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Post-Merger Value Creation: Five Imperatives For Safeguarding Shareholder Value & Overcoming The Winner’s Curse – Shareholders


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Research shows that many mergers and acquisitions (M&A)
fail, i.e., do not increase shareholder value. The main
reason is that those acquisitions do not fully realize anticipated
synergies, which have been planned to back-up paid acquisition
premiums. In turn, this then leads to the infamous
‘Winner’s Curse’, which states that the successful
acquirer in a transaction typically wins the bid because he uses
the most optimistic, and typically overoptimistic, estimate of the
value of his investment.

At the same time, M&A is a key enabler for corporate
development not only in buy-and-build contexts but also for
companies in more stable settings. As a result, it is not
surprising that M&A activity has increased in the last decade.

We see five key focus areas for successful post-merger
integration (PMI) to overcome this dilemma and safeguard
shareholder value:

  • Value creation – Put at the heart of the M&A

    It might sound obvious, but value creation needs to be placed in
    the center of the entire M&A process. Specifically, the
    pre-deal outside-in synergy assessment needs to be followed by a
    thorough due diligence in this area and a post-signing
    validation / execution preparation, which is then concluded by the
    implementation after the closing of the transaction. Especially
    when it comes to “strategic deals” this straight-forward
    PMI value creation pathway is regularly disturbed by
    business-as-usual operations and the complexity of the buyer
    organization, putting synergy realization at risk.

  • Right ambition level – Balance top-down push and
    bottom-up validation:

    Successful integrations that create value start with ambitious yet
    achievable top-down targets. Those targets should be based on
    sufficient background information through experience-based pre-deal
    outside-in synergy assessments and verified to the extent possible
    during the due diligence process. As a next step, top-down targets
    need to be substantiated by bottom-up validation to ensure both
    sustainability of measures and buy-in of the organization during a
    later implementation.

  • Implementation focus – Leverage post-signing
    phase for preparation:

    The length of the period between signing and closing depends on
    various factors such as deal complexity and the resolution of
    potential anti-trust issues. At the same time, this period is best
    used by validating and operationalizing pre-deal outside-in synergy
    plans (obviously taking any anti-trust restrictions into account).
    Here it is not about concepts and PowerPoint slides but rather
    concrete action plans and the setup of project/implementation
    teams. For instance, when headcount-related cost synergies are a
    major lever, it makes sense to start designing a fit-for-purpose
    target organization and leadership structure already before the
    closing of the transaction to be able to jumpstart more detailed
    organization discussions and headcount optimizations shortly after
    Day 1.

  • Less is more – Set the right

    That M&A deals are complex endeavors is
    obvious, and it holds especially true in the post-merger
    integration phase. Therefore, keeping the focus on the right things
    at the right time and keep sight of the big picture is key for
    leaders. Experience shows that a proper prioritization is best
    achieved by challenging every planned activity via two main

    • Is this activity critical for Day 1 readiness or for business
      continuity after Day 1?

    • Is this activity a prerequisite for synergy realization

  • If at least one of those questions is
    answered with “yes”, the respective activity should be
    put on the agenda of the Integration Management Office (IMO). If
    not, there is no reason to put an additional burden on an already
    stretched organization, so the topic should better be parked until
    the initial high-pressure PMI phase is completed (e.g., after Day
    90). The recommendation is to install a small but experienced IMO
    to allow exactly this prioritization to happen in a meaningful

  • Pace & employee-centricity over perfection –
    Move fast and put people in the center:

    The above-mentioned implementation focus helps also to move as
    quickly as possible once the deal is closed. Leaders need to keep
    in mind that M&A activities generate a high degree of
    uncertainty and anxiety within both the buyer and target
    organization’s employees and customers. At the same time,
    employees need to be understood as key enabler of a successful PMI.
    Therefore, the clear recommendation is to make decisions as quick
    as reasonably possible and to set up a professional communication
    process that keeps key stakeholders up to date with the right
    information consistently delivered at the right time.

The list above focuses on PMI-relevant factors and therefore
needs to be enriched with pre-deal value capture levers such as
optimized signing/closing conditions, SPA mechanism, price
negotiations and potential exit/divesture strategies to realize the
full value potential. As M&A situations vary and each synergy
case is different, there is not THE ONE value-creating PMI
approach. The winning formula remains experience blended with the
right level of pragmatism in execution, especially “when it
really matters”.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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