Inside Corporate M&A

The Formula of the Fittest

By Mirko Dier, Moritz Kbel, Artur Meinzolt and Hans Langthaler

Table of contents
Executive Summary Introduction Market Relevance of Serial Acquirers Challenges of Serial Acquirers M&A Processes Accenture M&A Maturity Model M&A Fitness M&A Strengths and Weaknesses Ideas for Improvement Conclusion Research Methodology About the Authors 2 4 6 8 10 12 14 16 18 23 24 26

Executive Summary
Throughout the 1980s and most of the 1990s, mergers and acquisitions were rare occasions. In fact, it was not until the end of the 1990s that the volume of global M&A deals broke through the 10,000 mark, ultimately achieving a record number of more than 46,000 transactions during 2007. Hence, before 2000 M&A was regarded largely as an art performed mostly by specialized advisors external to the buyers organization. Today, however, the M&A market has become more mature, and M&A itself has evolved from an art into a science and a more formalized corporate discipline. The more deals that are done, and the larger these deals become, the more a company must have its own repeatable methodology, strong governance, formal metrics, and a broad set of internal skills to reduce deal volatility and risk while maintaining the consistency with which M&A projects are executed. To be sure, many companies are working on defining and improving their M&A capabilities. Yet while M&A experience and opinion abounds, there is limited understanding of precisely which practices and organizational factors drive sustainable M&A success. To help shed light on this issue, Accenture has conducted one of the most extensive and robust M&A benchmarking research studies to date, involving an in-depth analysis of 110 companies that participated in more than 2,500 M&A deals from 2007 to 2009. Throughout this study, we focused on companies that engage regularly in M&Aenterprises we dubbed serial acquirersto analyze their deal-making DNA and thereby identify ways all companies could improve their own M&A performance. Our research has revealed a number of compelling findings:

Serial acquirers drive the market

They represented just 9 percent of all acquiring companies involved in mergers between 2003 and 2009, but accounted for approximately one-third of all deals executed and nearly onehalf of the total deal volume during that period.

Serial acquirers deals are larger and more complex

Serial acquirers tend to pursue bigger deals that regularly span two or more countries (often in emerging markets).

Serial acquirers face considerable challenges

To keep their pipeline full, serial acquirers must focus on multiple deals at once and manage a portfolio of projects throughout all stages of the deal lifecycle. Due to their greater willingness to take on bigger deals and targets in

2 | Inside Corporate M&A

emerging markets, serial acquirers also are more likely to encounter deals with greater complexity stemming from regulatory challenges, infrastructure obstacles, and language and cultural barriers. Furthermore, Accenture found that as they continue to pursue new deals, serial acquirers must be careful to avoid empire building or managerial overconfidence. Serial acquirers also must be vigilant about preventing their M&A capability from becoming costly overhead or a cash-burner. And they must find ways to effectively transfer their knowledge and experience from deal to deal.

integration and in the supporting processes of M&A performance and knowledge management.

A robust M&A capability is a source of competitive advantage

In times when business environments are increasingly turbulent, M&A enables change and corporate renewal. Therefore there is a strong correlation between M&A capabilities and corporate performance. In fact, serial acquirers with M&A capabilities of above-average maturity outperform their industry peers in terms of overall growth and value generation. In the following pages, we review the key findings of our research in more detail, introduce a new maturity model for evaluating and benchmarking the strength of M&A capabilities, and explore some key M&A best practices that emerged from our analysis. We also discuss steps companies can take to improve their M&A function and, in the process, vastly improve their M&A success rate and overall financial performance.

Sustainable M&A success is based on mature capabilities

Accenture discovered that the most successful acquirers are neither the companies that have completed the most M&A deals nor the ones with the most M&A experts on staff. Rather, we found significant evidence that serial acquirers achieve superior M&A performance by developing certain distinctive and robust M&A capabilities. In fact, companies with an M&A capability that features mature and sophisticated M&A processes achieve better results in all dimensions of M&A performance: They are more likely to deliver M&A projects on time and within budget, and are more successful in achieving the financial and strategic targets of M&A transactions.

Serial acquirers have room for improvement

While most serial acquirers Accenture studied are very strong in traditional M&A processesthose involving M&A governance, strategy management, and transaction managementthey are comparatively weaker in merger

Introduction
Companies have always used M&A as a way to increase revenue and market share and gain leverage over competitors. However, traditionally most enterprises treated an acquisition as a project to be completed, assembling a team of internal (and in many cases, external) resources to identify a target, conduct due diligence, execute the deal and integrate the acquired entity. After the project, the team would be dispersed and returned to their regular jobs. When the next opportunity arose, a new team would be assembled, and the process would be repeated.

Such an approach worked well in an era when acquisitions were less frequent, complex and competitive. But today, with more companies executing more dealsand the size and scope of those deals growing exponentiallyM&A must become a core competence. In other words, M&A must become just like any other established corporate function, staffed full-time with experts skilled in the discipline of M&A and supported by formal processes and methods.

