A (positive) synergy is the increase in shareholder value coming from mergers and acquisitions activity. Below is a list of potential synergies that are usually considered for mergers and acquisitions. If a synergy applies for a deal and how big the synergy is has to be analysed and planned for each deal.

Keep in mind that synergies are not self-fulfilling prophecies. You need careful planning, execution and tracking of synergy related work to realize synergies.

Synergies seen from outside of the companies

Looking at a company from the outside, the synergies of a merger can come from the following sources:

Relationship to Suppliers

• increased negotiation and purchasing power

• consolidation of existing suppliers and contracts

• leveraging better existing conditions for a supplier contract from target or acquirer

Supplied goods and services

• increase in purchasing volume and potentially a decrease in price

Relationship to financial institutions

• increased negotiation and purchasing power

Relationship to customers

• increased negotiation and purchasing power

• increased revenue from upselling and cross-selling opportunities

• increase in portfolio assets to be sold to customers

• increase in the number of customers and/or markets covered

Sold goods and services

• revenue effects from broadened portfolio

• faster time to market since acquired goods and services are available immediately for selling by the acquirer

Relationship to partners

• increased number of partners

Relationship to government and states

• potential synergies for corporate tax

Synergies seen from the inside of companies

Synergies for all corporate functions

• Centralization of tasks and elimination of organizational and functional redundancies is often cited as a main source of synergies

 Synergies for the business models

• The target introduces a new business model for the acquirer

Cost synergies

Looking at cost synergies, two main sources of cost synergies are often cited: elimination of redundancies and reduction of inefficiencies.

Learn more from my upcoming book on merger integration.....

(C) Dr. Karl Popp 2019

Change management in PMI is the process and methods (tools) to manage the people side of the integration to achieve the declared PMI goals. Therefore, it is important to link the change management to the PMI strategy and the project management in the PMI project. (integrated change management approach). Both change management and project management support the PMI transformation – moving from the actual organization of the Target through a change period (managed via the PMI project) to the future state (successful integration of the Target organization). Integrating the newly acquired company into your own organization, you are ultimately going to be impacting the following aspects: PMI Strategy, Structure (process organization and structural organization), People (like job roles) and Culture. Whenever you adjust those elements in your own organization or at the Target level you need to manage the technical side as well as the people side.

The role of the Change Manager

Experience has shown that it is supportive to inform the top and middle management upfront and to use them as multipliers. In that regard the preparation of Q&As is helpful and enables to speak the same language and to deliver equal key messages.
Who might be the adequate change agent? This depends on your own as well as on the Target organizations. Supervisors and Managers are Change Agents. Change Management is a leadership topic. Enable managers in their role as change agents through empowerment and awareness-raising workshops. However the concrete involvement and role depends on your specific PMI project. Undertake a stakeholder analysis as early as possible to identify the sponsors and other important multipliers.
The key element in change management is to set up a good communication from the start of the PMI process onwards. There is a need to effectively communicate the change to the employees – communication cannot be overdone. Set up a communication plan already during the due diligence phase. The main questions in that regard are:
• What is my PMI vision and mission? Is my message clear?
• Who is my audience, who is the right sender? (strategy issues should be communicated by the
Top Management level, personal topics (WIIFM=what is in it for me) as new job role by the
direct lead)
• What are the key messages? When is the right time to deliver the message? What is the right
delivery method and frequency?

Failing early is cheap

We know from software engineering and design thinking that failing early in the process is cheaper than failing in later stages. We adapt this thinking to the M&A process and care for ensuring merger integration success during due diligence. I call this frontloading.

Successful integration and synergies as an objective in all phases of the M&A process.

So, why are we doing frontloading? Frontloading is driven by the objective to prepare and run a successful merger integration project. All detectable risks, efforts and obstacles are identified and taken care of during due diligence already. These risks, efforts and obstacles relate to the target and the acquirer, too.

Mitigations or eliminations for risks are planned or executed during due diligence. Merger integration efforts are being estimated and planned. Any obstacles we could run into during merger integration are being identified and elimination or mitigations are planned. Examples for obstacles are missing resources or missing budgets for merger integration. While missing resources could be mitigated by leveraging additional resources or adaptation of the merger integration plan, missing budgets could be planned for already during due diligence.

Effects of frontloading

There are several positive effects of frontloading for the operations of mergers and acquisitions business:

• A more realistic evaluation if the merger makes sense at all. Clarity on adverse topics like risk and obstacles completes the managerial view to take an informed decision about a merger. Frontloading increases the ability to get a complete and holistic view of the planned merger and merger integration.

• A more appropriate expectation setting with executives monitoring the merger integration. When the executives approve the merger, they know about the potential risks, issues and obstacles that were or were not mitigated.

• More realistic integration plans and integration speeds. When you know what to do in merger integration and you have enough capacity and ability to integrate quickly, all is fine. If this is not the case, you risk failing during merger integration or creating bad integration decisions and results. Frontloading helps to avoid some of these adverse events.

