COVID-19: Making M&A pay

Short-term actions for long-term results

As companies deal with the economic impacts of COVID-19, with revenue and profitability under extreme stress for some, it’s more important than ever that mergers and acquisitions (M&A) show value beyond the deal.

Accenture Strategy analyzed 800 global M&A transactions, finding that a minority of M&A hit that sweet spot. Just 27% result in operating margin improvement and revenue growth. Even fewer (3%) stand out as high performers with double-digit revenue growth and operating margin improvement above 5%. We delved further to determine what made these deals more successful in the long term and uncovered two main factors.

First, prior to deal close leaders created a long-term blueprint for the intended synergies and the operating model. Second, they ensured an executive with financial expertise remained involved post-deal close to ensure the company achieved the expected financial value from that blueprint.

While these may sound like actions all companies would follow as a matter of course, many don’t. M&A is a fast-paced, high-stress environment and in the heat of a deal—or the flurry of integration activity post-deal close—these areas are often overlooked.

Tomorrow never comes

It’s understandable that companies are focused on Day One readiness and short-term imperatives during post-merger integration. They may consider long-term goals, but it’s rare that they execute on them.

For instance, a multinational consumer goods company decided to fold a US$5 billion acquisition into its existing operating model. Like many operating models, it was inefficient—and adding a new company into it only magnified those inefficiencies. So, while revenue grew more than 5% after the deal, margins decreased for the acquired business because of the rise in costs.

This company is not alone. Across industries, almost half of deals (47%) miss their synergy targets due to operating philosophy, while another 41% cite management practices as the issue. Companies that take a long-term view set themselves up to leap these hurdles more effectively.

Catapult to long-term value

A longer-term perspective helps leading companies use M&A transactions to leapfrog performance.

Instead of folding a new entity into the status quo, company leaders build an intelligent enterprise, a dynamic organization that is built for agility, resiliency and growth. They focus on differentiated outcomes across the new combined company, spurred by the opportunity for innovation. The right blueprint focuses on long-term value, a mix of combined efficiencies and new capabilities that exceed what either company had prior to the merger or acquisition.

For example, one oilfield services company improved revenues and margin by more than 40% in the two years following the acquisition. How? Across the combined organization they took a bird’s eye view, changing:

• What work was done, eradicating duplication across the company to be more efficient.
• Who did the work, better utilizing ecosystem partners where it made sense.
• How the work was done, automating where it made sense to do so.

Predictive analytics can help companies during and after a deal because it makes it so much easier to balance short-term requirements with long-term actions. Through scenario modeling and data insights, they can get to value faster even in an environment that remains uncertain.

In addition, deals that bring more value in the long terms generally broaden and lengthen CFO involvement, capitalizing on financial expertise that can help guide actions from Day One. In addition to being involved pre-deal in pricing the transaction and developing synergy goals, CFOs should be accountable for post-merger value creation.

Smart moves last

As companies navigate COVID-19 impacts, their need to maximize value from a merger or acquisition has intensified. The margin for error is tighter than ever.

To help ensure value beyond the deal, keep in mind the following smart moves: