successful mergers and acquisitions case studies

Related Expertise: Business Transformation , Post-Merger Integration , Corporate Finance and Strategy

Lessons from Eight Successful M&A Turnarounds

November 12, 2018  By  Ib Löfgrén ,  Lars Fæste ,  Tuukka Seppä ,  Jonas Cunningham ,  Niamh Dawson ,  Daniel Friedman , and  Rüdiger Wolf

M&A is tough, especially when it involves an underperforming asset that needs a turnaround. About 40% of all deals, on average, require some kind of turnaround, whether because of minor problems or a full-blown crisis. With M&A valuations now at record levels, companies must pay higher prices simply to get a deal done. In this environment, leaders need a highly structured approach to put the odds in their favor.

The greatest M&A turnarounds

Automotive: groupe psa + opel, biopharmaceuticals: sanofi + genzyme, media: charter communications + time warner cable + bright house networks, industrial equipment: konecranes + mhps, retail grocery: coop norge + ica norway, shipbuilding: meyer werft + turku shipyard, retail: office depot + officemax, energy: vistra + dynegy.

We recently analyzed large turnaround deals—those in which the target was at least half the size of the buyer in terms of revenue, with the target’s profitability lagging its industry median by at least 30%. Our key finding was that these deals can be just as successful as smaller deals that don’t require a turnaround in terms of value creation. However, they have a much greater variation in outcomes. In other words, the risks are greater and the potential returns are also greater. Critically, our analysis identified four key factors that lead to success in turnaround deals.

1. These buyers use a “full potential” approach to identify all possible areas of improvement. Rather than merely integrating the target company to capture the most obvious synergies, a full-potential approach generates improvements to the target company, captures all synergies, and capitalizes on the opportunity to make needed upgrades to the acquirer as well. (See the exhibit.)

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2. These buyers have a clear rationale for how the deal will create value, and they take a structured, holistic approach:

• They initially fund the journey by generating quick wins that deliver cash to the bottom line quickly, typically restructuring back-end operations to reduce costs and increase efficiency.
• Then they pivot from cost-cutting to growth measures in order to win in the medium term. They revamp the portfolio, selling off some business units and assets and buying others that align with their strategic direction.
• Finally, they invest in the future, often focusing on building digital businesses, upgrading processes with AI, and investing in R&D to secure long-term growth and expanding margins.

Winning buyers have a clear rationale, execute with rigor and speed, and address culture upfront.

3. Successful acquirers execute their plan with rigor and speed. They begin developing plans long before the deal closes, so that they can begin implementation on day one, seamlessly combining the core elements of post-merger integration and a turnaround program. These acquirers are extremely diligent in building clear milestones and objectives into the plan to ensure that key integration and improvement steps are achieved on time. Throughout the process, they move as quickly as possible, regarding speed as their friend. Moreover, they are confident enough to make their targets public and to systematically report on progress.

4. Winning acquirers address culture upfront by reorienting the organization around collaboration, accountability, and bottom-line value. Culture can often be hard to quantify or pin down, but it’s critical in shaping a company’s performance following an acquisition. (See Breaking the Culture Barrier in Postmerger Integrations , BCG Focus, January 2016.)

The case studies on the following pages illustrate these four principles. They offer clear evidence that M&A-based turnarounds may be hard but carry significant opportunity when done right.

Groupe PSA, the parent company of Peugeot, Citroën, Vauxhall Motors, and DS Automobiles, was languishing after the 2008 financial crisis. Demand was particularly slow to recover in Europe, which accounted for more than two-thirds of the company’s sales. After losing $5.4 billion in 2012 and $2.5 billion in 2013, Groupe PSA struck a deal to sell 14% of the company to Chinese competitor Dongfeng and another 14% to the French government, for $870 million each. With the capital raised, it launched a turnaround program in 2014. As part of the program, Groupe PSA bought the Opel brand, which had lost about $19 billion since 1999, from General Motors. The deal was finalized in August 2017.

The turnaround has a strong growth element with a focus on strengthening brands. A sales offensive was built on reducing the variety of models available, offering more attractive leases (possible thanks to the company’s stronger financial services capability), and maintaining discount discipline. Cost efficiency is another important element. Limiting the number of models reduces complexity across the combined group, which reduces costs in both manufacturing and R&D. The increased scale across fewer models leads to simpler procurement and more negotiating clout with suppliers.