This is especially true for what we call serial acquirers. For these organizations, which rely more heavily than other companies on M&A as a source of competitive advantage and growth, having a formal business function focused exclusively on M&A is vital to success.

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Market Relevance of Serial Acquirers

One of the defining characteristics of serial acquirers is their vast market relevance. Although scarce in number, serial acquirers have an outsized impact on the M&A market. In studying the last wave of mergers between 2003 and 2009, we found serial acquirers represented only 9 percent of all acquiring corporate companies. However, they accounted for approximately one-third of all deals executed and nearly one-half of the total deal volume during the period that was the subject of our research (see Figure 1). In the future, we expect this figure to rise, as 57 percent of those studied believe they will undertake more M&A projects from 2011 to 2013 than they did from 2003 to 2009. Figure 1. Overview of M&A activities by type of acquirer1 9% 91% 35% 44%
100% Serial acquirers

65% 56%

Occasional acquirers

Acquiring companies

Number of deals

Deal volume

Serial acquirers were most likely to be found in the industrial, high technology, and consumer products and services industries (see Figure 2). In the telecommunications and energy industries they are especially influential, accounting for 53 percent and 46 percent, respectively, of all deals done.

Figure 2. Overview of serial acquirers by industry1 Industrials High Technology Consumer Products Materials Energy & Power Media & Entertainment Consumer Staples Telecommunications Healthcare Retail Government 1 53 50 47 75 110 101 99 140 155 188

1. Source: Thomson Reuters deal database, Accenture analysis Notes: Total deal universe: All completed transactions during merger wave 20032009 conducted by corporate acquirers with ultimate parent based in Europe Deals excluded: deal value <0.5m ($0.5m), % owned after transaction 50%. Industries excluded: financial services, real estate Definition of serial acquirer: >3 deals in 20032009. Definition of occasional acquirer: 3 deals in 20032009

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Not only are serial acquirers pursuing more deals, they also tend to be involved in larger deals (see Figure 3). Due to their wealth of experience gained through numerous acquisitions, serial acquirers exhibit more confidence than occasional acquirers in tackling ambitious projects, and are especially likely to cast their line for bigger targets. In fact, the average deal size in the most recent merger wave for European corporate serial acquirers equaled more than 270 million ($380 million), approximately 28 percent higher than the average deal volume of transactions closed by occasional acquirers.

Figure 3. Average transaction value2

Deal Size
271m 212m

+28%

Occasional acquirers

Serial acquirers

Even more impressive, serial acquirers have been adept at completing cross-border acquisitions to tap the extraordinary growth potential of emerging markets: More than half the BRIC transactions closed by European companies were undertaken by serial acquirers, and in relative terms, serial acquirers closed 27 percent more deals than occasional acquirers between 2003 and 2009 in BRIC countries (see Figure 4). While occasional acquirers were more likely to conduct deals involving Russia (due to the unique characteristics of the Russian M&A market), serial acquirers have a more diversified deal spectrum.

Figure 4. Deals in BRIC countries by type of acquirer2

India Brazil China 18% 17% 17% 17%

20%

24%

Russia

47%

39%

Occasional acquirers Number of closed deals (44%) 332

Serial acquirers (56%) 423

+27%

2. Source: Thomson Reuters deal database, Accenture analysis Notes: Total deal universe: All completed transactions during merger wave 20032009 conducted by corporate acquirers with ultimate parent based in Europe Deals excluded: deal value <0.5m ($0.5m), % owned after transaction 50%. Industries excluded: financial services, real estate Definition of serial acquirer: >3 deals in 20032009. Definition of occasional acquirer: 3 deals in 20032009

Challenges of Serial Acquirers

Being a serial acquirer offers some undeniable advantages. For instance, serial acquirers are not reliant on one deal as their big bet and, thus, can spread their M&A risks across a portfolio of acquisitions. Additionally, over time serial acquirers can strengthen their reputations in the M&A market as reliable and professional market players, thus originating deals more easily and gaining preferred buyer status among those looking to sell.

They also can achieve economies of scale and can afford to deploy specialized M&A resources, both of which make them better able to react to opportunities quickly and complete M&A projects more efficiently (thus reducing overall project costs). Serial acquirers also can benefit from organizational learning to improve their M&A performance over time, thus turning their M&A experience into a competitive advantage. However, given the characteristics and frequency of their deals, serial acquirers also face some unique challenges, including complexity. For instance, to fuel their project pipeline, they must focus on multiple deals simultaneously, and manage a portfolio of projects at all stages of the deal lifecycle. Our research found serial acquirers have

an average M&A project closing rate of just above 42 percent, which means that to successfully close one deal, they must start four M&A projects and evaluate many more opportunities simultaneously. In fact, 29 percent of serial acquirers seriously evaluate between 20 and 49 opportunities annually, and 28 percent consider more than 50 targets per year. And with the average M&A project taking approximately seven months to complete, serial acquirers must always have several projects under way to keep their deal pipeline full. Due to their greater willingness to take on targets in emerging markets, serial acquirers also are more likely to encounter complexity related to regulatory challenges, infrastructure obstacles, and language and cultural barriers.

