Successful mergers depend on strong integration plans

Now that mergers and acquisitions are again attracting interest, companies are focusing on how to deliver on their promise of greater value for their shareholders. As a result, they're taking a methodical approach to integrating their operations, including their supply chains, says a new report from the Conference Board, a nonprofit business research organization. Based on a survey of 86 executives involved in mergers and acquisitions, researchers concluded that many companies have begun to formalize the way they manage business integrations.

In particular, the Conference Board report found that "serial acquirers," or companies that pursue corporate growth through mergers and acquisitions (M&As), are developing formal practices that are tailored to fit their strategies, the size of the acquisition targets, and the degree of similarity between themselves and the acquired companies in terms of industrial focus and/or geography.

By formalizing their integration practices, companies gain several advantages. First, they can track what has worked successfully in past mergers and apply those practices next time around. They can also establish clear objectives and specific processes, which allow them to communicate more effectively with those involved. "Having a well-oiled 'integration engine' brings a certain dynamism that encourages commitment to the objectives and goals of the integration," write the report's authors.

The Conference Board offers a number of recommendations for facilitating business integrations in general; all of them apply equally well to supply chain operations.

1. Build organizational tools and capabilities to support the integration process.
2. Recruit generalists rather than specialists to the integration team.
3. Give priority to major challenges, such as integrating corporate cultures or IT systems and building management teams.
4. Use surveys and focus groups to diagnose cultural differences, and then develop plans for reducing those differences.
5. Identify risk factors and propose risk-mitigation actions during the due-diligence phase, before the deal is signed.
6. Start integration efforts sooner rather than later. Seventy-five percent of survey respondents said integration programs should be launched between the time the merger or acquisition is announced and the time it closes.

In addition to formal processes and tools, successful mergers and acquisitions involve acquirers and target companies that are in the same or similar industries. "The further away you move away from your own business," the report notes, "the more likely it is that there will be an exponential increase in problems."

Editor's note: To read about one such successful integration, see "Weaving two supply chains together" on Page 34.

[Source: Strategic M&A: Creating Tools and Capabilities For Successful Integration, Report No. 1401, The Conference Board, 2007: www.conference-board.org.]