The turnaround continued at a relentless pace through the first half of 2018, with profitability restored at Opel and margins continuing to rise for Groupe PSA as a whole.

Overall, gross margins have increased by 35% since 2013. During the same period, Groupe PSA has rebounded from losing money to an EBIT margin of 6%, in line with competitors such as General Motors and ahead of Hyundai and Kia. Perhaps most impressive, the company’s market cap has increased more than 700%. In all, the transformation has allowed Groupe PSA to resume its position as one of the top-performing automakers in the world.

Key success factors in this turnaround: Groupe PSA started the turnaround by raising capital to fund the journey. That enabled it to buy GM’s Opel unit, halt steep financial losses quickly, and generate a profit within one year of the acquisition.

Raising capital allowed Groupe PSA to buy GM’s Opel unit and generate a profit within one year.

In 2009, French pharmaceutical company Sanofi was in acquisition mode. Many of its products were losing patent protection, and the company wanted to shift from traditional drugs into biologics. One potential target was Genzyme.

From 2000 through 2010, Genzyme had grown rapidly, but manufacturing issues at two of its facilities halted production and led to a shortage of key drugs in its portfolio. Sales plunged, the US Food and Drug Administration issued fines, and investors called for management changes. But many features of the company still met Sanofi’s needs, including a lucrative orphan drug business with no patent cliff and a strong history of innovation. Sanofi made an offer: $20 billion, or $74 per share, which was roughly Genzyme’s value before the manufacturing problems hit.

Management laid out a bold ambition and moved fast. The company streamlined manufacturing, opening a new plant to reduce the drug shortage and simplifying operations to remove bottlenecks at existing plants. Next, it moved sales and marketing for some of Genzyme’s businesses, including oncology, biosurgery, and renal products, under the Sanofi brand. It also reduced the overall sales force by about 2,000 people.

Genzyme’s R&D pipeline was integrated into Sanofi, and a new portfolio review process led to the cessation of some studies and the reprioritizing of others. And about 30% of Genzyme’s cost base was reduced through the integration with Sanofi. Genzyme’s diagnostics unit was sold off, and about 8,000 full-time employees were eliminated in the EU and North America.

The moves generated positive results fast. Overall, the integration led to about $700 million in cost reductions through synergies. By 2011, the company was back in expansion mode with 5% revenue growth, increasing to 17% in 2012. Only about 13% of Sanofi’s revenue came from Genzyme products, but these were poised for strong growth, positioning Sanofi as a global leader in rare-disease therapeutics and spurring its evolution into a dominant player in biologics.

Key success factors in this turnaround: Sanofi laid out a bold ambition in its acquisition of Genzyme, and it executed a strategic repositioning with extreme speed, cutting costs and increasing top-line growth.

Genzyme executed a strategic repositioning with speed, cutting costs and increasing top-line growth.

With 8% of the US market in 2014, cable TV provider Charter Communications found itself facing fierce competition for multichannel video subscribers, who usually had bundled services with increasingly important broadband subscriptions. The threat came not only from other multichannel video providers in its markets—including direct-broadcast satellite services and large telcos—but from internet streaming services, as many cable subscribers were “cutting the cord” and streaming video over mobile and other devices.

To protect its market share and profits, Charter significantly expanded its subscriber base in 2015 by acquiring Time Warner Cable and Bright House Networks, which had a 20.8% and 3.6% share of the US cable market, respectively, paying $67 billion for the two businesses. The acquisitions made Charter the second-largest broadband provider and the third-largest multichannel video provider in the US.

With the deal closed, Charter launched a bold transformation that captured extensive synergies among the three businesses in areas such as overhead, product development, engineering, and IT, and it introduced uniform operating practices, pricing, and packaging. Most important, the company’s increased scale improved its bargaining power with content providers. Charter went beyond synergies in a full-potential plan to accelerate revenue growth, product development, and innovation through the increased scale, improved sales and marketing capabilities, and enhanced cable TV footprint brought about by the combination of the three companies. It improved products and services, centralized pricing decisions, and streamlined operations to achieve additional operating and capital efficiency.