In addition to managing such complexity, as they continue to pursue new deals serial acquirers must navigate several organization risks. For instance, they must be careful to avoid empire building, a widespread phenomenon in M&A. Doing so requires consistently motivating managers to increase shareholder wealth, not their own power, sphere of influence and salary. Serial acquirers also must be vigilant about using their money wisely. Building an M&A capability requires substantial investments, and M&A experts can become costly overhead if they are not fully utilized (and may even burn cash if they do not achieve a sufficient closing and success rate). That said, serial acquirers must avoid making deals to appease deal makers or keep their M&A experts busy, as opposed to only conducting transactions that are aligned with company strategy.

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Another risk relates to organizational knowledge. Given the number of deals they complete, serial acquirers could be expected to easily transfer their knowledge and experience from deal to deal. However, just the opposite can be the case. Learning from acquisitions is not easy, because it is not always clear which actions or practices actually had a positive impact on deal performance. Every deal is different, and unless a serial acquirer executes a critical mass of different types of deals, its experience in one deal is not necessarily transferrable to others. Finally, M&A experience may lead to managerial overconfidence. Energized by previous successes, managers run the risk of becoming overly ambitious and tackling projects that are too complex, overestimating synergy potentials, paying exorbitant acquisition

premiums, or taking on higher leverages than is advisable. Conversely, as deals become more routine, serial acquirers risk becoming rigid, which manifests itself in a less-careful approach, a low level of management attention, or inappropriate resource allocation. In sum, serial acquirers certainly have many leverage points that can help them be more successful in M&A than their less well-equipped competitors. But there also are several potential pitfalls, which serial acquirers must identify and proactively manage to avoid negative consequences.

M&A Processes

Figure 5. Reference process model for corporate M&A M&A Core Processes Strategy Management
Positioning Strategic Planning Screening & Selection Justification

Transaction Management
Deal Origination Project Management Due Diligence Valuation Negotiation

Integration Management
Integration Concept Integration Management

M&A Enabling Processes

M&A Governance

Organization, Committees, Roles, Process

M&A Performance Management

Reporting, Reward Scheme, Auditing

Knowledge Management

Knowledge Retention, Knowledge Replication

As noted earlier, serial acquirers are distinguished by both the higher number and greater complexity of deals they pursue and complete. However, that is not their only difference from occasional acquirers. Our research found the way serial acquirers pursue deals and the capabilities they rely on to identify and complete those deals also differ substantially from companies for which acquisitions tend to be episodic and project oriented. Indeed, one could say that unlike occasional acquirers, serial acquirers have M&A in their DNA, which enables them to attain greater deal success overall.

For instance, occasional acquirers have a traditional view of M&A as individual projects to be managed with specific approaches and temporary project teams. By contrast, serial acquirers consider M&A to be a repetitive and more routine activity, driven by M&A experts and distinct capabilities that are embedded in specific M&A processes. What do such M&A capabilities look like? To find out, we conducted in-depth interviews with 33 M&A directors from some of the leading serial acquirers to understand not only their M&A pain points, but also what they considered to be best practices in selecting and executing M&A deals. Through our research, we have identified six such processesthree of which we deem core

M&A processes and three of which we consider enabling M&A processes which can be decomposed into 20 sub-processes as shown in Figure 5.

Core M&A processes

Core M&A processes follow the typical cycle through which all deals must progress, whether they are being executed by an occasional or a serial acquirer. However, serial acquirers are notable in the different ways they manage and use their core processes to help execute multiple, often concurrent, deals over time. The objective of the Strategy Management process is to link deal making with corporate strategy. This includes four process domains:

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positioning in the M&A market; strategic planning of M&A initiatives and policy; screening and prioritizing potential targets to determine the right selection, sequence and timing of acquisitions; and the actual decision-making process. The key for serial acquirers is to embed within this process the ability to balance myriad growth initiatives. For instance, while an M&A roadmap provides guidance for deciding the right quantity, selection and timing of acquisitions, a serial acquirer also must be flexible enough to accommodate opportunities as they arise. Doing so requires quick reactions as well as rigorous evaluations. M&A Transaction Management is the process of turning a pipeline into successfully closed deals. It comprises five process domains: deal origination focuses on turning a strategic M&A roadmap into real projects; project management throughout the entire deal cycle; due diligence and valuation of targets; and conducting appropriate negotiations. Serial acquirers must cultivate M&A Transaction Management capabilities that enable them to secure a constant deal flow and manage multiple projects in parallel with excellence and efficiency. The third core process, M&A Integration Management, delivers the deals value potential and is made up of two process domains: integration concept to plan how the targets will be integrated, and integration program management to execute the integration plan. Serial acquirers must have especially strong and flexible M&A Integration Management processes to ensure that multiple deals do not interfere with each other and are properly folded into the existing organization. Such processes also must help the organization plan the integration and identify potential pitfalls and success

factors early, maintain momentum throughout the entire deal cycle until integration is completed successfully, and prevent management attention from being distracted by new opportunities or deals.