• Less bumping into obstacles. Let us be clear. Nobody likes to run into a roadblock like missing budgets and losing momentum of integration efforts. This is why we care for identifying and eliminating obstacles. Are we able to eliminate all roadblocks in merger integration? Definitely not. But we reduce the sheer number of obstacles and we can dedicate more of our time and attention to the remaining obstacles.

As a consequence, all companies should adopt frontloading in due diligence, no matter if the deal is an asset deal or a share deal, if the target is a public company or not.

How well does that resonate with you? Please let me know your thoughts.

Let us discuss tools for successful integration. We are not not referring to system integration, but tools for managing and supporting the Merger integration process from pre-deal through due diligence, up to and including post merger integration.

Today, Excel and Power Point are currently the most used tools in the M&A transaction/integration world. There are also several Virtual Data Room providers that offer solutions at a high cost.

For managing the end-to-end process, Excel, Power Point, and Share Point on their own do not really work. Every project is different and one needs to be aware of the complexity that tools bring with them. So do tools really work? Do they add value and justify the cost and time to introduce & maintain? Does email communication from a tool work?

We can at least specify a list of requirements that a tool should address:

• Project / Deal based

• Document repository capabilities

• Project Management capabilities

• Communication/collaboration capabilities (email/messaging/collaboration)

• End-to-End process management (i.e. transition of Due diligence /Data Room info to integration team)

• Reporting capabilities (i.e. on a project basis, and or for the entire deal pipeline/project portfolio)

• KPI tracking capabilities

• Knowledge bank capabilities

• Highly performant and highly secure (especially with cloud based solutions)

• Stable (i.e. updates must have no impact)

• Highly configurable

• Easy to deploy & configure

• Easy to use with little/no training

No matter if you integrate a target running a business model that is new to your company or if you want to disrupt your business model or if you ask intrapreneurs to come up with new business models; you will face one big issue: how to integrate the business model that is new to your company. So, “new” means that the acquirer is not capable of running the processes that support such business model (yet).

Business models and operations models

I would like to separate two dimensions here: business models and operations models. A business model tells which goods or services are provided by a company and how the company is compensated for the goods and services. It is a model on a type level, like a company running field service management solutions in the cloud for a monthly license fee. It already describes on a general level what a company is doing. On this level of granularity, companies can easily be similar.

A business model can be implemented in an operations model. The operations model shows how the business is run and how the resources of the business run the corresponding business processes in the company. This model is very concrete, detailed and more complex and involves resources running and used in the business processes like employees or application systems. On this level of granularity, it is harder to tell if two operations models are similar.

In the following, I would like to share insights from integration acquired software companies about the impact of the similarity on merger integrations.

Similarity of business models

The more similar business models are, the better the operations of these business models can be integrated. The operations might be similar; sales and accounting processes might only need small changes to be adapted. But there might be issues with overlaps in organizations.

For software companies, this means easier integration in development and support but also in administrative functions. So you should look for similarities and differences by listing/modeling the business models of target and acquirer already in due diligence.

In contrast, if business models are very different, this might pose a challenge for integration. You would have to decide if you want to continue the different business models and if so, changes needed to continue both business models have to be executed in merger integration. For merger integrations targeting absorption, this might mean that the acquiring organization would have to adapt to a diverging business model of the target.

Similarity of business models enables higher speed of integration: The more similar business models are, the better the operations of these business models can be integrated. This enables higher speed. The reverse is also true. If business models are significantly different, this might impose slower speed of integration.

Similarity of operations models

Operations models are implementing business models. How a business operates is a key thing to understand for integrating a business. The closer two operational models are, the easier it is to integrate both businesses with each other. You may use operations maturity models to determine the current and desired state of target and acquirer operations.

An example for similar operations models is having the same objectives for procurement at the acquirer and the target. If both companies look for maximum quality of supplies in procurement it might be a lot easier to integrate procurement processes, to align demands, to analyze and plan cost synergies.

Similarity of operations models enable higher speed of integration. How a business operates is a key thing to understand and to integrate a business. The closer the operational models of acquirer and target are, the higher the speed of integration can be. There also i a higher likelihood of economies of scale effects and cost synergies in such cases.

For more insights, please refer to the book "Mergers and Acquisitions in the software industry: Foundations of due diligence"

Best practices in merger integration have to include many aspects like timing, project management, handling exceptional situations and decisions and when to end the integration project.

In merger integration activities timing is essential. So when is the right point in time e.g. to merge teams of acquirer and target that do similar things? When is the knowledge of the acquirer complete to integrate HR functions of the acquired company? When is the right time to end the integration project?

Merger integrations are also high-risk, high effort topics that have to manage numerous exceptional situations. Project management practices are made for such projects. But there is the risk of keeping project members hostage in reporting activities instead of focusing on resolving issues and completing tasks. So a key aspect is to find the right dose of project management for keeping project control by providing appropriate follow-up and execution of critical tasks and minimizing the project management workload on project members.

Let us quickly look at the topics:  “When to mix up teams working on the same topics?” and “When to declare the end of the integration project?”

