Viewpoints on Strategic Alliances

Making Acquisitions Work: Capturing Value After the Deal (1999)

By John R. Harbison, Albert Viscio and Amy Asin

This Strategic Alliances Viewpoint, the fourth in a series, explores the challenges and fundamental principles of success involved in capturing the value after a merger or acquisition. An overview of recent merger activity is provided, highlighting the increasing importance of a successful merger capability, along with the notably low success rate of PMI efforts to date. The discussion also summarizes BA&H's 1997 PMI best practices survey, identifying ten of the sixty best practice elements that distinguish how successful and unsuccessful companies approach integration. BA&H's post-merger integration transformation framework is then presented in detail.

Mergers and acquisitions have become an essential element of corporate strategy in almost every industry, as companies compete in the race to access new markets and add critical capabilities. Worldwide, the value of mergers & acquisitions in 1998 neared $2.5 trillion, a 50 percent increase from the previous year. Yet fewer than half of these mergers succeed, and the failure is usually due to inadequacies in post-merger integration, rather than to any fundamental weaknesses in the strategic concept.

In order to achieve the transformation required for successful post-merger integration, BA&H applies a "V-A-L-ue" framework, which encompasses three key elements - Vision, Architecture, and Leadership - implemented through careful Understanding and Execution. In simplest terms, the V-A-L represent the what, how, and who of the two key phases of PMI:

Mastering the mechanics - being able to integrate the two companies in order to achieve the stated merger objectives - by planning in detail from the outset, identifying sources of value and how to capture them, managing the challenges of cultural change, and ensuring expert leadership

Meeting the strategic leadership challenge - being able to identify, enhance, and leverage the unique capabilities of the new entity to maximize profit and growth - by creating a new vision for the company to lead its industry or compete in a new way going forward

Both phases are described in detail from within the V-A-L-ue framework, supported by examples from recent PMI experiences in a range of industries.

During the throes of integration, companies often focus exclusively on the mechanics of putting the two companies together, never moving on to address the question at the center of the strategic leadership challenge: How will the newly consolidated company compete and thrive going forward? In contrast, BA&H's approach emphasizes the strategic leadership challenge as the key to long-term post-merger success. Ultimately, a comprehensive process, encompassing both phases, as well as the three core V-A-L-ue components, is essential, since shortcuts can actually destroy value.

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