Enabling M&A processes

While both occasional and serial acquirers rely on these three core M&A processes, serial acquirers also possess supporting processes that allow them to coordinate a portfolio of M&A projects and systematically increase the performance and reliability of those initiatives. This is, arguably, one of the major points of distinction between the two groups. The first of these supporting processes, M&A Governance, is the foundation of M&A as a business function. It defines and provides for the staffing of a formal M&A organization, establishes committees to act as coordination and decision-making bodies, and puts guidelines and standards in place that govern the M&A process and clarify the roles and responsibilities of all parties involved. M&A Performance Management is the mechanism through which a serial acquirer gains transparency into the M&A deal and ensures compliance of managerial behavior. This area includes the reward schemes for business, transaction and integration managers during an M&A project; the standards for project and portfolio reporting; and the auditing process to evaluate M&A performance. M&A Performance Management is crucial to helping serial acquirers avoid empire building and managerial overconfidence, and to keeping managers focused on the goals and tasks at hand.

Finally, the M&A Knowledge Management process encompasses retaining the knowledge gained by M&A projects and other initiatives in the form of tools, templates, documentation and databases; and replicating that knowledge via lessons learned, training, knowledge sharing and networking. M&A Knowledge Management is a key enabler to achieving economies of scale and benefiting from organizational learning. The preceding six processes form the core elements of a serial acquirers approach to M&A and, as confirmed by our empirical testing, are very robust. And while the details generally are customized for each company that deploys them, Accentures research reveals that overall these processes are consistent across markets, M&A strategies, and organizational structures. In other words, serial acquirers actually do share the same DNA.

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Accenture M&A Maturity Model

Figure 6. Stages of the Accenture M&A Maturity Model M&A Core Processes M&A Enabling Processes Strategy Management M&A Governance M&A Performance Management Knowledge Management Maturity Stages Basic Established Advanced High Performance Transaction Management Integration Management

The Accenture M&A Maturity Model is a comprehensive framework that covers 20 M&A processes and 60 subprocesses, and that helps companies evaluate and improve their M&A capabilities. It contains a set of criteria, key performance indicators, and detailed process descriptions referring to four maturity stages (basic, established, advanced and high performance) that represent the real-life M&A capability spectrum, from typical pain points to best practice. Using the Accenture M&A Maturity Model, a company can assess the maturity of each subprocess, rapidly find performance gaps (either in absolute terms or in comparison with established industry benchmarks), and define appropriate improvement initiatives to close those gaps.

A company can use the maturity model to achieve a number of critical benefits, including:
Identifying areas for improvement.

Facilitating improvement actions.

As a best-practice model, it provides blueprints of what leading processes should look like.
Supporting speed. Companies can

The model provides structure and a comprehensive framework to assess the current situation, stimulates self-reflection and creative thinking, and directs attention to important issues.
Providing insights. Accentures

use the model to complete a maturity assessment quickly and, thus, begin addressing shortcomings immediately. The Accenture M&A Maturity Model draws upon intensive interviews with 33 M&A directors of some of the leading serial acquirers. It has been developed by Accenture, validated by an expert panel, and statistically tested for reliability. Furthermore, the relevance of the model and the significant impact of process maturity on M&A performance are empirically proven.

approach allows companies to conduct analyses that are supported by qualitative process benchmarks of multiple peer groups (by industry, country, size, and M&A frequency) and key performance indicators.
Guiding decision making. The model

enables companies to easily establish goals for their M&A capabilities and prioritize the gaps to be closed based on an exhaustive and objective analysis grounded in a sound methodology.

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13

M&A Fitness
For serial acquirers, the stakes of M&A are undoubtedly high. But are serial acquirers actually better acquirers? To answer this question, Accenture analyzed the fitness of serial acquirers based on benchmarking data on 110 serial acquirers gathered through an online survey (see the Research Methodology section at the end of this study for more on this survey and our overall research methodology). We evaluated M&A performance with multiple financial and nonfinancial measures, and in terms of process, deal and corporate performance. Overall, our data contradict the common belief that most transactions destroy value. To the contrary, we found that 65 percent of deals conducted by serial acquirers achieved their strategic goals and 61 percent met their financial targets. In other words, the approaches taken by serial acquirers do create competitive advantage and generate shareholder value. Nevertheless, there is still a high risk of failure, as 47 percent of all serial acquirers failed to break even with their M&A activities. What distinguishes these poor performers from the high performers? Accenture discovered that the most successful acquirers, perhaps surprisingly, possess neither the deepest M&A experience nor the most M&A experts on staff. Furthermore, there is no specific type of M&A strategy that is superior to others. In fact, according to Accentures research, the most important distinguishing factor is the strength or weakness of a companys M&A capability (see Figure 7).

