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M&A Strategy and Post Merger Integration

Acquisition & Integration Management

In the last years the industry has been very active with regards to M&A activity across the globe. Major deals have taken place reshaping and consolidating the landscape. Especially the packaging segment has been much sought after with respect to strategic acquisitions while in the graphic and publishing sector M&A activity has focused on consolidation and reduction of capacity. North America has now reached a very high level of consolidation in the containerboard and folding board markets and in the associated converting segments. All big companies are now much more focused in the segments they operate in. In Europe some consolidation has taken place and the big multi segment corporates have tried to clean up their portfolios. Much consolidation still remains necessary especially in the graphic paper segment and some of the large companies still need to follow through on the focused strategies announced. In Asia the originally focused strategy now seems to be moving into the direction of diversification duplicating to some degree the strategy of western companies from the 1980s and 1990s. Additionally excess local capacity now exists in some segments that will eventually look for a release in the global market. Eventually this could also spark some M&A activity.

With continued low interest rates it has been easy for companies with the appropriate credit rating to receive the necessary funding. Additionally, the industry has received increased interest from financial investors and debt and equity stakeholders driving some of the structural changes over the last years. With a much more focused strategy and stricter discipline in the M&A approach companies seem to have become a lot more educated about which sectors of the industry to invest in. On the other side the improved focus on sustainable returns is leading companies to define very similar strategies which in turn is creating competition for potential takeover targets which again could lead to overpriced M&A making it difficult to earn the necessary return on capital in the long run. With this increased competition it has become even more important to define the right strategy for post acquisition operations, identify real synergies and capture these synergies according to the promises made.

Making acquisitions successful requires dedication in integration. Still most mergers and acquisitions across industries fail to deliver on their original financial promises. Main reasons quoted are misjudgment of cultural alignment or complexity of the acquired company, excessive internal focus, postponement of tough decisions, lack of pre-merger planning and structured execution, and underestimating the role of communication, board sponsorship and early successes.

Half-hearted integration efforts have misfired resulting in parallel cultures, loss of market share, customer cannibalization, and high costs due to process redundancies even years after the acquisition.

Mismanagement of cultural alignment is cited as the number one reason for unsuccessful mergers. Lacking cultural awareness, fairness and sensitivity towards the needs of the acquired company leads to resistance and know-how loss. A typical mistake is premature staffing without taking stock of the capabilities of the organization being acquired. This error reduces the option of picking the best of both worlds. Caution should also be taken to avoid an exaggerated internal focus resulting in dropping the ball in terms of suppliers and customers. These risks can be mitigated by a comprehensive and structured planning of the post-merger efforts, including cultural and external assessments before the go-live date of the merger.

The first step to success is preparing a plan for the first 100 days, including value targets based on business cases, a tough time line, clear milestones and a defined integration structure and roles & responsibilities. Tough messages should not be kept behind closed doors. Implementation success will depend on sticking rigidly with the plan, staying focused on the original targets and taking the required decisions. Quick-win integration projects need to be proactively selected, implemented and communicated to boost moral and add credibility. Following the first 100 days, more complex projects are tackled, but the same project-management structures needs to remain in place. Communication is key to the level of buy-in for the changes. Dedicated communication teams need to be installed on the top level to both capture information requirements of the staff and to assess their mood and relay it back to management.

Succeeding in the first 100 days and beyond will require strong sponsorship from the highest level of management, which will then take an active role in communication, motivation and success monitoring of the project teams against the originally defined targets. Tough decisions have to be taken fast to reduce levels of anxiety and demonstrate clarity of the approach. It is essential that the integration process remains at the top of management's agenda to ensure continued impetus and to avoid slow down and a premature celebration of success.

Correctly planned and executed integration management is the key to substantial business value and to beating the on average poor returns in the pulp and paper industry. Retaining focus and dedication during integration and focusing on the key areas is the secret to success.

StepChange specialized on M&A strategies, pre-merger planning and post merger integration support and has successfully helped integrate acquired companies to deliver on the promised synergy targets.