When to mix up teams working on the same topics?

So when is the right point in time e.g. to merge teams that are working on the same tasks, selling to the same customers, producing similar work results? We discussed different aspects.

The first one is that the acquirer has to have sufficient knowledge about all departments or teams that have to be integrated. Without that knowledge it is impossible to plan and execute change management needed for the transition into a merged team.

The second aspect is if the time is right to integrate if the immediate value of integration is maximized or the confusion and trouble is minimized. One example is the immediate integration of finance activities for maximizing the value for the acquirer to be in control of finance. Another one is integration of sales teams to avoid having two different, competing sales teams as “one” face to the customer.

When to declare the end of the integration project?

Ending the integration project makes sense when at least one or more of the following goals have been reached:

·         integration plan has been fully executed,

·         benefits of the acquisition have been reached or

·         organizational performance (fully functioning and stable merged organization) is ensured.

The selection of one or more of these goals depends very much on attributes of the merger, specifically on the department (or corporate function) to be integrated, on the culture of the target and the acquirer and on the integration strategy, like e.g. if the target should stay separate or should be fully integrated into the acquirer. Depending on the size of the M&A and merger integration team, the support of these teams might end earlier due to high workload or focus on new, different M&A and integration projects.

Find more information in the book “Mergers and acquisitions in the software industry” (click here for German version) and at the German Event Denkfabrik 2019

Your Integration framework is in place. Functional leads are fully armed, and at their battle stations. Ready… Set… DAY 1!

As soon as the clock starts ticking, every second in a PMI project matters. Speed in M&A integration execution does bring value and it correlates to the success of M&A. With the ever-decreasing timeframe in which integration leads are expected to realize synergy targets, there are few things more important than a structured and diligent integration plan. But when day one hits and Pandora’s box is open, being able to track the success of your plan in real time is crucial to hitting your targets.

Weekly meetings are the lifeblood of most integrations, and have been the best practice until recently. Whether it is program meetings, project meetings, or Executive Steering Comittee meetings, there are a few data points that need to be tracked consistently at a high-level.

• Issues

• Task Status/Milestones

• Timeline

• Responsibility

Classically, the integration leaders ask for updates from each functional lead/project manager, and get a verbal play-by-play of the past week’s happenings. In our current, tech-driven world, there are now digital tools that can increase meeting productivity and give M&A teams instant transparency into their processes. Integration team members can see what’s happening prior to meetings, ensuring focus on how to address issues, decisions needed, cross-stream dependencies, etc. This means that meetings’ action items are clearer, and time is spent proactively working towards targets, rather than retroactively getting updates on who did what, when.

Each of the integration performance items above are affected by the PMI teams ability to have “real-time” visibility:

Issues

Having instant visibility into the status of any potential issue enables corporate development teams to address risks before they damage the deal. Any PMI project will run up against unforeseen challenges, but proactively resolving issues leads to an increase in deal speed and value realization.

Task Status/Milestones

Many teams have thousands of tasks per integration, but there are always key milestones against which success is measured. Having the opportunity to check on the mission-critical items at a moment’s notice shortens the feedback loop within teams and empowers integration leads with the information they need to benchmark their teams against their schedules in real time.

Timeline

Let’s face it. Integrations very rarely hit timeline expectations. But, knowing where you are in relation to your goal is crucial. Having that 1-week gap in status update between team meetings might just be the difference between being on time and falling far behind.

Responsibility

PMI projects have many moving pieces in play. Governance is complex. The PMI leads manage the functional leads, who in turn must allocate resources from within their teams. Having a central platform that acts as a single source of truth is invaluable. Immediately, it becomes clear who is responsible for a task, who has signed off on what action item, etc. When there are multiple chains of command, being able to see changes in real time gives Integration leads the bird’s eye view that is needed to execute.

To quote Mark Herndon of M&A Partners, "The time has come to upgrade M&A integration management processes with simple, secure and state-of-the-art software solutions." This real-time transparency gives cutting-edge PMI teams full visibility and control in the perfect storm that is integration.

In M&A processes, data rooms are all over the place. They are a storage for unstructured and structured data. But these structured and unstructured data are not up-to-date, not complete and they might even be contradicting each other. They might even be aggregated in a way we don´t know and cannot reproduce and we don´t know the underlying data at all. Not a perfect situation to judge based on the numbers and documents. Making sense of this information is tedious and making decision based on this information is very risky. So, what can we do about it? Let me brainstorm a little about that….

Big data is a no-brainer

There are solutions out there who can easily and quickly analyze wast amounts of structured and unstructured data. They can analyze and interpret contracts and other documents, they can find critical clauses in business documents and find e.g. indications of fraught. They can relate information to get analytics about outlyers in financial data, from which business transactions this outlyer originates and by the way, which employee is responsible and accountable for this business transaction. In seconds. This is not a vision, the technology to do this is there and can be used that way. So we should make use of it.

What is possible today?

