Creating the perfect merger

Companies are increasingly operating in an environment of significant change — with M&A activities at the top of the agenda of many CEOs.

Industries such as financial services, and telecommunications are still rather fragmented, while other industries like energy & utilities are rather monolithic.

Both are in need of transformation. Leaders will consistently look for ways in the future to capture market share and protect their turf by M&A activities.

With increasing M&A volumes and number of transactions, integration activities will not only face a higher complexity, but companies need to be integrated faster.

Commitments to shareholders, customers, suppliers, employees, and communities need to be fulfilled and all interdependencies resolved, which requires careful planning and coordination.

A recent Capgemini survey on 835 operations shows that 55% of mergers fail (i.e. their stock price under-performs the index) along a 2-year period.

A major reason for this is a lack of professional post-merger integration activities.

Other studies have shown a strong positive correlation between the speed at which integration is performed and its success.

A merger opens a window of opportunities when change is generally expected and more easily accepted.

It is crucial to use these opportunities to operate with a well aligned and holistic PMI approach covering all relevant aspects of the integration.

Setting the strategic cornerstones of an acquisition and closing the deal is only the beginning of a hard and bumpy road.

The integration of a newly acquired organization bears a number of challenges:

· the integration process has to be completed by a certain — usually ambitiously short — deadline

· integration activities must be kept in sync with legal merger steps

· synergies committed to shareholders have to be achieved

· integration costs are not allowed to spill over budget

· daily business must continue without disruptions despite the ongoing integration

· former competitors with different corporate cultures need to become one enterprise with a common set of shared values

An integration of organizations — irrespective of their size and geographical coverage — is always a highly complex process, affecting every single area of the organization.

The risks of mismanaged post-merger integration are versatile:

· extended project duration, resulting in skyrocketing costs

· loss of key staff

· loss of clients and business to competitors

· increased operational risk due to new, unfamiliar processes

· damaged image and bad press due to mismanaged external and internal communication

A well structured approach and strong project management skills are key to minimizing these risks and achieving a successful integration. Further than only minimizing risks, a well planned and managed integration can even create additional value, leaving the new organization with

· a redefined, stronger competitive position

· a strategy reflecting the joint companies’ strengths

· a substantially improved cost/income ratio and

· staff that has teamed up, all ready to make the joint company prosper.

Capgemini has successfully supported clients from various industries such as financials services, energy & utilities, retail, and telecommunication during their integration processes.

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