PMI - An Integral Part Of Value Driven M&A Success

By: Dan Light
Submitted: 2007-01-17 15:33:57
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A merger or acquisition is a corporate intervention, sometimes with a cataclysmic force, that if left unchecked may destroy the acquirer as well as the acquired. Defecting key personnel, competitor reactions, poor customer service and supplier unrest can upset the best deals. Ideally the big fish in the deal will lead all the little fish through these decisions and actions but few companies make enough acquisitions to develop a tested methodology. As a result most organizations treat post-acquisition integrations not as repeatable processes but as hurdles to overcome, so everyone can get back to business as usual. Quick up front planning, post closing action and strong gate keeping are necessary to ensure the desired results are achieved.

Combining multiple organizations creates the need for a multitude of decisions such as reporting relationships, strategic and operational controls, budgeting and performance requirements, organizational structures and staffing, policy integration, performance measurements, and reward systems. Combining businesses requires techniques and expertise far different from that required to run the businesses. A successful implementation takes transformation management expertise specific to managing the integration process.

Acquisitions are normally justified on the basis of the increased value that’s anticipated post merger. On paper they all look great but no matter how good it looks on paper value isn’t created until after the dust settles, when people from the combining organizations collaborate to create the new, larger, more valuable, more productive entity. Unfortunately, mergers and acquisitions have a habit of not meeting expectations. Why? Because of poor planning; roadblocks were not eliminated, expectations weren’t clearly communicated, politics and positioning reared its ugly head, and what plan there was was never executed. Increased performance expectation drift further and further from reality.

Successfully joining processes, procedures and cultures is better accommodated by continuing to operate each entity independently while the same time transitioning to a new enterprise. Doing the transformation in this manner usually results in a more rapid integration with the least amount of value destruction in the process. It minimizes the loss of capabilities and disruption of services.

Rather than trying to implement all changes at once, integration managers can focus their efforts on core performance areas. PMI, or Post-Merger Integration, is designed to identify and prioritize the keys to value creation in order to simplify some very complex challenges. The connections between strategy and operations are identified, and linked to performance metrics. While the PMI process coordinates strategy and structure re-engineering, human resource effectiveness and efficiency, systems and technology, and financial engineering its true purpose is to drive:

• Competitive Advantage
• Satisfied Customers
• Operating Cash Flow
• Enterprise Value
• Applied Capabilities
• Mission & Strategy

The PMI process anticipates a coordinated transition effort under an integration manager rather than leaving business unit manager to integrate in their unit using their preferred technique, . A coordinated PMI Implementation cycle may take several months, and sometimes quarters, to complete, depending on complexity, condition of the enterprise and management’s prior experience. With a coordinated integration, however, progress can be steadily made and measured and the process becomes both scalable and repeatable.

To get the benefits of the merger and to free capacity for additional acquisition opportunities without losing momentum as business conditions change the post merger integration period needs to be shortened as much as practical and performed efficiently . An acquisition that is not operating with a positive cash flow within the first year rarely, if ever, generate a positive returns without massive restructuring.

The PMI process was specifically designed to be implemented by the acquirer independent regardless of the level of experience. The process is effective without regard to type and size of integration, whether it public or private or if the scope includes an entire multinational concern or a single business unit that is linked to one or several organizations. These best practices will result in sustained performance, broad acceptance and a cost-effective implementation.

The PMI process is divided into two cycles: Planning and Implementation. Both cycles serve as guide books to lead organizations through the tasks needed to effectively and efficiently produce results. It enables substantive business improvement by addressing all the synergies, dependencies and interrelationships included in a well-managed integration project.

Article source: Expert Articles