On The Money

PwC Study: Complexity Dampens Merger Success

Merger integration survey looks at issues that cause deals to fall apart 3/14/2017 6:15 PM

With the pace of deals not expected to slow anytime soon, PriceWaterhouseCoopers issued a study Tuesday that seeks to get to the bottom of why some deals, despite their synergistic dedication to thought leadership, simply don’t work out.

According to the PwC 2017 M&A Integration Survey, the main culprit for deal’s fizzling out or not living up to expectations is simply their complexity.

In the study, PwC said that high-performing deals – which it defines as transactions where respondents report significant success in strategic, financial and operational areas – dropped to fewer than 5% of the total in 2016, compared to 24% in 2013.

In addition, PwC says that only half of respondents that have done eight or more deals in the past three years reported strategic success, compared to 66% of respondents who did three deals or fewer.

“When it comes to meeting strategic goals, it appears practice doesn’t make perfect,” PwC said in the report.

PwC said about 151 respondents participated in the survey, wih 32% at ethe senior level holding the title of CEO , President, COO, CFO, CIO, EVP and SVP. The remainder were VPs from corporate development, strategy, sales and marketing, operations, information technology, finance and human resources.

Other survey highlights include:

         Success rates fell dramatically—from 45% to just 15%—for those seeking growth in market share.

         The percentage of companies that reported complete success in gaining access to new markets plunged from 58% to 28%.

PwC also found that companies are beginning the integration process much earlier According to the survey, 32% of respondents se their integration teams to work in the deal screening process in 2016, compared to 21% in 2013. The number of respondents that waited until due diligence dropped by more than half.

“Even as companies get better at achieving certain goals, they’re struggling to reach others—perhaps because their expectations are changing,” PwC said in the report. “Workforces are increasingly diverse and multigenerational, and most industries are undergoing some form of digital disruption. Though many business leaders judge it more prudent to buy than to build talent and capabilities they need to join the ranks of the disruptors. By definition, that may mean integrating a completely different type of organization, with capabilities far outside the acquirer’s core.”

The study suggested that companies follow these seven steps toward successful integrations: accelerate the transition; define the integration strategy; focus on priority initiatives; prepare for day one; communicate with all stakeholders, establish leadership at all levels; and manage the integration as a business process.