In January alone, deals totaled $232.9 billion, marking the busiest start to the year for M&A since 2011 (only twice has U.S.-based M&A activity gotten off to such a quick pace). With favorable market conditions, including cash on corporate balance sheets and private equity dry powder at record levels, record stock indices and improving unemployment numbers, companies across a variety of sectors are looking to M&A as a strategy to fuel their growth. Yet merging or acquiring a company is by no means easy.
To be successful, M&A typically requires a well thought-out strategy, as well as due diligence not only on the financial front, but also in terms of overall operations. Integration is where companies have the opportunity to convert M&A potential into actual value, and often it determines the long-term viability of a deal. Previous research from the M&A Trends Report 2014 commissioned by Deloitte and conducted by OnResearch showed that nine out of 10 corporate executives felt at least some portion of past deals failed to generate the expected return on investment, and that over half of respondents cited failure to integrate effectively as a top area of concern in pursuing a deal.
Intrigued by this insight, we dug deeper into the challenges and opportunities presented by integration to discover what factors really do make or break deals, and how companies increase their chances for long-term success. Deloitte’s Integration Report 2015, Putting the pieces together, surveyed over 800 U.S. executives across industries that had either recently engaged in M&A or were planning to do so in the near future. The results revealed that while successful post-merger integration is difficult to achieve, the deals that succeed are the ones better able to overcome the challenges inherent in the post-merger environment.
Almost 30 percent of respondents said their integration fell short of success. By having a smart and well-executed integration plan in place from the start, companies can greatly increase their chances of deal success.
Despite the challenges of post-merger integration, the deal market remains hot and M&A activity signals an optimistic bet on the future. As the global economy continues to grow and market conditions continue to be favorable, we’re likely to see sustained deal activity for the foreseeable future. Yet without effective post-merger integration, deals can lead to conflict, confusion, and perhaps even dissolution after months of hard work. The journey doesn’t end after a deal is done – in fact, in many ways signing on the dotted line is only the beginning. Companies would be wise to pay just as much attention to the post-merger integration period as they do to the acquisition process, as effective planning can make or break deals companies have worked so hard to achieve.