No matter if you do the analysis during due diligence (with limited information) or post close (with access to all information), you are able to do automated scans that provide you with the following information:

• Technical IT landscape: which servers run where and how are they connected, which software runs on which servers

• Business system information: which ERP systems are running, what is the business structure, through which APIs are the different business systems communicating, which companies are there, how are they interacting, which business models are implemented. You can compare different systems with each other or with a best practice template or to-be system easily.

• Business status information: which processes are being run, how often and in which speed are they executed, how do they perform and how often are process exception handling activities executed.

To summarize, using these automated tools can increase the level of detail and precision of IT and business due diligence and provide a sound basis for a joint IT and business integration planning as early as possible in the M&A process.

Data analysis and interpretation is just the beginning

Life will be easier. Here´s my vision for next generation due diligence work based on data. Now that you found items that are interesting and you analyzed them in due diligence, you have to figure out what actions to take during due diligence and post merger integration. Machine learning is here to help. Based on a set of earlier acquisitions and the plans for the current acquisition, a machine-learning-based algorithm will propose which actions are required by the buyer or the target and/or proposed clauses in contracts to deal with this situation. Let´s imagine new ways of running due diligence and PMI

In due diligence: just give us access to a data lake of structured and unstructured information and give us access to your data warehouse structure and we can analyze the company structure, the business models and the steps needed to transform the business and to plan the integration of the business with the acquirer´s business.

In post merger integration: In addition to data lakes and data warehouses we have access to business systems details which allow to analyse, optimize, transform the acquired business and automatically get proposals which steps should be taken during the integration phase on a detailed level.

Follow me on twitter @karl_popp or stay tuned for more blog entries on innovations in the M&A process.

Merger integration success based on best practices

With all the mergers and acquisitions activity going on in the markets, it is paramount to perfectly manage the planned integration of targets into the acquiring company.

The integration strategy and the integration approach is different for each merger and each merger has different synergy objectives.

This page is meant to shed light on recent state of the art knowledge and business practices for post merger integration. It tries to structure the problem and thus to provide a way to find the best approach for post merger integration.

When to start with merger integration related tasks

We introduce merger integration due diligence as a new type of due diligence that arises from the objective “Maximize likelihood of integration success”. See the separate page for this topic.

The task of post merger integration

An important ingredient in acquisition strategy is how you integrate the acquired company. Let us describe the task of post merger integration with goals and objectives. You have to think well about goals and objectives, since these will define what is being done through merger integration.

The goal of post merger integration is to plan and execute the integration of two businesses. WIthin each business, there is an organization and there are many processes, which are to be aligned and/or integrated.

Objectives of the merger integration task are:

• Maximize likelihood of integration success: each merger integration tries to reach successful completion meaning that there is no failure of the integration.

• Continue target operations: in most cases, it is important to not interrupt the target operations with merger integration activities.

• Fit integration type: there are different ways to integrate two companies, which are determined in the integration strategy. more information about merger integration types can be found here: Merger Integration Types

• Fulfill synergy objectives: every merger has synergy expectations and objectives. Merger integration is targeted at creating such synergies.

Decomposition of the merger integration task

There are three subtasks: designing the new entity, planning merger integration (project) and executing merger integration project.
The first two should be started during due diligence to ensure merger integration success.

The four Merger Integration Types

In the high level model below, you end up with four generic types of post merger integration:

1. Preservation: The target company is preserved meaning that you leave the target company autonomous. Nevertheless, integration of financial reporting and financial processes might make sense.

2. Holding: The acquiring company just keeps the ownership of the target company, but does not integrate the target company.

3. Symbiosis: In this merger type, you decide where integration is needed to reach the objectives of the merger integration.

4. Absorption: the acquiring company fully absorbs the target company. All organizations and processes of the target company are to be fully integrated into the acquiring company.

Stay tuned, listen in on twitter @karl_popp and connect with me on Linkedin for more best practices.

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Arbeitskreis PMI des Bundesverbandes M&A

Am 16.1. hatte der Bundesverband M&A seine konstituierende Sitzung. Er geht aus der Gesellschaft für PMI hervor. Der Gastgeber Prof. Feix begrüßte Vertreter von Firmen, darunter Ardex, SAP, vom Bundesverbandes M&A, darunter Herr Prof. Lucks sowie  Vertreter aus  Hochschulen an der Hochschule Augsburg.

In agilen, design-thinking-basierenden Workshops wurden  aktuelle Themen und Probleme erörtert sowie Ziele und  Themen für neu zu bildende Arbeitsgruppen definiert.

 Es wurden Themen diskutiert wie zum Beispiel  Standardisierung und Best-Practices für den M&A-Prozess  sowie Berücksichtigung von Integration Fragestellungen in allen Phasen des Prozesses, Transformation des M&A-Prozesses durch Digitalisierung,  Transformation und Digitalisierung von Unternehmen durch Firmenkäufe, kulturelle Integration, Ökosystem-Integration,  Kooperation mit Hochschulen,   Wissensdokumentation und Wissenstransfer sowie  Veranstaltungen  Des Arbeitskreises. 

