Managing Risk in Mergers & Acquisitions - A Success Strategy

From RiskWiki
Jump to: navigation, search

About The Author & The Article

Jonathan Bishop, Group Chairman, Bishop Phillips Consulting. [1] As head of a succession of consulting firms and as a board member, vice chairman and chairman of a variety of entities, the author has participated in a number of mergers and acquisitions both as the dominant and junior partner. Through study and application of the theory, and participation in/responsibility for both successful and unsuccessful mergers he has acquired a detailed practical knowledge of how to make mergers and acquisitions work successfully.

Copyright 1995-2007 - Moral Rights Retained.

This article may be copied and reprinted in whole or in part, provided that the original author and Bishop Phillips Consulting is credited and this copyright notice is included and visible, and that a reference to this web site ( is included.

This article is provided to the community as a service by Bishop Phillips Consulting

Introduction - Why Merge or Acquire?


Pre-Merger Actions

Pre-merger Requisits

  • Beyond Financial Due-diligence (history & forecast)
    • Financial,
    • Legal,
    • Cultural,
    • Infrastructure, etc
  • Include the cost of integration (including IT) in the forecasts
  • Understand the financial structure, performance drivers and debt levels
  • Understand the hidden control & decision relationships (why the acquired business really works)
  • Understand all the stakeholders and implied or expressed service agreements
  • Understand the meaning of merger success (in this context and for both parties)
  • Agree the merger strategy (on both sides of the table)
  • Don’t kill it during negotiation (greed is not good in this case)

Bishop’s Stakeholder Communities Model

Analysing Strategy, Culture & Processes

We see a business or business unit as only having activities designed to service these communities. Some Processes are purely to foster community interaction & membership, others are designed for services the community needs like payroll, leave applications, advertisements, policy creation, complaints, help, performance information and dissemination. With a little thought and consistent application the model proves both universal and scalable.. You may use this model freely as long as the original author is always accredited.

A business consists only of stakeholder communities:

  1. Workforce
    1. Employees
    2. Contractors
  2. Suppliers
  3. Partners
    1. Business network
    2. Cooperative
  4. Customers
    1. Pay for goods & service
  5. Clients
    1. Receive goods & service
  6. Governance
    1. Regulators
    2. Board
    3. Senior exec
  7. Government
  8. Wealth / Enterprise Custodians
    1. Asset managers
    2. Treasury, equipment, IP
  9. The Public
    1. The ultimate source & influence on all other stakeholders


Post Merger Actions


  • Understand the required degree of integration for the intended merger outcome
  • Assess and monitor merger & integration risk
    • Including: triggering events, consequences, remediation, responsibility, escalations
    • Consider carefully the role of internal & external brands
  • Empower the merger from the top
    • Establish an merger or integration steering committee
      • Comprising board + stakeholder executive (include IT)
  • Establish an integration manager / office
    • Assemble the right-skilled integration team
    • Focus Internal PR on bonding and service crossflow (not happy sheets)
    • Establish a specific IT integration/interfacing advisory panel include business leaders
    • Establish an integration ‘help-desk’ & communicate its existence
  • Re-Perform cultural due diligence (where high integration exists)
  • Perform targeted redundancies early & together – then tell the team it is over
  • Revise Management Performance Reporting
    • Target at the required integration degree
  • Implement an integration strategy
    • Work in many short (100 day) projects
  • Implement a merger tracking programme
    • Defined performance measures with targets (automate)
    • Risk & remediation managed (automate)
    • Progress & outcome communications
  • Monitor progress and revise strategy

Empower from the Top

Weber (1996) concluded merger successes were generally CEO lead who:

  • Dedicate executive time and focus
  • Put together a leadership team to drive it
  • Focus management attention on formal success factors
  • Create a sense of human purpose and direction
  • Model desired behaviour and ‘rules of the road’

Distilling the Risks

(Weber (96) & Bishop)

1 Is the combination achieving financial and operational goals? R1 2 Are schedules on target and are changes being implemented effectively? R2 3 Do employees understand and support the need for change? R3 4 What is the effect on people’s well-being and esprit-de-corps? R4 5 Are managers at all levels taking steps to minimise negative reactions and build positive feelings? R5 6 Are productivity or work quality being affected? R6 7 Do people understand their new roles and what is expected? R7 8 Are client and staff complaint levels stable or dropping? R8 9 Is the IT Business Process value map stable or declining? (See next slide for an example) R9 10 Is the post-merger integration investment budget on track? R10

The IT and Business Process Value Map

$NTV – Net Time Value (of net contribution over life of IT system) This table runs at the businees process and business unit, etc levels DO NOT UNDERESTIMATE THE IMPACT OF IT ISSUES

BP1 BP2 BP3 BP4 IT Sys1 $NTv $NTv $NTv $NTv $TNTV IT Sys2 $NTv $NTv $NTv $NTv $TNTV IT Sys3 $NTv $NTv $NTv $NTv $TNTV IT Sys4 $TNTV IT Sys5 $TNTV IT Sys6 $TNTV IT Sys7 $TNTV IT Sys8 $TNTV IT Sys9 $TNTV $TNTV $TNTV $TNTV $TNTV

Tracking Success – The Scorecard

  • Market measures
  • Integration measures
  • Operational measures
  • Process measures
  • Cultural measures
  • Financial measures
  • Purpose measures

Role of the Integration Manager

(Ashkenis & Francis 2001)

  • Inject Speed
    • Ramp up planning
    • Accelerate implementation
    • Push for decisions & actions
    • Monitor progress & report to CEO/Steering
  • Engineer Success
    • Identify critical business synergies
    • Define and launch 100 day projects
    • Orchestrate BP transformation to combine entity Best Practice
  • Make Social Connections
    • Serve as a travelling ambassador between locations and businesses
    • Serve as a lightning rod for hot issues (& venting)
    • Interpret the customs language and culture of both companies
  • Create Structure
    • Provide flexible integration frameworks
    • Mobilize joint teams
    • Create key events and timelines
    • Facilitate team and exec review

Engaging The Right Skills

  • Project management
  • Risk management
  • Process reengineering
  • IT interfacing / integrating
  • Marketing & Brand management
  • Intra-Corporate & Public Relations
  • Corporate Governance
  • Conglomerate Accounting & Finance
  • Legal & HR

Constraining Risk Events

-Setting Strategic Priorities-

  • Address:
    • Corporate PR, marketing & sales quickly – these are the company to most external stakeholders
  • Focus on retaining key staff
  • Focus on customer retention
  • Focus on IT change cost
  • Do not disconnect business process from IT systems during transition (and understand the ISNTV)
  • Forge a new corporate identity – or know why you aren’t
  • Focus/ Build on similarities – not differences
  • Align capabilities, services and products
  • Promote successes and strengths in the acquired entity
  • There is no business more important than the firm’s business.