The Implied Need for M&A Post-Deal Innovation – A Forgotten Subtlety -- February 1, 2007 (Also appearing in the MBA NewsLink)

Ever more fueled by the growing investment pools controlled by hedge funds, private equity managers, and of course Wall Street firms, M&A actions in 2007 are estimated to exceed $3 trillion.  However, whereas significant due diligence and effort is spent on the creation of the deal, it is often surprising the lack of preparation and new ideas that are included as part of the post-deal making initiative.  Symptomatic of this reality is the mind set of the deal makers – “Detailed synergy definition and approaches are best defined once the deal is announced as our expertise is about value creation and not the underlying actionable results.”

The consequence is often times a laborious and serialized series of marginally successful integration efforts that are organizationally disruptive and often times unsustainable.  Further complicating the post-deal integration synergy achievement is the loss of valuable employees and contractors due to organizational consolidations or expense reductions. 

Generally, M&A efforts once initiated resemble a “death march” leaving lasting organizational and personnel scars.  So what can be done differently as the mortgage industry faces an onslaught of business sales, M&A events, and consolidations?  How can innovation be utilized to sustain synergy targets, while minimizing risks to improve success rates?  How can the M&A effort avoid the exodus of staff during those critical first 60 days?

Innovative M&A post-deal events are characterized by accepting and projecting potential implications not only at the macro synergy level, but also the implications of the components which will be required for their discrete achievements and sustainability.  Highly successful M&A events leverage these implications to reduce risks and speed delivery, while aligning them consistently with:

1. stated goals,
2. synergy measurements,
3. leadership philosophy,
4. scorecards,
5. staffing models,
6. technology standardization,
7. process alignment and organization,
8. engineering disciplines,
9. delivery frameworks, and
10. non-conformance escalation. 

Whereas the above list is illustrative, the use of implications to foster innovative adoption within the combined entity conforms to a finite set of review areas.  As we know, implications can best be characterized as those actions, directives, and effects, which will have a residual outcome on the integrated M&A organization.  Historically, implications of post-deal M&A events and synergies are overlooked or discounted by the integration teams.  This short-sightedness is usually attributed to siloed team initiatives, lack of experience with post-deal sustainability, discounted as “not important,” and M&A costs and time pressures. 

Associated with innovative synergy realization and their adaptive programs are eight foundational implication categorizations:

• Education:  Continued education is warranted to promote consistent organizational culture, acceptance of company principles, and assimilation of new processes, methods, procedures, and techniques demanded by M&A events.
• Drive and Fear:  The adoption of new methods needed for synergy attainment requires that organizational fear is eliminated, while the combined entity drives towards on-going initiative enhancement.  Using focused and repeatable channels and methods for communications, education, training and processes, the entity can promote consistency and sustainability.
• Training:  To reinforce educational events, training programs must promote the recognition of M&A implications and their direct correlation to securing innovative ideas needed for continuous improvement.  Whereas M&A initiatives follow a general playbook, the exact execution and sequencing must be adaptive – not prescriptive.
• Improvement:  As part of any M&A philosophy, the removal of fear and rewards for drive must be adopted.  Using discrete improvement techniques to measure change includes; the use of Six Sigma, Kaizen, charting, and QFD, coupled with a culture of collaboration can yield superior synergy results.
• Attitude:  The segmentation and presentment of synergies has a direct impact on post-deal M&A attitudes.  Team building, education, training, open communications, and removal of fear are the positive methods needed to promote delivery and innovative ideas, while adapting and securing mid-course transformations.
• Culture:  The implications of individual synergies will materially influence employee retention, job satisfaction, productivity, and innovation.  Post-deal M&A events and communications will implicitly create cultural elements that will remain long after the M&A events has concluded. 
• Barrier Elimination:  Barriers to success exist before the M&A deal.  The identification and implementation of clear performance targets must be directly linked to synergies.  These synergies in turn must be definitively linked to organizational sustainability and discrete divisional accomplishments (where employees operate day-to-day) to ensure future internationalization.
• Costs and Financial's:  Although constantly reviewed during the M&A post-deal processes, implications of adopting non-financial goals, objectives, and strategies will absolutely influence the outcome and achievement ability of financial targets.  These unrecognized implications between dependent synergy segments and decompositions will increase the risks and instability of their linked M&A programs.

For those experienced M&A personnel, it is known that post-deal synergies cannot be directly implemented.  To realize the required synergies, they must be segmented and decomposed into actionable and interrelated goals, objectives, and strategies.  This process also creates many embedded implications that if unmanaged increase the risks for the post-deal environment not only for synergy attainment, but also for post-deal sustainability. 

Innovation is a cornerstone in M&A post-deal decision making, investments, and on-going viability.  With the size, complexity, and value of M&A events increasing, the need to proactively understand and project the implications of integration initiatives cannot be left to siloed teams or one-off efforts.  The synergies represent the rationale and subsequent methods for M&A “success.”  If our organizations understand the driving rationale for integration, what implicit actions, processes, and measurements must also be recognized to avoid potential investor insurgency?

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