Nächste Schritte sind die Aufnahme der Arbeit in den Arbeitsgruppen  sowie die Planung einer Veranstaltung, in der das Wissen des Arbeitskreises an die Öffentlichkeit weitergegeben

wird. 

Merger integration success based on innovative due diligence

We introduce merger integration due diligence as a new type of due diligence that arises from the objective “Maximize likelihood of integration success”.

Definition of merger integration due diligence

Merger integration due diligence has the goal to review the merger integration project and plans. 

All aspects of merger integration are being reviewed for viability and for likelihood of success. Viability relates to the work breakdown structure for the integration to be consistent and complete. It also relates to resources (employees and budgets) that have to be sufficient and available. The objective of the task is to maximize the likelihood of merger integration success.

Based on the decomposition of the merger integration task we can define the corresponding decomposition of the merger integration due diligence task.

Review of the design of the new entity

The design of the new entity has to be reviewed for consistency and completeness. We start with the business strategy and plan layer and review the defined business strategy for the new entity. Then we enter the second layer and ask questions like: will the business processes work? Are the business processes compliant with compliance rules? Is governance of the business ensured?
In parallel, we have a look at the business resources and at the questions: Are enough qualified resources planned and available? Are the assignments of resources to tasks sufficient? Are sufficient resources planned and available?

Review merger integration plans

Next we review merger integration plans. Keeping in mind the design of the new entity and the resource situation, we review the schedules and the steps of the merger integration plans. We ask questions like: Can the merger integration plan be executed the way it is defined? Will sufficient resources and budgets be available at the right time to execute the merger integration plan successfully? What happens if we run late or we have resource shortages?

Review merger integration project

This is the part of the review that is often neglected in practice. We review the structure and behavior of the merger integration project.
It is important to keep in mind that the word “project” implies that we have a professional management of the integration leveraging professional project managers, experienced with complex projects and equipped with skills of a certified project manager. We should also have a project steering committee in place that has wide competencies and can drive and take decisions quickly.
We also focus on getting answers to questions like: Do we have the right assignments of resources to merger integration tasks? Are the resources capable of executing their assigned tasks? Do the resources have appropriate social competences to lead people and convince them the integration is the right thing to do?

With the results of the merger integration due diligence, you are well prepared to have the right budget, business plan and integration approach.

Dear readers,

thank you for your interest in my blog. I wish you a merry christmas and a happy New Year!

What will 2019 bring? More robots in our homes ? We already have two. One vaccum and one mopping robot. More robotic process automation at work combined with Machine Learning ? Sure. More electric cars (Maybe one for me?)? Sending an avatar to work instead of me ? Probably not. We don´t know and that makes life interesting.

Here are some things i will be working on in 2019:

Papers and books

I have the honor to co-edit an issue of IEEE Software:

Michael Cusumano, Slinger Jansen, Karl Michael Popp (eds.), IEEE Software special issue on Managing Software Platforms and Ecosystems, to be published 2019.

I will work on completing the book:

Karl Michael Popp, Successful Post Merger Integration:  State of the art and Innovations in M&A processes, Books on demand, to be published 2019.

We had a great European workshop on software ecosystems at the Platform Economy SUmmit in Berlin and will publish the proceedings asap:

Peter Buxmann, Thomas Aidan Curran, Gerald Eichler, Slinger Jansen, Thomas Kude, Karl Michael Popp (eds.): European workshop on software ecosystems 2018, Books on demand.

With the help of machine learning based translation robots, i might publish another German book, too.

Events

Besides the usual European workshop on software ecosystems and Denkfabrik Wirtschaft, a new workshop will come up, which is a discussion battle between researchers and practitioners in the topic of mergers and acquisitions in London. Xperience Connect will host several thought leadership events on Digitization of M&A and more.

All the best for you and your families in 2019

Always look to the future

Karl

[this blog is an excerpt from an interview with me]

 "My experience has shown that there are certain risks that can always be observed in any acquisition."

According to your experience, what merger integration risks are there?

Every takeover of a company    is associated with numerous risks. On the one hand, there may be unpleasant surprises lurking in the target company, but on the other hand, integration itself also holds many dangers. Finally, risks may also be present in the organization and strategy of the acquiring company.

There are many examples of what can happen in a merger. Particularly in the software industry, it is not uncommon for employees to leave the target. The following points are therefore crucial for the success of an integration process:

• How can I motivate relevant employees to stay?

• Are there opportunities to document their know-how and make it available to the company in a sustainable manner?

• Is the target company really in possession of all intellectual property rights?

Project risks in the context of a merger and the resulting integration already arise during the definition of the project scope, the assessment of the necessary resource expenditure as well as during the coordination of its implementation.

How can the risks of merger integration be classified?

The most comprehensive classification is based on the findings of the merger integration expert Dr. Johannes Gerds. My recommendation is that every company should use this as a basis for identifying risks and identify the problems specific to the company. These can be summarized in a risk catalogue and subsequently supplemented by further project-specific risks during the concrete due diligence. This provides an extremely solid basis for the entire risk management process.

