EY: Striking the right chord

Striking the right chord

M&A integration in financial services

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Integration in M&A is never going to be easy. However, it is arguably the key to unlocking and judging the success of a deal. This is particularly true in the financial services sector, where growing scrutiny and increased regulation mean that deals are very much under the microscope.

Corporates need to have a robust strategy behind any acquisition — one that board members, shareholders and regulators can understand and appreciate. Integration of the asset can be an integral part of that strategy.

Our survey reveals five key practices that financial services companies should follow in order to achieve success.

 

1 Having a synergy and integration plan pre-signing is now the norm.
Corporates are no longer waiting to complete their due diligence and pricing negotiations before engaging the wider business to start thinking about how the deal will create value. Seventy percent of respondents had a synergy and integration plan in place pre-signing, rising to 93% for deals over US$1b in value

 

2 Don’t underestimate the importance of having the right resources.
Fifty-two percent of respondents say they would want more integration resources next time and 40% would want better-quality integration resources. A good integration setup should be led by an integration director with a wide range of skills and experience.

 

3 Deal value drivers need to be well-defined, clearly articulated and tracked.
The value created from a transaction depends on a number of factors, including the effectiveness of pre-deal due diligence, the valuation approach, the acquirer’s negotiation skills and the ability to realize value through integration. Our survey shows that the value drivers in deals can vary significantly by sector and geography.

 

4 Be clear on your ‘must do’ activities at each stage of the integration.
The priorities of an integration program change over time. Our survey shows that respondents are typically more focused on operational and control functions in the early stages of an integration, with front office functions being considered later in the process. Careful prioritization and clear measurement of progress is required to focus management attention and ensure optimal allocation of resources.

 

5 People and IT considerations underpin the integration plan.
The integration of HR and IT functions themselves was not considered a top priority by respondents. Yet People and IT considerations can be key enablers or constraints in the integration. Without an effective People strategy, the integration may be derailed by culture clashes, the loss of talent or customer service disruption due to employee motivation.