also in terms of overall operations. Integration is where companies have the opportunity to convert M&A potential into actual value, and often it determines the long-term viability of a deal. Previous research from the M&A Trends Report 2014 commissioned by Deloitte and conducted by OnResearch showed that nine out of 10 corporate executives felt at least some portion of past deals failed to generate the expected return on investment, and that over half of respondents cited failure to integrate effectively as a top area of concern in pursuing a deal.

Intrigued by this Insight, we dug deeper into the challenges and opportunities presented by integration to discover what factors really do make or break deals, and how companies increase their chances for long-term success. Deloitte's Integration Report 2015, Putting the pieces together, we surveyed over 800 U.S. executives across Industries that had either recently engaged in M&A or were planning to do so in the near future. The results revealed that while successful post-merger integration is difficult to achieve, the deals that succeed are the ones better able to overcome the challenges Inherent in the post-merger environment.

Almost 30 percent of respondents said their integration fell short of success. By having a smart and well-executed integration plan in place from the start, companies can greatly increase their chances of deal success.

The report highlights four best practices that can help a company down the road to success:

  1. A formal plan with defined synergy targets The goal of capturing...

To continue reading