What is the best way to identify risks?

In any case, a structured approach is advisable. As a rule, this is based on a company-specific risk catalogue, which is used in every due diligence. But first and foremost, the project and its integration should be examined from a neutral perspective. In the course of a risk workshop, the entire project-specific risks can then be identified and assessed together with all experts and managers involved.

It is always important to adopt and maintain a neutral position. This not only serves the critical questioning of hypotheses regarding adoption and integration, but also a concretization of the entire planning to be carried out. As a rule, this can be done by the finance department and the central units of the organization that are assigned to support acquisitions.

What are the most common risks?

My experience has shown that there are certain risks that can be observed again and again in an acquisition. These are primarily personnel attrition, serious differences in the corporate culture as well as an underestimation of the actual integration effort and the project management requirements in the case of more complex integrations.

Which risks can have the most adverse effects?

This question must always be considered in connection with the size of the buying company and the company to be bought. In the case of smaller acquired companies, the departure of a few key employees can have a major impact on the success of a merger. However, integration often suffers from a lack of experience on the part of the project members involved as well as insufficient resources on the part of the acquired company.

Large companies, on the other hand, often underestimate the complexity and effort required for integration. In addition, the cultural differences between the company buying and the company to be bought also involve a recurring risk potential.

Medium-sized companies tend to show mixed forms of problems with mergers, such as those found in small or large companies. Although the resources are often better and often more experience is available than for smaller companies, there are the risks known from them. But even the acquiring company can create considerable distortions through wrong decisions and negatively influence the success of an integration. Examples of this can be found in surprising strategy changes or sudden changes in the receiving organization in the middle of the integration process.

Once risks have been identified, how should they be dealt with afterwards?

In my view, there are four very typical approaches to dealing with risks: Ignoring and observing or actively initiating countermeasures and sales. Of course, the first approach is the easiest, but also the most dangerous way. Therefore, it is not really recommended, even if the probability of these risks is minimal. Perhaps I should note at this point that we are not talking about probabilities in the statistical sense, but rather about assumptions, i.e. assumptions about the probabilities of occurrence. According to this, even a risk with a low probability of occurrence can occur at any time, precisely because one does not know its probability.

Observation appears to be the most sensible step for risks that are unlikely or can hardly have any consequences for the success of the project. They are identified and regularly checked to see whether their probability of occurrence and thus their influence on the success of the project have changed. Accordingly, active countermeasures can be taken in good time in the event of an expected hazard potential.

But one can already act in advance and take countermeasures if the occurrence of risks is to be avoided for very pragmatic or political reasons. An example of this is the impending departure of relevant employees, which can be prevented at least temporarily by contractual regulations. In this way, time can be gained which is actively used to transfer their relevant knowledge about products or workflows in the company to be purchased to other persons or to document them if necessary.y

Let us have a look at the situation for mergers in most companies. How are people working esp. in merger integration prepared for sucess?

Which people work in post merger integration?

An acquirer has a large project team for post-merger integration and so does the target. How do you make sure that all members of the integration team have sufficient knowledge to perform best? The answer is that all project members, not only the managers and project managers, need background knowledge on merger integration as well as lessons learned and best practices from other merger integration projects

What information is needed?

You need to expand the experience horizon of all involved managers into the realm of merger integration specific topics and decisions. According to Kahneman, what-you-see-is-all-there-is might be a problem, which means that people only can cope with situations that are within their horizon. So you have to expand it with content about merger integration theory but also about situations and pragmatics of merger integration.

How to make training work

Many mergers are cross-border mergers with many people in many countries involved. So due to geographic diversity, timezones etc. onsite training does not make sense. Go online.

The solution

Therefore, a group of seasoned merger integration managers created an online training called PMI2go that provides that knowledge as well as experiences and lessons learned from over 250 successful merger integration projects. The solution is an on demand, online training with just the right mix of theory and hands-on situations explaining how to successfully integrate companies. Together with SAP, Bertelsmann, Qiagen and Stada we created an online training for merger integration that fits multiple different industries and is targeted to managers acting in a merger integration situation.

The training has content for managers and project members and covers in detail topics like HR integration, Finance integration, Production integration and Research and Development integration. Find more information here: http://mergerintegration.eu/mergerintegrationtraining.html

Modules of the online training

This is a transcript of an interview given for a master thesis with me about the integration of a smaller software company..

Question: You mentioned two capabilities, gatekeeping and resourcing . Tell me a little more about these.

KP:  The first one is a gatekeeping.  You acquire a highly innovative software company into a larger  software company and  you want to keep it  as innovative as possible. You want to integrate their offering with the rest of the portfolio. So, the question comes up: Who should build the integration? Which of the many solutions of the larger software vendor should be integrated first?  If you integrate all of them at once, the acquired company is no longer innovative.

 To solve this, you have to oblige gatekeeping.   Prioritize integrations and limit the amount of work to be spent by the acquired company on the integration to allow them to still be innovative.

Question: How did you use resourcing to find people building the integration?

