Hi Matthew, That is an interesting question.
Even during integration and before M&A completion there can be room to adjust to integration challenges, lessons learned, and new information. Before completion, many PMI projects fall behind on synergies and can even threaten the original lines of business. Some reasons for a lower than anticipated performance can include:
○ Rosey estimates
These mis-perceptions can happen unintentionally and cause overvaluation which can lead to over payment. This then creates pressure for the integration to perform beyond what is feasible. Unachievable goals set everyone up for failure, produce diminished working conditions, and harm retention programs.
○ Cultural problems
Cultural problems may exist such as a poor fit that causes friction and reduces performance, or buyers curse where a target is looked down upon.
Other reasons for falling behind can include:
○ Lack of planning
○ Lack of expertise
○ Strategic confusion
○ Overvaluation / paid too much
○ Unfocused or inadequate Due Diligence
○ Lack of integration planning
○ Not enough dedicated resources
○ Inadequate change management
○ Retention problems for key people
○ Gaps in expertise
○ Communication problems
What can be done as part of a troubled PMI response program? Once things are in motion many aspects can have momentum which do not have the capacity to change, and at best can be taken into account for the next merger. However there are steps that can be used to optimize or recover in certain situations.
For starters, a revaluation can be undertaken to analyze if the original assumptions can be maintained. Further, adjusting assumptions to ensure the creation of achievable targets using up to date information. This may include analysis of aspects such as:
❏ Is the business case still true?
❏ Are there enough resources in place?
❏ Are there any new strategic, financial or cultural opportunities that were not known before the transaction was enacted or during planning?
❏ What are the implications of the current cultural direction?
❏ How much of the shortfall is overvaluation, and how much is underperformance?
Certain gaps in planning may still be addressed to a degree after the transaction date and into the integration. The availability and significance of remedies varies widely depending on the specifics of the situation. These can include:
• Key People
• Change Management & Retention Programs
• Customer Journey Assessment
• Business Model Design
• Operating Model Canvas, etc.
In many cases, overvaluation and underperformance that may have been inherent to the transaction mean the original goals can not be delivered on. Often value is still being created for shareholders in the economic sense, but this is not the focus of management and the new owners. Even missing original targets, there are a variety of approaches a firm can use to reposition towards the most advantageous available business case. Once the integration is complete, evaluations can be completed and lessons learned can then be codified for use in increasing the return on the next transaction.