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How can you measure the success of a merger or acquisition?

merger & acquisition success benchmarksFrom a financial/managerial/structural point of view, what is the best way to measure the effectiveness and success of an acquisition?

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Did you increase Shareholder Value? To me that is the biggest question and most important variable (SVA) to track. M&A results in closing of operations; layoffs; management integration... These items are never positive. As a management team, you work to minimize the disruption, but they come with the package. But in the end, the only reason you decided to merge was to increase the value of your company. As such, did that occur?

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Here's a handy

M&A Due Diligence Checklist
https://www.proformative.com/resources/due-diligence-checklist

Best... Sarah

Chris Holtzer
Title: Senior Manager - Strategic Analysis
Company: Sargento
(Senior Manager - Strategic Analysis, Sargento) |

There are a lot of metrics used to measure a companies value and the value to a shareholder. So the most simple evaluation from 10,000 feet, would be cashflow. A companies value is always a derivative of their current cash and future cashflow. No cashflow, no value (Don't forget that long term assets have cashflow value, just future, and discounted depending on liquidity). How does your current and future cash generation compared to prior to the merger?

Assets, liabilities, expenses, profits...etc. are all just different ways to evaluate how much cash you are/will generate, so I always try to drive any business decision back to how it effects cashflow.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I have dealt with this several times in the last couple of years. It's one of my favorite things to work on! We look at a lot of different metrics too. I always analyze the ROI (I project when we will break even and then if we met that goal); did adding a store increase our GM by an appropriate % and how much flows to the bottom line. Did we open a new location as efficiently as we can while minimizing customer disruptions and how quickly did we place our culture and model into the store and increase traffic.
When doing P&L analysis I always look compare apples to apples (remove the new location from the equation) to evaluate how the existing stores really did YOY; because adding a new location obviously inflates your numbers assuming it's profitable of course.

Topic Expert
J.D. Floyd
Title: Owner, CFO
Company: CFO Outsourcing Solutions, Inc.
(Owner, CFO, CFO Outsourcing Solutions, Inc.) |

I take the "wet blanket" approach to this. For all the promise of M&A transactions, the reality in my experience is that they fail to live up to advertised potential. That said, I measure the success on the buyer's ability to mitigate the lack of synergies and/or the cost of cleaning up the mess afterwards.

Topic Expert
Brenda Morris
Title: Board of Directors, Audit Committee Chai..
Company: Boot Barn
(Board of Directors, Audit Committee Chair, Boot Barn) |

I have a little different perspective here. I don't think you can name the "metric(s)" unless you understand the goal of the M or A. In many cases it accretive earnings, improved cash flows or a financially translated metric. But it can be other reasons, to take out a competitor, to enter a new market, to diversify the business or find an international option. These will ALL have different metrics, some not financially motivated at first, for success. So my question would be "Why are you doing the M or A, once you define that the metrics for success should fall out of the strategy behind the acquisition. I have had many successful transactions (a couple that weren't!), most all of them had different goals for the company. Food for thought! Brenda

Philip May
Title: VP, Finance and Corporate Development
Company: England Logistics
(VP, Finance and Corporate Development, England Logistics) |

Building out on Brenda's response, we do several things up front. Identify the reasons for the acquisition (e.g. Obtain access to IT systems, key management, customer base, new market, etc...) as well as the cash flow expectations. We assign managers to be responsible for these goals, and require an integration plan that addresses the goals.

In addition to standard due diligence, we perform a level of due diligence against our goals. Does the target really have a defensible position in the market we are looking to enter? Does the technology platform have the capabilities we are looking to acquire? Is the integration plan rational and realistic? Do our key managers have the passion and plan to successfully execute the plan? If any of these fail, we reject or modify the deal/plan.

With this foundation, there is clarity about why the acquisition was made, what needed to be accomplished, and who was accountable. Comparing the actual results of the acquisition to the goals provides a holistic feedback loop to all involved. Were modeling assumptions realistic? Do we need to modify our due diligence approach? Lessons learned for the integrating managers, etc...

M&A is complex. Companies that do it frequently have a much greater success rate because they learn lessons the hard way. Even then, success is not guaranteed.

Lyle Newkirk
Title: CFO
Company: Corrigo Incorporated
(CFO, Corrigo Incorporated) |

Hopefully somebody prepared a financial model with 3-5 year projections and key assumptions before the decision was made to proceed with the merger. Memorialize those and refer back to them periodically to see if you are ahead or behind or "drifting". Your board should insist on this before giving the OK to proceed.

Mike Haile
Title: Founder
Company: Haile Consulting Solutions
(Founder, Haile Consulting Solutions) |

I was heavily involved in the merger of WPP Plc's $2 billion acquisition of TNS back in 2008/9. WPP's stated objective was to realise synergies of £52million in something like 3 years. We achieved more that £60 million in years as stated in WPP's financial statements of 2010.

The trick is to treat the merger like any other major programme.ie :
Make sure you have a clearly defined objective
Create a programme/project charter
Break it down into projects/workstreams with individual targets
Manage the projects carefully
Track the benefits

Roberto Guandique
Title: Partner
Company: RTI
(Partner, RTI) |

I was involved in some M&A deals in Latin America with IBM Clients. All the comments have something that needs to be taken into consideration to measure the success of the Deal and all are insightful. The Team from the "Buyer" has to include people with experience in different "focused" disciplines and it has to collaborate with their correspondent member of the "Acquired/Merged's Team. There should be a "Detailed focused Checklist" for each team member to look at and communicate back to Execs for approval of the deal, without forgetting value focus and tradeoffs. Caveat emptor: What can be a good deal today, might be considered a failure in five years. The quality of the decisions made during a deal will be assessed long time into the future. Sometimes we frame the acquisition incorrectly and end up addressing the wrong objectives of the deal with our due diligence.

Roberto Guandique
Title: Partner
Company: RTI
(Partner, RTI) |

Thanks Sara

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