Completing a successful merger is no small task. We sat down with Tyler Hansen, an Associate at Cicero Group and an experienced M&A consultant to get his thoughts on what data-driven strategies work in this realm.
One of the most difficult aspects of a large scale merger is the aftermath—turning two very different companies into one. What kind of data can help navigate this process?
Recent surveys show that 83% of mergers fail to achieve the overall goals of the merger in the first place. In order to achieve the defined goals of the merger, the successful use of the available data is critical. Simple and common data fields such as customer lists, product lists, and supplier lists from all of the associated parties in the merger can help identify similarities, facilitate the integration, and identify opportunities for synergy. For example, after one of Cicero’s clients was acquired, the now-larger organization used Cicero’s help to identify all the suppliers shared between the two companies and to develop negotiation strategies to improve leverage between suppliers, thereby reducing costs overall.
In addition, through smart analysis, the combination of the aforementioned data fields with transactional data can exploit additional opportunities for synergy. In one case, a Cicero client merged with a competitor who utilized an entire truck fleet to enhance customer service. The acquirer had never worked with a truck fleet before, and asked Cicero to use the transactional data, operational data, and customer lists to help them understand the routes. Through careful analysis, Cicero not only built thorough reports detailing the location and impact of the truck routes, but analysis also identified areas to optimize the truck routes to reduce operational costs while maintaining a high level of customer service. Armed with this analysis, Cicero worked diligently with the client to ensure that the benefits identified in the analysis were realized.
Oftentimes one of the parties may have a technology platform for a certain business process that could be superior to those used by the other parties, which may be the very purpose of the merger/acquisition in the first place. Gathering the available operational or sales data, with the combination of intelligent analysis, can help determine truly which technology platform is the best for the business as a whole or if the technologies should be kept separate altogether.
What strategies are effective when using data to integrate disparate systems?
One effective strategy to minimize customer disruption when integrating one system to the other is by working closely with key IT, sales, and operations leaders from both systems, setting up initiative trackers, and holding the correct parties responsible for their initiatives. Cicero followed this pattern when one client needed to combine its Enterprise Resource Planning (ERP) system with the two ERP systems of its acquiree. These systems are very important to the daily tasks of several departments, so Cicero identified all the necessary decision makers that would be affected by this change, both at the leadership and at the ground level, and developed initiates that would integrate all three systems together successfully, in a timely manner, and with very little disruption in customer service. Thanks to this strategy, the client today is only on one system its customers are none the wiser.
To what extent does data need to be collected before a merger, and to what extent does it need to be collected after the merger? In what scenarios would one be more desirable than the other?
Regardless of the motivation behind the merger or acquisition, the collection and maintenance of data before and after the merger are necessary to facilitate a successful integration. The right data points are critical to support the decision to merge with or acquire another company, but after the decision has been made, working with a third party during the HSR (Hart-Scott-Rodino) period to aggregate the data from both parties can really help the integration hit the ground running. This third party can perform pre-acquisition due diligence, financial reporting and valuation requirements, business and system integration planning, synergy planning among the associated parties, and assessment of deal value impacts to ensure the goals of the merger and acquisition are met before the deal even happens.
After closing day, if the integration isn’t already completed (which is likely for acquisitions of large corporations), the collection and maintenance of data are still necessary to ensure a successful integration and to meet the goals of the merger/acquisition. In most scenarios the data will also be needed to further evaluate the ROI and the overall success of the integration.
What popular merger strategies can be augmented with a stronger focus on data?
There are many reasons to acquire a company, and many strategies are employed to go about making the acquisition. McKinsey & Co. identifies five types of most successful acquisitions, all of which require or can be improved with the intelligent use of data.
When acquiring an organization in order to improve the target company’s performance, data is critical to measure the overall performance of the acquired company at the time of acquisition. In addition, clever analyses of the performance metrics can identify workflows that have the most potential for improvement. In one case, Cicero worked with the business unit of an acquired company that had low margins but had a lot of opportunity for growth. Using operational and transactional data, Cicero was able to identify the least important and the least profitable products ordered by the customers in the business unit, and worked closely with the sales team to determine which of those products should not be sold without any customer objections. Lastly, the IT department was brought into the loop so that the new product formulary could be implemented over the entire ERP. Overall, the engagement improved the growth and overall profit potential for that business unit and the company as a whole.
Another successful merger strategy is to consolidate resources in order to remove excess capacity. Consolidating plants or warehouses can be very beneficial for an acquisition, but typically requires an inordinate amount of work, particularly when working to avoid any disruption of customer service. The use of data, whether the data comes from customer demand projections or product dimensions, is essential. In fact, an intelligent application of data and analytics can greatly facilitate this work process. In another case, through extensive data analysis, Cicero was able to consolidate several warehouses supporting $200 MM of customer revenue for a client after a merger with minimal losses of the customer base.
In what way(s) is Cicero Group uniquely positioned to help companies use data to build strategies around mergers and integrations?
Synergies resulting from mergers and acquisitions can drastically improve business processes for both companies and are thus important to capture during the integration process. During the integration process, Cicero adds value by not only using data to identify and facilitate the creation of these synergies (including those not previously identified during the purchase decision process.), but it also works with the client to ensure that those synergies are realized For example, we often discover unforeseen cost savings or develop new positioning strategies for a struggling product or business unit.
Sometimes the acquirer may show slight favoritism towards members of its own legacy organization, which can put employees of the acquired organization at a disadvantage. Cicero acts as an impartial third party that ensures the treatment between both organizations is fair and maximizes opportunities for innovation among all the parties.
Company culture is an important factor to consider when looking to merge with/acquire another company, and can oftentimes be the cause of the failure of the merger. Cicero is unique in that it spends time looking at cultural components of a potential acquiree and how similar it is to the culture of the acquirer. This is done through a careful investigation of the meritocracy and mentality of both companies as well as through performing in-depth interviews of the leadership of both parties.