KP: Since the target company had little knowledge about the programming environment of ours, it became pretty clear that the resources had to come from us.

So, we basically came up with a team of, I don’t remember exactly, several dozen people from our organization that actually built the integrations. Again, you have to be very thoughtful of how much of the overall development capacity of the acquired company you want to spend on integration.

Find more thought leadership in my books listed below.

What is the job to be done? The job to be done is a concept invented by Clayton Christensen in his book "Competing Against Luck: The Story of Innovation and Customer Choice". It is a new way to look at the needs of customers and why they are "hiring" a product to fulfill their needs. The key concept is to focus on the customer and to avoid the viewpoint of the product. By doing so, you get a wider view what the needs of the customers are, what the customer should hire to help him and who your real competitors are.

How does it influence tool design? As soon as you know the job to be done and the context of the customer, you are able to design a product or service that has maximum value for the customer. As mentioned in an earlier blog, the context of an M&A professional is his office, the work environment on his desk, his smartphone, desk phone and computer. An M&A process platform must respect and enhance this work environment, not add another tool. So let us use this approach to define two requirements for M&A process tools.

From tool to pain reliever: One pain i heard most from fellow M&A professionals is to fill the same data like target valuation data into several different Powerpoint presentations which have different formatting but basically should reflect the same data. So an M&A platform must store the financial data of a business case and generate data into different powerpoint templates. An end-to-end M&A process platform should have a data management component for the financial data of the transaction that can intelligently export parts of the financial model into presentation formats.

From tool to productivity boost: assistive technology helps you to perform better. The pain of the M&A professional is that he has to research market and company data, bring them together and evaluate the opportunities. How can an end-to-end M&A platform help here? Market data feeds are provided automatically for business case creation. The platform offers research as a service data feeds to accomplish that.

Summary

End-to-end platforms supporting M&A processes are the basis for the digital future of M&A processes. The job-to-be-done approach helps to define service of these platforms. These value creating services, which are built on top of this platform, help M&A professionals to get their job done. Stay tuned for more or meet me at Platform Economy Summit in Berlin in November.

Machine learning is everywhere - except in M&A processes. Let´s change that. Let us imagine the impact of machine learning in different steps of a typical M&A process. Let us start by sharing some of my ideas to trigger your imagination. I am convinced that the technologies needed to achieve this vision are in place today, they are just not being used in this context.

Early phases of the M&A process, shortlisting phases

Let´s say you have five companies in your shortlist. Machine learning can help finding and selecting potential targets e.g. by predicting which of the companies considered will be the unicorn, i.e. the most successful company in the list. Approaches for doing that exist, e.g. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3159123

Preparing the Letter of Intent

Based on past projects, machine learning can help to predict deal breakers, find missing or potentially wrong data in the financial valuation of the target and propose deal structure and clauses for the letter of intent based on the existing, available data about the target and the acquirer.

Due diligence

A vital part of the job to be done in due diligence is that you are looking for missing data, for deal breakers and risks in documents in the data room BUT you only have limited time and a huge data lake in the data room. So let us see how automation and machine learning could help us here.

Day one of due diligence: the data room is available. Day 2 of due diligence: Information about missing data, deal breakers and risks is already available.

How is that possible? Using automated document/contract analysis based on machine learning as well as data about deal breakers and historic projects, a machine learning application can provide this information. There is a huge value in this: you get more time in due diligence to work on missing data, for deal breakers and risks, so quality of due diligence results will massively increase.

No more reporting: During due diligence, digital assistants will automatically keep the lists of tasks, risks, issues and results, will create automatic reporting from that and propose next steps.

Merger integration

Results from the due diligence are automatically distributed digitally to all integration team members. Machine learning based digital assistants propose the integration plan, the integration timeline and which next steps should be taken. They analyze due diligence data and propose the set of data that should be doublechecked and validated. They validate that data by extracting information from the target´s ERP systems automatically and present deviations in digital dashboards and propose next steps.

Learning assistants analyze the learning needed by the involved integration managers based on their CV and proposes digital learning lessons based on PMI2GO.

No more reporting: During due diligence, digital assistants will automatically keep the lists of tasks, risks, issues and results, will create automatic reporting from that and propose next steps.

Let us imagine the impossible - and make it work

The opportunities are massive but are not yet leveraged. I think the M&A community has to provide guidance to vendors to achieve a vision i call the Digital M&A Manifesto. Stay tuned for more details. Like this article to get more inspiration!

Corporate M&A teams don´t have the time and bandwidth to research and follow up with a number of vendors and service providers to get an overview of the latest and greatest innovations for M&A processes.

To solve this issue within one afternoon, Xperience Connect organized an event at Frankfurt School of Finance last week providing several pitches of innovative products and services for next generation M&A processes.

So twenty-two corporates met to have a look at ten vendors, 15 minute pitches by the vendors helped getting an overview within an afternoon, followed by a joint dinner to discuss.