As a result, Charter kept up its premerger growth trend and profitability, growing at an annual rate of 5.5% post-merger to reach $42 billion in revenues in 2017. In addition, Charter’s value creation significantly outperformed that of its peers, increasing annualized TSR to 289% from the closing of the transaction to the end of 2017.

Key success factors in this turnaround: Charter made a bold move in acquiring both Time Warner Cable and Bright House Networks. Management developed an extensive plan to generate operational synergies and rationalize the commercial offering of the new entity.

Charter developed an extensive plan to generate operational synergies and rationalize the new entity’s offering.

Konecranes is a global provider of industrial and port cranes equipment and services. Several years ago, in the face of increased competition, Konecranes was struggling to cut costs or grow organically. In 2016, it bought a business unit from Terex Corporation called Material Handling & Port Solutions (MHPS), its principal competitor. The MHPS business included several brands that complemented Konecranes’ products and services, along with some sizeable overlaps in technology and manufacturing networks.

Before the deal closed, Konecranes drafted an ambitious full-potential plan to generate about $160 million in synergies within three years through cost reductions and new business. That represented a 70% improvement over the joint company’s pro forma financials. The turnaround plan encompassed all main businesses and functions across both legacy Konecranes and MHPS operations.

As part of the preclose planning, Konecranes’ leaders designed an overall transformation to start after the merger was finalized. The program covered all business units and functions and was extremely comprehensive, including the following:

• Reducing procurement spending through increased volumes
• Consolidating service locations
• Aligning technological standards and platforms
• Closing some manufacturing sites
• Streamlining corporate functions
• Adopting more efficient processes
• Optimizing the go-to-market approach
• Identifying new avenues of growth

The full program consisted of 350 individual initiatives, organized into nine major work streams and aligned with the overall organization structure to create clear accountabilities and tie the program’s impact directly to financial results. Still, many of the initiatives were complex by nature, so solid planning and rigorous program management and reporting have been critical.

Konecranes also carried out a holistic baseline survey to assess the cultures of the two organizations and define a joint target culture. An extensive cultural development and communications plan featured strongly in the early days of the integration.

The company has reported on its progress to investors as part of its quarterly earnings calls, and two years into the three-year plan, it has hit or exceeded its targets. That performance has earned praise from investors, leading to a share price increase of more than 50% since the acquisition was announced.

Key success factors in this turnaround: The combination of competitors presented a clear opportunity to create value from synergies, but management took the more ambitious approach of using the deal as a catalyst for the combined entity to perform at its full potential. Hitting —and often exceeding—performance targets has led to a dramatic rise in the company’s stock price.

Konecranes used the deal as a catalyst for the combined entity to perform at its full potential.

Coop Norge ranked third in Norway’s competitive and consolidated retail-grocery landscape in 2014, with a 22.7% share. But the company faced a major strategic challenge from its two larger competitors, which were able to use their scale advantages to negotiate favorable prices from suppliers while opening new stores. A smaller player, ICA Norway, was in a more precarious position, with a 2014 operating loss of more than $57 million on revenue of $2.1 billion. An acquisition made sense. In buying ICA, Coop aimed to become the number-two player and so increase economies of scale in procurement and logistics. ICA stores in Norway were a strong strategic fit as well, complementing Coop’s existing locations.

After the acquisition closed, Coop rebranded all ICA supermarkets and discount stores to concentrate on fewer, winning formats and to fully leverage improvements and synergies in areas such as procurement, logistics, and store operations. Coop’s discount brand, Extra, was already showing good momentum in the market, and this was accelerated through the ICA Norway transaction.

The integration and rebranding created pride and momentum internally at ICA, which led to improved growth and financial performance at the acquiring company as well. Coop moved up to second place in the market, generated new economies of scale, and realized 87% of its expected results from synergies within just eight months of the close and 96% after two years. And because the company stayed true to its existing store strategy, it was able to lean on previous experience and maintain its long-term vision. Operating profits rose by approximately $270 million, from a loss of $160 million in 2015 to a profit of $106 million in 2016. Revenue during that period increased by 10.7%, to nearly $6 billion, of which ICA stores and Coop’s existing locations accounted for 7.8 and 2.9 percentage points, respectively.

Coop Norge’s early successes in the integration created strong momentum and a culture of success.