Figure 7. M&A performance and M&A capability

Deal performance
Strategic Financial

success rate success rate Total financial impact

Process performance
Speed Cost Quality

Corporate performance4
Growth Profitability Shareholder

M&A Performance3

value

R2=0,2137

M&A Capability3 (assessed with Accenture M&A Maturity Model)

3. Latent variable score, nominalized 4. Relative to peers

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To arrive at this conclusion, we used the Accenture M&A Maturity Model to benchmark the M&A capabilities of the serial acquirers in our large sample. Indeed, our research provided ample evidence that mature and sophisticated M&A processes significantly increase a companys fitness on all dimensions of M&A performance: Serial acquirers with an above-average M&A capability clearly show better results in delivering M&A projects on time, within budget and at high-quality levels. They also achieve excellence in execution and can capitalize on economies of scale and organizational learning, including such things as streamlined processes, structured collaboration and ready-touse knowledge bases. As a result, their average project costs are 18 percent lower than those of serial acquirers with below-average M&A capabilities (see Figure 8).

Accordingly, serial acquirers with above-average M&A capabilities execute a significantly higher number of deals that meet their strategic (71 percent versus 60 percent) and financial targets (65 percent versus 57 percent), and achieve greater value via acquisitions (see Figure 9). Additionally, their processes increase the quality of decisions and the effectiveness of M&A management by protecting the company from empire building, managerial hubris, and a lack of management attention to merger integration. However, while effectively completing an individual deal is important, the real measure of a deals success is its impact on the companys overall financial performance. Serial acquirers with above-average M&A capabilities shine here as well, outperforming their industry competitors in terms of growth, return on capital employed (ROCE), and shareholder value (see Figure 10).

They also are better able to balance external and internal growth, and they use M&A to adapt their resources and core competencies to the threats and opportunities of a dynamic market. As the preceding illustrates, a strong M&A capability is the key driver of success for serial acquirers, regardless of their industry, market environment or organizational context. This importance only grows as M&A strategies increasingly focus on a larger volume of bigger, more complex transactions and merger integrations. Thus, investing in a high-performance M&A capability clearly can pay off handsomely for serial acquirers.

Figure 8. M&A process performance Project efficiencies through on-time and in-budget delivery
10.6m 8.7m
-18%

Figure 9. Acquisition performance Percent of transactions successfully reaching targets

71% 60% 57%

Figure 10. Corporate performance Percent of companies that outperformed their industry peers in terms of

65% 47%

67% 52% 41% 45%

64%

Transaction costs ( 2005-2009)

Strategic targets

Financial targets

Revenue growth (20052009)

ROCE (2009)

TRS (20052009)

Serial acquirers with low M&A capability5 (below median) Serial acquirers with high M&A capability6 (above median)

5. Based on an average deal volume of 242m between 2003-2009 6. Latent variable based on individual assessment of 60 M&A processes (basic, established, leading, high performance)

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M&A Strengths and Weaknesses

Figure 11. Maturity and importance of M&A processes
0.6

Typical strengths
M&A Strategy Management

0.5 M&A Transaction Management 0.4 M&A Knowledge Management M&A Performance Management 0.3 M&A Integration Management

Importance (correlation with M&A performance)

M&A Governance

0.2

Typical weaknesses
Basic Established Advanced High Performance

Capability (average maturity score) As the previous section revealed, many of the serial acquirers Accenture has studied have robust, mature M&A capabilities that enable them to execute deals more successfully and, ultimately, enjoy better overall financial performance. However, our research also found that only very few serial acquirers have consistently strong capabilities. In fact, as a group, the serial acquirers we studied have areas in which they could improve, particularly in terms of the capabilities related to merger integration and the supporting M&A processes (see Figure 11). Transaction Management. These are not only the most traditional M&A capabilities, but also are the most important processes with the greatest influence on M&A performance. In other words, these processes can be seen as must-haves: A company lacking strong capabilities in these processes likely will struggle to complete deals effectively.

M&A Strategy Management

Developing a sound M&A strategy is the most important process for M&A performance. Fortunately, most serial acquirers have explicitly defined growth initiatives, M&A objectives and deal criteria. Most are also effective in target screening, although their approach often is more opportunistic than proactive. Therefore, roughly half of the companies studied by Accenture struggle to plan their project pipeline and develop an integrated M&A roadmap.

M&A Governance
Almost all serial acquirers have an empowered and adequately staffed M&A organization. Their M&A processes, roles and responsibilities are well defined and are effectively put into practice. Nevertheless, often this is only true for the actual deal making. In contrast, our assessment found serial acquirers governance of merger integration to be only rudimentary.

M&A Transaction Management

Serial acquirers M&A expertswho very often have backgrounds in investment banking, private equity or M&A consultingknow their craft and excel at running M&A projects, conducting due diligence, evaluating targets and negotiating deals. However, there is room for improvement in deal

Typical strengths
Most serial acquirers are strongest in the areas that matter the most. On average, they are rated as advanced according to the Accenture M&A Maturity Model in M&A Governance, M&A Strategy Management and M&A

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origination and in proactively building relationships with potential targets to position the company for future bids should the target decide to sell.