Here are my four highlights of the afternoon:

Target screening

• an interesting presentation from a researcher how to reduce the number of potential targets based on acquisition goals, they also use an augmented set of company data. This is a startup in stealth mode but they presented anyway…

Automatic contract analysis

• RR Donnelley, a vendor of data room called Venue, showed their product eBrevia, which is a tool to automatically analyze contracts in many different languages based on machine learning.

• eBrevia contains about 150 provisions it is able to find and analyze, customers can build AND share new provisions with other customers if they like to.

• eBrevia can be used with Venue, but also with other data rooms.

Digital valuation

• PWC has an open platform for valuation of startups, https://www.pwc-evaluation.com/

Smart M&A

• Midaxo did a very interesting presentation of their innovative, cloud-based, end-to-end M&A process platform.

• With this platform, all parties collaborate seamlessly following repeatable, systematic processes based on their specific, corporate playbooks.

• Several large corporates, including Daimler and Philipsh have adopted this solution.

Thank you, Stefan Gerhard Schneider for organizing this event. He offered to have follow-up meetings with deep dives, which was well received by the corporates.

If you like this content, please also have a look at www.digitalmergers.com

Digitalization of M&A is about data and data analytics, but also about confidentiality, authorizations and access rights.

• Establishing a clearly defined, phased, end-to-end M&A process with clearly defined tasks and roles in the different phases (seems obvious, but is not yet implemented, esp. in small and medium countries);

• establishing a higher degree of automation of tasks (like automated analysis of contracts which needs all contracts to machine-readable), an important prerequisite is to have digital data as much as possible;

• have one large data set along the end-to-end M&A process (to leverage big data analytics) and clear rules which data are safe to be accessed from the following phase.

So what can you achieve if all these prerequisites are fulfilled, here is my vision:

• combine structured and unstructured data for unimagined insights : you have financial data, but are they solid and trustable? do the revenue numbers projected reflect the existing contracts with customers? In due diligene, by combining structured information (revenue forecast) with unstructured information (text in contracts, information about pipelines in the data room) you can easily compare both to establish additional trust or to ask tough questions.

• leverage data across phases of the M&A process: there are restrictions which data from due diligence can be used in later phases. But the data that you can use from target screening and due diligence can be combined and compared with data. Current data you are looking at could be augmented with historical data automatically.

• actionable insights across M&A projects: the data from all phases and all M&A projects can be used to determine actions in a specific situation. Based on machine learning, an automated assistant could propose what to do, what has been done in other projects in similar situations, could propose who to talk to to leverage the lessons learned from other projects.

So the call to action is: Unite your data on and end-to-end platform to build the foundation to leverage the data for better insights, better execution and more success in M&A processes.

An end-to-end, unified platform builds the foundation of M&A success. End-to-end means that the platform covers all phases of the M&A process from early strategizing to deal sourcing to due diligence, signing, closing and integration. All data are combined to one single source of truth, no data are lost between phases, better and well documented handovers are possible between phases.

Unified platform means no more jumping between different solutions and tools. t eases the pain of processing massive amounts of data, be it the data room or planning data for integration planning. For due diligence, this includes combining collaborative due diligence management with virtual data room capabilities.

While there are many advantages of such a platform, let´s just look at three key advantages.

Advantage 1: A unified data lake for all deals

The data lake covers all process phases and all deals allowing e.g. cross-deal analytics, large training sets for machine learning, proposals of next steps based on best practices from all deals. The data lake contains massive amounts of information, but all information used in the process, information about the process steps and decisions taken is stored in one place.

The load of information in M&A processes is already overwhelming? So how can i leverage this large amount of data? Modern information system technologies like predictive analytics, finding outliers within data, semantic analytics and forensic tool to analyse and navigate large data sets as well as providing the right information for your current work context will enable you to leverage the data collected.

Advantage 2: Better decision are being taken and documented

There are two aspects of this advantage: decision journey and augmentation. For each decision taken, you can always recall the decision journey. How was the decision prepared, who took it, what were the consequences, were the goals of the decision reached?

The second aspect is augmentation of decision tasks: if you are the decision maker, augmentation provides you with similar decision taken in other deals including their impact on results in the integration phase, so you can make the best decision. The augmentation in the deal sourcing phase e.g. includes market data, financial data about all targets and predictive analytics about the future success of the target companies.

Advantage 3: Less documentation and reporting: More productivity

Massively increased productivity and less errors due to robotic process automation. No more learning of process models, they will naturally be followed. No more thinking about what the next step is or what your project status is, all information is augmented in your usual workplace. Reporting annoys you? The platform will autmatically propose the content for the next status update, so you spend less hours on reporting, more on quality work and problem solving.

Outlook: where´s the platform?

So, now we know some of the advantages of the platform: one question remains: is the platform your work environment and do you have to learn a completely new work environment that does not naturally integrate with all the other productivity tools that you are using: email, teleconferencing etc.? The platform i envision will be invisible, you will work in your usual work environment, e.g. using a Windows tablet with Outlook and other tools you know. the platform will track your work and augment inforrmation as you work, no separate login, no missing integrations that get on your nerves.

If you liked this article, you will like my book about due diligence.