8 Ways Shared Services add Value in Mergers & Acquisitions
Discover eight key contributions that Shared Services can make to your next corporate deal.
Metrics for synergy identification
In building a business case for shared services, organisations frequently draw on transactional efficiency benchmarks e.g. invoices processed per full time equivalent (FTE) to derive a comparative cost per transaction. The process of comparing efficiency in one’s own organisation to others that have deployed shared services has provided many compelling cases for change over the years.
In a merger or acquisition, comparing these metrics across the merging parties can quickly identify potential areas that are ripe for cost reduction synergies. Application of shared services cost benchmarks to the incremental transaction volumes will often point the way to substantial savings.
A credible ‘best of both’ approach
An added benefit of this internal benchmarking, especially in a ‘merger of equals’ is that it creates a fair and transparent basis for selection of internal best practices across the two organisations. An Australian company in the financial services sector (online share trading) engaged operational leaders from both organisations to develop and share comparative metrics.
Salient differences in performance measures highlighted areas requiring more detailed comparative analysis and created transparency around how and why one organization’s practices came to be considered more efficient. The transparency of this approach also did much to neutralize political maneuvering and rhetoric that influences decision making in these situations and resulted in a deep appreciation of why one process or structure outperforms another.
Under a ‘best of both’ scenario it becomes quite possible that the acquired/smaller organisation will have its processes adopted in preference to those of the acquiring/larger organisation in certain instances. It is a Darwinian selection process which ensures that the fittest processes survive.
Impartial selection and implementation of the best solution builds belief in a ‘best of both’ culture which recognises and acknowledges the relative strengths and contributions of both organisations.
Accelerated de-duplication (and other cost synergies)
An efficient shared services organisation should provide a natural consolidation point for duplicated Finance, IT, Administrative, Procurement, HR, Programme/Project Management, Legal, Customer Service and other functions. Detailed documentation and process mapping of the current activities, accompanied by shadowing and reverse-shadowing interchange between the shared services and incumbent staff can result in rapid learning and job knowledge transfer. Absorption of common functions into the shared services centre can occur within a few months of completing the transaction. This is in stark contrast to de-duplication timeframes for organisations that have no precedent or shared services capability, who will typically take far longer to complete this process effectively. Rationalisation of support functions can be accompanied in parallel by reduction in overhead costs e.g. property leases and sales of any other extraneous assets.
Accelerated revenue synergies
Where an organisation has developed shared front office capability in the form of customer service and/or /sales call centers, rapid re-training can be used to accelerate revenue synergies through product support and cross-selling. Call centre staff in shared call centers are used to dealing with a wide range of products and associated queries. They can rapidly assimilate the new product offerings through training, which means that cross-selling and support can commence as soon as the products are available in the Customer Relationship Management (CRM) system. Call centre technology also supports rapid deployment on additional products via Interactive Voice Response (IVR), product-based call routing; caller identification and electronic scripting. Where opportunities are identified to combine product and/or services offerings in ways that are attractive to the customer, the ‘best of both’ approach can quickly become a very marketable value proposition. In a recent banking industry merger, a client developed a ‘Best of Both’ website to explain product changes and advantages to its newly-acquired online customers. They also received direct mailings of information packs to further reinforce the messages. The call center staff received comprehensive product training and were able to support the much-reduced wave of resulting queries around product uptake.
Enhanced customer retention
The shared call centre also becomes a tactical response unit when competitors launch campaigns designed to cause defection during the vulnerable period immediately following change of ownership. Competitors seize the opportunity to pounce when customers become uncertain about how they might be affected by the change in ownership, or as they grapple with new websites, product features and pricing.
The stakeholder communications plan should address the concerns of the various customer segments in a structured, comprehensive way, through direct mailings and other appropriate channels. Tactical responses, such as flipping teams from inbound to outbound calls can be used to counter specific competitor destabilization campaigns and shepherd customers safely through the uncertainty.
Early engagement of operational expertise
Shared Services operations are able to provide functional experts to participate in the early due diligence phase of the acquisition. By matching up FTE numbers and transactional volumes they can help to estimate what synergies might be possible in a shared services scenario. Moreover, because the shared services organisation is the most likely home for these functions post-merger/acquisition, senior subject matter experts can also be made accountable for achievement of the expected synergies.
This means early ownership and management of the expected benefits and continuity from due diligence through to closure, integration and beyond. We have observed that the prospects for realisation of benefits are far better in clients where this kind of early engagement and ownership occurs. The ultimate operational owner is the person best placed to estimate and deliver operational synergies.
Reduced Operational Risk
An added advantage of having these ‘old heads’ in the room is that they usually bring considerable experience to the table. These shared services practitioners usually have some scars from previous transitions and will engage in fastidious planning that encompasses all stakeholders. This includes detailed coverage of the changes required; associated communications and arrangements regarding relocation, retention and redundancies. They are also less likely to commit the cardinal errors associated with poor communication of bad news. DEFT communication (Direct, Early, Frequent, and Targeted) is required for each of the stakeholder groups identified. In our experience, staff will almost always respond professionally to open, respectful communication of bad news.
An organisational history of rolling business units into shared services has immediate relevance for integrating an acquired company or merger partner. The accumulated skills and knowledge allow the transition to be completed in a much shorter time period, and with fewer issues and a lower risk profile than when attempted by the uninitiated.
A reliable target footprint
Where M&A is within the same industry, business combinations are often more ‘bolt-on’ in nature and adopt less of a ‘best of both’ approach, particularly when an organisation undertakes a series of acquisitions.
These serial acquirers of companies, are sometimes referred to as ‘acquisition factories’ because they develop a process approach to integrating businesses. This accumulated know-how increases the likelihood of a transaction being value accretive for acquiring (or merging) shareholders.
One such US multinational in the telecommunications industry was able to roll 25 businesses (acquisitions and start-ups) into its shared services centre in the Netherlands in a two year period. Shared Finance, Administrative and Procurement functions enabled acquisitions to be folded easily into existing operations, accelerating headcount and other overhead savings e.g. property leases. Judicious relocation of exceptional staff to the Dutch shared services operation also expanded its language and technical capabilities to the point where it was able to support business operations across 20 international boundaries.
The operating model developed by the shared services organisation can be used as a target process and system footprint for transition. Systems and processes that have been tried and tested through business unit roll-ins often represent a business blueprint that is designed to be scalable and extensible. This model can be scaled up or modified to accommodate essential local business practices at a relatively low incremental cost. Investments in Enterprise Resource Planning (ERP) solutions and business process improvements are able to be leveraged to support the incoming acquisition or merged business. This is especially true when M&A activity is within the same industry.
There are considerable benefits to be gained through early and comprehensive engagement of your organisation’s shared services practitioners as part of the due diligence and M&A integration team. Across the continuum from a ‘best of both’ to a ‘faithful footprint’ approach, operational lessons from the arena of shared services are able to add value - speeding up benefits realisation and containing transitional operating risks.