Updates from McKinsey

Post-close excellence in large-deal M&A
The most successful large-deal transactions follow four key practices during integration execution.
By Brian Dinneen, Christine Johnson, and Alex Liu – You cannot judge a deal by the market’s response to its announcement. Neither can you predict its success based on investor reaction at closing. It is only after the first 12 to 18 months of integration and after companies have reported the performance of their first year that the markets can reliably predict the success of the deal.

This finding is based on our recent review of 248 large deals over the last ten years. We found that 79 percent of those whose total return to shareholders outperformed their market index in the first 18 months were still above the index three years after close.

What did CEOs do differently in those successful deals? To better understand what made those deals successful, we surveyed experienced integration practitioners at the twice-annual Merger Integration Conference, and we also surveyed a broader population of 305 public company leaders, conducted in-depth reviews of investor transcripts and public financials in 29 of the Global 2000’s 1 large deals, and spoke with individuals who led some of those deals. We observed that companies going through successful large deals follow four key practices that help their total returns to shareholders (TRS) outpace the market index, their synergy achievement to exceed public commitments, and organic growth to continue unabated (Exhibit 1). In this article, we detail these practices.

Protect business momentum

While integration creates value from synergies, this should not come at the cost of disruption to the existing business. Successful acquirers are able to keep growing revenue on a pro forma basis within the first year, whereas unsuccessful deals see a decline or “dip” in revenue. 2 This dip is almost always due to a failure to protect the business momentum. more>

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