M&A Knowledge Management

As highlighted earlier, serial acquirers often do not capitalize on the wealth of their experience. With Knowledge Management being the most rudimentary M&A process, and lessons learned or postmortem analyses often neglected, it is not surprising that companies learn so little. More than half of serial acquirers have only a fragmented and very simple toolset (55 percent) or do not maintain a knowledge database (59 percent). Accordingly, at best these companies are forced to reinvent the wheel often, and at worst, their deals are sabotaged by their failure to learn from past mistakes. Codifying knowledge is made more difficult by the fact that M&A staff turns over frequentlyour research indicates the average tenure of M&A experts is just 3.5 yearsand because less than 20 percent of serial acquirers invest in training programs or knowledge sharing to enhance their knowledge base and improve the execution of future deals.

individual capabilities of the integration manager. Indeed, only rarely do companies have a repeatable and reliable approach to merger integration in place. The message from these findings is clear: To enhance their chances for M&A success, serial acquirers must build on their existing strengths in core M&A processes while working to close the gaps between their supporting M&A processes and best practices.

Typical weaknesses
While they tend to be strong in these traditional M&A processes, serial acquirers are significantly weaker in the supporting capabilities of M&A Performance Management and M&A Knowledge Management. They also exhibit weaknesses in M&A Integration Management, an area that remains a major challenge for virtually all companies (as numerous past studies have indicated). M&A Performance Management, M&A Knowledge Management and M&A Integration Management capabilities have only an indirect influence on M&A performance, as they cannot turn bad deals into good ones. However, they are nonetheless crucial to realizing a deals value potential and systematically improving a companys M&A performance over time.

M&A Performance Management

In many companies there are legendary stories about high-profile, blockbuster acquisitions, as well as managers who have attained hero status via M&A and have cultivated an aura of mystery and awe around themselves. However, just as often such companies have scant transparencyand sometimes even secrecyregarding actual deal performance. Furthermore, while most serial acquirers have proper reporting procedures in place, they may struggle to establish effective reward schemes and, even worse, often lack a formal auditing process to reveal how well a deal worked, and why it was or was not successful. For instance, only 29 percent of serial acquirers we studied have the right metrics in place to assess the overall effectiveness of their M&A function, and thus are able to compare M&A value creation with its costs.

M&A Integration Management

In most companies, the M&A team is focused on getting a deal done and is released from its project responsibilities when the deal has closed. From that point forward, responsibility for integration typically is assigned to the business units. Unfortunately, such units often lack experience in M&A Integration Management and, worse, are poorly prepared to handle it because they lack proper guidance. Indeed, Accentures research found that 69 percent of serial acquirers have no M&A playbook or similar documentation to guide merger integration. In addition, business units often struggle to balance business and project demands and are unable to staff integration projects with the right level of resources and skills. Therefore, the quality of integration program management can be quite volatile, and often is heavily dependent on the

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Ideas for Improvement

With success in M&A hinging on the maturity of a companys M&A capabilities, the logical question to ask is this: Where and how to begin strengthening those processes that can have a major impact on whether or not M&A deals achieve their targets? In fact, Accenture has identified seven areas on which companies can focus to boost the maturity of their M&A capabilities.

Plan the M&A roadmap

Linking M&A to corporate strategy requires companies to identify and compare their options. In particular, companies that follow an opportunistic approach to M&A require factors against which they can evaluate every opportunity. Such a system of sound criteria should include a mission statement, deal preferences, hurdle rates and knockout criteria to identify the most attractive targets and quickly filter out less promising deals. Our data show that an M&A roadmap based on a realistic understanding of various M&A scenarios and the companys capabilities is key to balancing organic and M&A growth initiatives, prioritizing opportunities, and finding the right timing for acquisitions (see Figure 12). To close the common gap between planning

and execution, this M&A roadmap should be substantiated with a detailed and binding action plan, with metrics, due dates, and responsibilities for developing the defined M&A initiatives. Importantly, top management should be committed to providing the required support and resources for implementing the roadmap.

of merger integration. Another key is ensuring that the person who will be in charge of downstream integration is appointed and involved at the very outset of the M&A project (see Figure 13). This persons roles and responsibilities should be defined early, and they should become an integral part of the deal team. Accenture also has found that providing clear directions for all stages of the deal is crucial to project success. Such directions should include quality standards for strategic evaluation and internal decision papers, financial guidelines and standardized approaches, conceptual blueprints, and non-negotiable actions for merger integration.

Provide direction and end-to-end governance

Given the magnitude and complexity of M&A, companies must be able to ensure M&A projects are consistently well-managed. There are several keys to doing so, including the creation of end-to-end M&A guidelines and process descriptions that also define roles, responsibilities, key milestones and deliverables throughout the entire deal cycle, especially in consideration

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Figure 12. Common vs. best practices for strategic planning 71% 54%

Figure 13. Common vs. best practices for nomination of PMI manager 73% 58%

Figure 14. Common vs. best practices for reward schemes 79% 54%

No mid-term M&A roadplanning map (including of M&A forecast and projects action plan)
Process maturity rated as basic or established Process maturity rated as high performance

Shortly before At beginning or after of M&A signing project

No M&A M&A reflected targets for in targets of business business owner owner

Note: % = percent of transactions that delivered financial targets

Pay attention to incentives and rewards

Many serial acquirers are reluctant to define quantitative objectives and incentives for the actual M&A team, as doing so can be difficult to implement, and might bias the rigor of due diligence and valuations. However, targets and rewards for another group, the line managers responsible for the acquiring business units, are critically important (see Figure 14). In fact, they are some of the biggest levers for M&A success. Such incentives should encourage business managers to drive the deal pipeline forward according to the companys agreed-upon M&A roadmap. In addition, business managers targets must be value-oriented to make successful integration a top priority.