Key success factors in this turnaround: The early successes achieved in the integration created strong momentum and a culture of success, enabling the combined entity to increase both revenue and profits in a highly competitive market.

In the early 2010s, the global shipbuilding industry declined significantly, in part because of a contraction in the demand for ships. That left many shipyards—including the Turku yard, which operated in the sophisticated niche of cruise ships and ferries—in need of cash. When Turku’s owner, STX Finland, verged on insolvency in 2014, the Finnish government (which had a stake in STX) began looking for a new owner. Meyer Werft, a leading European shipbuilder, believed that the Turku shipyard could be operated profitably and bought 70% of the yard in September 2014. As part of the deal, Turku secured two new cruise ship projects. With the orders confirmed, Meyer Werft bought the remaining shares, becoming sole owner.

Renamed Meyer Turku Oy, the company began to integrate the shipyard’s operations and find synergies in development, procurement, and other support functions. Having negotiated up-front for new business, it was able to fill Turku’s production capacity, benefit from increased scale, and begin to boost profitability almost immediately. Critically, the deal helped restore trust among employees, which extended to other important stakeholders such as customers and lenders. Such trust is essential in an industry that hinges on building a small number of very large projects, and it was fostered by Meyer Werft’s delivery on promises right from the start.

Meyer Werft then looked to planning growth in the longer term: increasing capex to boost capacity—and profitability—still further and investing in a new crane, cabin production, and a new steel storage and pretreatment plant while modernizing existing equipment. It also entered into a joint R&D project with the University of Turku to develop more sustainable practices across a ship’s life cycle—from raw materials to manufacturing processes and beyond. And it hired 500 new workers, partially replacing retiring employees, in 2018.

As a result, the company increased revenues from $590 million in 2014 to $970 million in 2017, an annual growth rate of more than 18%. It also increased profit margins to 4% in 2017, up from a loss of 5% in the acquisition year. The company now has a stable order book out to 2024, and productivity continues to climb.

Key success factors in this turnaround: In addition to making operational improvements, Meyer Werft was able to foster trust among employees and customers by delivering on its promises and showing its commitment through long-term investment.

Meyer Werft fostered trust among employees and customers by delivering on its promises.

In early 2013, Office Depot and OfficeMax were in a similar situation: online retailers were threatening their business. They agreed on a merger, with the goal of generating synergies by reducing the cost of goods sold, consolidating support functions to cut overhead, and eliminating redundancies in the distribution and sales units.

Because the two companies were merging as equals—rather than one buying the other— some decisions were difficult to make before the close (for example, which IT system the combined entity would use and where headquarters would be located). But management was able to define synergy targets and begin planning the integration during the six months before the close. The companies also created an integration management office (IMO) that addressed areas that were critical for business continuity, specifying which units would be integrated and which would be left as is.

The IMO created playbooks for 15 integration teams, addressing finance, marketing, the supply chain, and e-commerce operations, and developed a plan for communication, talent management, and change management for the overall effort. It categorized all major decisions into two groups: those that could be made prior to the close (because the steering committee was aligned) and those that couldn’t be made during that period. For decisions in the second category, the IMO laid out the two or three best options to consider. Critically, the IMO’s rigorous plans included timelines for how the businesses would evolve over the first, second, and third years of the merger, helping to align functions and manage interdependencies.

Once the deal closed, all this preparation allowed the two organizations to start the integration process immediately on day one. Within weeks, they had agreed on a leadership team for the combined entity, a headquarters site, and an IT platform. The organization was largely redesigned in just two months—a remarkably rapid effort given that it ultimately affected about 9,000 employees.

Most important, the smooth integration process allowed the companies to be extremely rigorous in capturing more synergies—and doing it faster—than anticipated. For example, they integrated the e-commerce businesses in a way that allowed them to retain most key customers. In the first year after the deal closed, the company captured cost savings close to three times management’s original targets; cost savings of the end-state organization were 50% more. In all, the merger unlocked about $700 million, putting the new company in a much better competitive position.

An extremely rigorous integration plan allowed Office Depot and OfficeMax to exceed cost savings targets.

Key success factors in this turnaround: Office Depot and OfficeMax merged in response to the threat of online competition. An extremely rigorous integration plan allowed the combined business to dramatically exceed its cost savings targets.

