Once dealmakers get an M&A transaction over the line, their focus must turn to integration, and in the rapidly evolving digital media and frontier technology sectors, where the market landscape may have changed significantly since the deal was first proposed, this can be particularly challenging.
Time is of the essence, warns the chief strategy officer of a U.S. company. “The post-merger integration process is a time-consuming task, but it has to be completed within the right time frame to ensure synergies and value are not lost,” the executive warns. “We have to finish the process quickly to secure the financial advantages and avoid operational disruption.” The integration process is likely to depend on a number of key stakeholders. As Figure 24 shows, more than nine in 10 respondents (93%) operate with an internal integration team, but most also rely on external resources – 86% employ legal advisors, while a striking 56% utilize strategic consultants to help with integration.
Figure 23: Internal vs. external advisors?
Who do you rely on more in the integration process—internal team members or outside advisors?
Three-quarters of the respondents to this research depend roughly equally on internal and external advisors to help them with integration (see Figure 23), while the majority engaged in cross-border deals, some 80%, say they regard it as vital to have local specialists involved in this process (see Figure 25). By contrast, the remaining 20% may find they run into trouble during the integration process if local expertise is not available to support integration of what may be very different types of organizations. This lack of local knowledge comes into stark reality when we see that cultural fit is very often the most significant challenge during integration – and the most vital task. Figure 26 shows that 39% of respondents to this research see integrating work cultures as the most vital aspect of the integration process, more than any other single priority; but this is far from easy, with more than half the respondents (51%) citing it as the most difficult thing to get right following a deal. Still, the prize is worthwhile, says the executive director of M&A at a German business. “Combining two different work cultures is challenging but essential,” the director says. “When two firms put their differences aside and work on the same strategies, that is when the deal turns out to be most successful.” It’s in this area that external advisors, with experience of working with different types of organizations in different locations—but also with expertise on cultural alignment—may be able to add significant value. It is also important, however, for dealmakers and their senior leadership to consider cultural issues before completion: For example, in some circumstances, it may be appropriate for an acquirer to take a hands-off approach following a deal, while in other cases the need for integration and alignment may be more pressing, particularly if the transaction is partly predicated on operating strategies. Not that other integration challenges can be ignored. Licensing and regulatory issues will need to be addressed quickly—cited as potentially problematic by 42% of respondents—while physical integration of assets, people and processes will be important but challenging too. One in five dealmakers (20%) points to the importance of communication—it is crucial that customers, suppliers, partners and other stakeholders are kept informed about how the organization is changing.
Figure 24: Integration resources required When conducting post-merger integration for digital media and frontier technology acquisitions, which types of resources do you typically use?
Chapter 3: The Challenges of Integration
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Figure 25: Local support with integration
How important is it that the integration process for cross-border deals include regional and/or global resources (i.e., company employees or advisors in the country/region being targeted?)
It is clear that the due diligence process is not straightforward when it comes to digital media and frontier technology transactions. Figure 21 and Figure 22 reveal that the three aspects of the process respondents consider most crucial for deal success are also the three most challenging tasks to get right.
The list of challenges is led by the difficulty of valuing a target’s real assets, cited by three-quarters of respondents (75%). In businesses where subjective judgments such as the value of data and proprietary tools may be required, this is indeed a difficult task. This is one reason why so many companies depend on external advisors to help them with the due diligence process.
Related to that is the question of intellectual property, another crucial consideration in many technology and media deals—and cited as a due diligence priority by more than a fifth (22%) of respondents. The fact that only 16% see it as a challenge may suggest an element of complacency.
It is also striking that, while more than a third of respondents (36%) see it as vital to assess the value of the target’s existing and potential markets, an even greater number (39%) regard this as one of the toughest challenges. The figures underline why so many participants in the digital media and technology M&A space see the potential for misjudging the potential of a company or market as such a big risk, as we saw in Chapter 1.
This is not to downplay other substantial due diligence challenges where dealmakers may require expert assistance. Significant numbers of respondents point to challenges, such as the need to evaluate financial health, the difficulty of identifying underlying red flags, and the integration planning process.
Figure 26: The most pressing integration issues and integration challenges
When it comes to integrating a digital media or frontier technology acquisition, which aspects of the integration process do you think are most vital and most challenging?
Regional breakdown
Integration differences
When it comes to post-merger integration, certain regional distinctions can be seen, especially with regard to European and Chinese acquirers. For European respondents, integrating work cultures is seen as highly important (52%), while the combining of technical aspects of the businesses is given less emphasis (16%). By contrast, Chinese respondents focus most on the technical side (48%) and are relatively less concerned about culture (32%). Also noteworthy is the priority of many Chinese companies to move quickly to achieve deal synergies (28%). “The work culture of every firm is unique, and this applies to their working processes as well,” said the director of M&A at a British communications firm. “It is very important during any integration to combine the work cultures to maintain the smooth working of operations.”
Figure 27: When it comes to integrating a digital media or frontier technology acquisition, which aspects of the integration process do you think are most vital?
Figure 28: More haste, less speed?
When it comes to completing the post-merger integration process, which is your typical priority?
Finishing the process quickly, to ensure minimal disruption to operations and begin taking advantage of synergies
Expanding the integration process as needed, to avoid making costly errors
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