Setting Synergy and Integration Targets. September 14, 2017

Transcription

1 Setting Synergy and Integration Targets September 4, 207

2 BCG's TXN Center Supporting clients to generate lasting value via M&A & IPOs On the buy-side We help you find the best-fitting strategic and value-creating targets, through world class DD and PMI approaches Target Identification Joint Ventures and Alliances Due Diligence IPOs and Spin-offs Divestitures Exit Strategy and Carve-Outs Source: BCG We help to maximize value creation by making the business plan and equity story plausible and investable On the sell-side Visit us at Synergies Integration vfinal.pptx

3 Most mergers and acquisitions fail to realize their value Most M&A transactions destroy value: results of recent BCG study % of deals analyzed 80 Announcement effect in line with empirical findings and academic studies' results Transaction itself absorbs most of the company's energy: CEO and organization focused on consummating the deal, not on making it work Value is created not in the transaction itself but in successful implementation: catastrophic failures are rare, but failing to realize the potential value of the merger is common Value destroyed Value created. Performance Index from five days before announcement to five days after compared to market average Note: Sample size = 277 Source: VM research system; SDC; Compustat; BCG study "Winning through mergers in lean times" 36 "Many studies of mergers, stretching back to the last century have shown that, despite some successes, the overall record is decidedly unimpressive" The Economist "In 57% of these merged companies, return to shareholders lagged behind the average for their industries" The Harvard Business Review Synergies Integration vfinal.pptx 2

4 Dealing with M&A is a risky proposition for shareholders Cumulative Abnormal Returns (%) Abnormal return distribution for dataset 20 Top decile 0 2nd 3rd Note: 264 large deals as of July, 206 Source: ThomsonReuters; S&P Capital IQ; BCG ValueScience Center Close of announcement day 5th decile Synergies Integration vfinal.pptx 3 4th 6th 7th 8th 9th Bottom decile Relative trading day to announcement

5 Corporate leaders see three key reasons why acquisitions fail Key reasons named for failed acquisitions Key takeaways Percentage of named reasons for acquisition failure Wrong candidate 40.7% Deal preparation & execution Unclear strategic fit Overpaid 69.% 49.% Cast a wide net, but prepare to seize opportunity Inadequate or poor PMI Bad timing Process structure Integration Complexity Cultural fit Lower synergies Market timing. BCG survey among corporate leaders; sample size = 54. More than one reason possible Source: BCG corporate leaders survey; BCG analysis 35.7% 55.4% 64.3% 6.% 63.8% 57.9% 2 3 PMI is imperative Timing and communication matter Synergies Integration vfinal.pptx 4

6 What leads to successful M&A? What doesn t? After analyzing hundreds of public deals over the past five years, BCG has found that discipline along three dimensions diligence, valuation and execution are common threads in creating shareholder value. Discipline Observation Evidence A Valuation Successful acquirers balance the premium that they pay with the synergies that they expect Acquirers who paid below the average P/E of synergies outperformed those above by ~5% CAR B C Diligence Integration Successful acquirers have the confidence and knowledge to announce the synergies they expect Acquirers who provide transparency in their integration progress are rewarded by shareholders. P/E of synergies calculated by Premium paid (absolute $ amount using 30 days before announcement from ThomsonOne) / Pre-tax announced synergies Only 60% of deals announce synergies Acquirers who announce synergies outperformed those who didn't by 3.7% of CAR Acquirer's who followed-up on synergies outperformed those who didn't by 6% ~40% of acquirers followed-up on their synergies 9-2 months after close Synergies Integration vfinal.pptx 5

7 Disciplined approach to synergies leads to superior M&A value creation A Acquirers in the cheapest quartile of the P/E of synergies outperform the most expensive by 4.8% +20 / -20 day rtsr from the date of announcement B Acquirers that announce synergies outperform those that don t by 3.7% +20 / -20 day rtsr from the date of announcement C Acquirers who follow-up on synergies outperform those that do not by 6.0% rtsr from the date of announcement to 9 months after the close date P/E of synergies: cheapest quartile -2.3 P/E of synergies: most expensive quartile 4.8% Announced synergies Synergies Integration vfinal.pptx No announced synergies # of deals Median P/E of synergies.5x 7.6x 3.7% Acquirers that Acquirers that followed up did not follow up Sources: Thomson One; BCG analysis. P/E of synergies = premium paid (absolute dollar amount 30 days before the announcement) / pretax announced synergies. Excludes six transactions with incomplete data. 6.0%

8 Acquirers are more ambitious than their announced targets Systematically tracked and managed PMIs achieve higher synergies than announced or planned BCG experience suggests that most companies pursue internal synergy targets which are significantly higher than the target provided publically 2% higher revenue synergy targets 5% higher cost synergy targets BCG assisted PMIs typically overachieve versus those (higher) internal targets 25% extra revenue synergies typically realized versus internal targets 5% extra on cost synergies % of publically announced synergies Source: BCG's PMI Synergy Database as of June 206 Announced Planned Achieved Revenue synergies Cost synergies Synergies Integration vfinal.pptx 7

9 The 2 imperatives for success in post merger integration Set the direction 2 3 Define first principles the objectives and philosophy of the merger and design the process to reflect them Design the process to reflect the value creation agenda: synergies, strategy, risks Insist on senior leadership that is active, committed, and highly visible 4 Organize implementation teams to mirror the value drivers of the operating model and staff them with the best people Capture the value Build the organization Maximize cost synergies and plan rigorously for revenue synergies Define explicit cost and revenue targets and revisit them continually throughout the process Retain current customers by making them an integral part of the PMI process Manage talent by selecting, retaining, and developing the best people for the new organization Design a workable organization structure Recognise that implementing the new model is an exercise in change management Assume that it is better to have "too much" communication than too little Manage the integration of organisation culture with the same discipline and rigor as the operational and financial integration Synergies Integration vfinal.pptx 8

10 Thank you bcg.com bcgperspectives.com