Texas-based Vistra Energy operates in 12 US states and delivers energy to nearly 3 million customers, with a mix of natural gas, coal, nuclear, and solar facilities enabling about 41,000 megawatts of generation capacity. It was formed in October 2016 when its predecessor emerged from a protracted bankruptcy process.

At the conclusion of bankruptcy proceedings, Vistra underwent a corporate restructuring, moving from a siloed operating model to a unified organization with a centralized leadership team and common objectives. New governance structures facilitated more consistent and rigorous corporate decision making, with an emphasis on capital allocation and risk management. In addition, management immediately launched a turnaround effort to reduce costs and improve performance across the entire organization.

In all, the company managed to reduce costs and enhance EBITDA by approximately $400 million per year, exceeding its original target by $40 million without any drop in service levels or safety standards. At the same time, investments in new service offerings—many enabled by digital technology—boosted customer satisfaction.

In 2017, Vistra announced the acquisition of Dynegy, one of its largest peers, resulting in the largest competitive integrated power company in the US. The combined entity offers significant synergies, with Vistra now on track to deliver $500 million of additional EBITDA per year, along with annual after-tax free cash flow benefits of nearly $300 million and $1.7 billion in tax savings. The deal also allows Vistra to expand into new US markets, diversifying its operations and earnings, reducing its overall business risk, and creating a platform for future growth.

The addition of Dynegy also supports Vistra’s shift toward a more modern power generation fleet based on natural gas. The company preceded that deal with the acquisition of a large, gas-fueled power plant in west Texas, and it also retired several uneconomical coal-burning facilities. In all, Vistra’s generation profile has evolved from approximately two-thirds coal-fueled sources to more than 50% natural gas and renewables.

With these measures—a successful turnaround followed by two strategic acquisitions—Vistra has positioned itself to sustainably create value for its shareholders in a very competitive industry.

Key success factors in this turnaround: Vistra’s acquisition of Dynegy represented both a pivot to growth and an opportunity to extend cost savings to an acquired operating platform.

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Case Studies of Successful Mergers

MergerAcquisition.io

Welcome to our exploration of successful mergers through the lens of compelling case studies. We'll delve into the strategies, execution, and outcomes that have defined some of the most successful corporate mergers in recent history. These case studies will not only provide insights into the complexities of mergers but also shed light on the factors that contribute to their success.

The Power of Mergers: An Overview

Mergers represent a significant shift in the business landscape. They can transform industries, redefine market leaders, and create new opportunities for growth. However, the path to a successful merger is often fraught with challenges. It requires strategic planning, careful execution, and a clear vision of the desired outcome.

In this section, we will explore the concept of mergers, their potential benefits, and the factors that contribute to their success. We will also touch upon the importance of studying case studies to understand the dynamics of successful mergers.

Case Study 1: The Disney-Pixar Merger

The merger between Disney and Pixar in 2006 is a classic example of a successful merger. The two companies had a long-standing relationship, with Pixar creating some of the most successful films for Disney. However, the merger took this relationship to a new level, creating a powerhouse in the animation industry.

The success of this merger can be attributed to several factors. Firstly, the merger was based on mutual respect and a shared vision for the future. Secondly, the merger allowed Pixar to retain its unique culture and creative process, which was crucial to its success. Lastly, the merger resulted in a series of successful films, which further cemented the partnership between the two companies.

Case Study 2: The Exxon-Mobil Merger

The merger between Exxon and Mobil in 1999 is another example of a successful merger. This merger created the largest company in the world at the time, with a combined market value of over $80 billion.

The success of this merger can be attributed to the complementary strengths of the two companies. Exxon had a strong presence in the Middle East and Asia, while Mobil had a strong presence in Europe and Africa. The merger allowed the combined company to leverage these strengths and expand its global reach.

Case Study 3: The Vodafone-Mannesmann Merger

The merger between Vodafone and Mannesmann in 2000 is considered one of the most successful mergers in the telecommunications industry. The merger created the largest mobile telecommunications company in the world, with over 42 million customers.

The success of this merger can be attributed to the strategic fit between the two companies. Vodafone was a leader in the mobile telecommunications market, while Mannesmann had a strong presence in the fixed-line telecommunications market. The merger allowed the combined company to offer a comprehensive range of telecommunications services.