Companies also should have performance management standards in place for integration managers, as well as monetary incentives that are directly linked to the delivery of value targets. Importantly, such standards and incentives must not conflict with or take precedence over those related to the regular jobs of the people assigned to guiding the integration, to avoid disrupting the daily operation of the company.

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Figure 15. Common vs. best practices for skill development 75% 60%

Figure 16. Common vs. best practices for lessons learned 67% 56%

Figure 17. Common vs. best practices for PMI competence center 72% 59%

Learningon-the-job approach

Frequent and systematic training

No or Frequent and irregular systematic lessons learned lessons learned sessions sessions

PMI projects PMI projects staffed by staffed by/with business unit PMI experts

Process maturity rated as basic or established Process maturity rated as high performance Note: % = percent of transactions that delivered financial targets

Develop M&A skills across the entire organization

To keep its M&A skills as strong as possibleand ensure that these skills become embedded in the DNA of the company at largecompanies should conduct frequent training of not only M&A specialists, but also of management and business experts (see Figure 15). Furthermore, companies should conduct proactive coaching of project members by experienced M&A specialists, and provide tools that can help M&A teams find help and guidance when they need it. For example, companies can officially nominate M&A contact people in all corporate functions, create knowledge maps, or establish an electronic expert directory. Maintaining a cross-functional M&A community of practice also can further the understanding and knowledge

of M&A across the business. Finally, frequent knowledge exchange with external experts and participation in related associations and conferences are important to staying up-to-date and gaining new ideas and insights.

knowledge repository so they can be consulted by future project teams. Importantly, project postmortems should generate a list of action items to improve identified shortcomings, and should provide a means for tracking how these improvements are made.

Learn from experience

As mentioned earlier, most companies fail to learn from their M&A efforts and, thus, are at risk of repeating past mistakes and overlooking opportunities to excel. So, they should take the time to conduct regular, structured lessons learned sessions for both successful and unsuccessful projects (see Figure 16). The results of these sessions should be shared widely around the company. These lessons, as well as end-to-end project documentation and all other M&A assets, should be archived in an easily accessible

Organize for postmerger integration

Given the struggles companies continue to have in merger integration, many should be paying considerable attention to strengthening their capabilities in post-merger integration (PMI). One way to do so is to appoint a party responsible for post-merger integration that can provide the required expertise (see Figure 17). The few companies that have founded such a dedicated PMI competence center have achieved remarkable success rates. Admittedly,

20 | Inside Corporate M&A

Figure 18. Common vs. best practices for deal reviews 77% 58%

Infrequent performance reviews

Frequent and systematic deal reviews

Process maturity rated as basic or established Process maturity rated as high performance Note: % = percent of transactions that delivered financial targets

creating and operating such a center might be difficult for organizations that do not frequently acquire (and, thus, do not need the capability on a regular basis). In these cases, companies should, at the very least, appoint a manager who is fully dedicated to leading the integration phase of the dealand they should widely promote this position as an excellent career opportunity. Furthermore, project teams that are not staffed with PMI experts require guidance and support, including such essentials as a detailed PMI playbook and a repository of helpful job aids, templates and real-life work examples.

Establish a rigorous auditing process

To fully understand its M&A track record, a company should establish a standard review approach and a mandatory audit plan with continuous monitoring, rather than ad-hoc audits (see Figure 18). This approach should include a strategic review (rationale and achievements), a financial review (performance, valuation, and assumptions), an operational review (operating performance and issues) and a project management review (budget, time, risks, etc.). The evaluation criteria should be clear in advance, the reviews should be done by an independent auditor, and the results should be reported to top management or the M&A committee.

From time to time, a company also should assess the long-term performance of its previous acquisitions. Such assessmentsin combination with a meta-analysis of lessons learned and a review of processes and standardsare key to evaluating the overall effectiveness of the M&A function and determining the need to further develop the M&A capability.

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Conclusion

We can observe that the vast majority of serial acquirers understand the significance of their M&A capabilities and have strong foundations. Such companies also often have a team of experts following established processes to prepare and process successful deals. However, there are others that master M&A with even more consistent and repeatable success. What is their formula, and how can other companies reach their level of performance? Most players do not require fundamental restructuring, but instead need to actively work on their M&A capability. The findings of Accentures research clearly show that these capabilities do not evolve automatically with experience.

Serial acquirers should regularly check on their internal M&A capability and know their individual strengths and weaknesses. With high priority on the elements that have the greatest impact on M&A success, they should use a mix of focused engineering activities and continuous improvements to achieve process excellence. To close the gap between itself and the fittest, any M&A player should also strive for improvements and ultimately excellence in all elements of the corporate M&A processes. The rewards for these efforts are clear: High-performance serial acquirers are more successful deal makers, drive more value out of their deals and, most importantly, deliver better corporate performance.

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Research Methodology
Accenture put the most active acquirers under the microscope, analyzed the DNA of their M&A capabilities, and developed a formula to assess the processes and methods required to successfully implement an M&A strategy. This effort involved both qualitative and quantitative research, as well as empirical analysis. The results of our interviewscombined with a complementary meta-analysis of the existing literature on serial acquirers, Accentures intellectual property, and our extensive experience working with companies on more than 650 M&A deals during the past five yearsformed the basis of the Accenture M&A Maturity Model. The model has been developed iteratively, with input from a panel of six selected corporate M&A directors and experts, and has been validated by focus group workshops. The model also was tested by 10 consultants for comprehensiveness and logical rigor.

Quantitative research
In addition to speaking directly with M&A directors, Accenture undertook a comprehensive study of all M&A transactions by European acquirers between 2003 and 2009 (based on Thomson Reuters data). We filtered out financial investors and deals with a transaction volume less than 0.5 million, and identified 1,019 companies that have engaged in more than three acquisitions. We dubbed these companies serial acquirers.

Qualitative research
Between May and July 2010, Accenture conducted in-depth interviews with 33 M&A directors at leading serial acquirers. The interviewswhich averaged 90 minutes in length and yielded more than 50 hours of materialwere conducted as semi-structured conversations designed to identify executives pain points and best practices related to M&A.

24 | Inside Corporate M&A

We then invited 480 of these serial acquirers to participate in an online survey designed to benchmark their M&A capabilities between October and November 2010. The final sample consists of 110 companies from 20 European countries, equaling a response rate of 22.3 percent. Collectively, these participants have been involved in more than 2,500 M&A deals between 2007 and 2009 and represent a cross-section of industries, sizes and acquisition strategies (see Figure 19). Statistical tests confirmed the sample was representative and unbiased. The result of the survey is the most extensive M&A benchmarking to date, comprising 150 quantitative and qualitative benchmarks and more than 17,000 data points.

Figure 19. Overview of Peer Group (n=110) Companies by size Sales volume 2009 in bn
<0.25 0.25 < 0.50 0.5 < 1.0 1.0 < 5.0 >5.0 No answer
14 33 4 12 40 7

Companies by deal frequency Total # of deals in 2007-2009

<3 deals 3 < 10 deals 10 < 20 deals 20 < 50 deals >50 deals No answer
11 9 22 13 27 28

Empirical analysis
The Accenture M&A Maturity Model and the influence of an M&A capability on M&A performance have been analyzed using a structural equation model. M&A capability was specified as an unobserved latent variable. It was determined based on the maturity scores of the different M&A processes as observed variables using a multivariate factor analysis. M&A performance was specified as a multidimensional construct based on subjective assessments: Process performance was measured by the satisfaction level with various process results (e.g., speed, cost or quality). Deal performance was measured by strategic and financial success rates and total M&A contribution to ROCE and shareholder value. Corporate performance was assessed

in terms of growth, ROCE and shareholder value compared with industry peers. We have controlled the model for different market environments, M&A strategies and organizational contexts. Statistical tests proved the model to be robust and reliable. The influence on M&A performance and the paths of all elements of the Accenture M&A Maturity Model are significant at the 1 percent level. The authors would like to thank all the experts who participated in our research interviews, the members of the panel who advised the research, and all participants in the M&A benchmarking analysis for their valuable contributions.

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About the Authors

Mirko Dier is an executive partner and leads Accentures Global M&A and Merger Integration practice. Dier joined Accenture in 1995 and works with leading clients particularly in the Resources industry with a focus on corporate strategy, M&A, merger integration and business transformation. He holds a masters degree in business administration and an executive master of business administration degree from Kellogg. He is based in Munich. mirko.dier@accenture.com Moritz Kbel is a manager in Accentures Global Strategy practice and leads the research initiative Inside Corporate M&A. He has more than nine years of experience in strategy consulting and was responsible for several international M&A engagements in the energy, utilities, metals and industrial

equipment industries. Kbel holds a masters degree in business administration and wrote a Ph.D. thesis on serial acquirers at the Friedrich-AlexanderUniversity of Nuremberg. He is based in Munich. moritz.kubel@accenture.com Artur Meinzolt is a senior manager in Accentures Global Strategy practice with a specialization in M&A. During more than 11 years of a career in management consulting he advised clients on more than 40 deals internationally (buy side and sell side). His primary industry focus is telecommunications, high tech and renewable energies. He holds masters degrees in communications and business administration and is based in London. artur.meinzolt@accenture.com

Hans Langthaler is a Munich-based consultant in Accentures Global Strategy practice with several years of experience in international M&A undertakings. During his career he has worked primarily in the oil & gas, utilities and real estate industries on pre-deal engagements. He holds a Ph.D. in resources management. hans.langthaler@accenture.com

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About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 223,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.

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