Case Study 4: The Procter & Gamble-Gillette Merger

The merger between Procter & Gamble and Gillette in 2005 is a prime example of a successful merger in the consumer goods industry. The merger created a company with a combined revenue of over $60 billion.

The success of this merger can be attributed to the complementary product portfolios of the two companies. Procter & Gamble was a leader in the household goods market, while Gillette was a leader in the personal care market. The merger allowed the combined company to offer a wider range of products to consumers.

Lessons from Successful Mergers

Studying these case studies provides valuable insights into the factors that contribute to the success of mergers. These factors include a shared vision, complementary strengths, strategic fit, and respect for the unique culture of each company.

However, it's important to note that each merger is unique and what works for one may not work for another. Therefore, it's crucial to carefully analyze each situation and develop a tailored strategy for success.

Wrapping Up: Gleaning Insights from Successful Mergers

As we wrap up our exploration of successful mergers, it's clear that these case studies offer valuable insights for businesses considering a merger. They highlight the importance of strategic planning, mutual respect, and a shared vision for success. While each merger is unique, these case studies provide a roadmap for navigating the complexities of mergers and achieving success.

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Realizing M&A value creation in US banking and fintech: Nine steps for success

Co-leads McKinsey’s Global Banking & Securities Practice and our work in North America. Ishaan works with clients across financial services and private equity. His client service spans strategy, corporate finance, digital and analytics, performance transformation, and M&A.

Advises financial institutions on capital markets, valuation, investor communications, and strategy topics

Serves leading financial institutions on strategy and M&A throughout the deal cycle – from due diligence through integration. He co-leads McKinsey's banking M&A joint venture globally. Max also works intensively with fintechs and leads the Fintech Practice in Germany

Advises executives across industries on mergers and acquisitions—including mergers, integrations, alliances, and divestitures—bringing particular expertise in strategy and performance in the pharmaceuticals and medical-products sector

Leads McKinsey’s Global M&A and Banking/Fintech service line, with extensive experience in counseling senior executives on and leading due diligence and integrations in FIG, Fintech and TMT sectors

November 15, 2019 For almost a decade after the financial crisis, M&A activity in the US banking industry remained limited, as many banks wrestled with challenging integrations and “shot-gun” combinations. But deal-making bounced back in 2018 and looks likely to expand. While several factors favor that growth, would-be deal-makers face obstacles. Our analysis suggests that most US bank mergers from that decade failed to create value. Going forward, US banks will require a smart strategy and the right integration approach to fully realize the value creation potential in M&A.

US banking M&A is on the upswing

US banking M&A was relatively flat from 2009 to 2017; the industry averaged about 20 deals a year. But in 2018 activity more than doubled, as US banks completed 49 transactions. And, with total deal value of $38 billion through the first half of 2019, this year already substantially outpaces 2018.

While many recent deals, such as the merger of BB&T and SunTrust and that of TCF and Chemical Financial, have focused on increasing geographic footprints and scale efficiencies, 1,2 fintech and capability-building deals are gaining traction. US banks averaged just three or four fintech deals per year through 2017, but deal volume exploded in 2018 with 16 transactions, and the first half of 2019 saw nine fintech deals (Exhibit 1). A good example of recent deals is Goldman Sachs’ acquisition of United Capital and its FinLife CX digital customer-service platform to add an advisor-led tech-enabled platform to the bank’s growing suite of digital offerings. 3

Tailwinds favor M&A growth 

In 2019, market reaction to bank-to-bank and fintech mergers has generally been positive. On the day of deal announcement, the market rewarded both BB&T and SunTrust with share value increases of 4 percent and 10 percent, respectively. More fundamentally, we believe there are multiple reasons why M&A activity in US banking could continue to increase.

The profitability of US banks has improved substantially, thanks to significant productivity investments, higher interest rates, and lower taxes. The average ROE of US banks climbed from 8.6 percent in 2013 to 10.8 percent in 2018. Banks also enjoy a stronger capital position that puts them in a better position to execute M&A.

Regulatory reform is reducing requirements for banking combinations. The threshold triggering substantial additional process and capital measures has increased from $50 billion to $250 billion (Exhibit 5). This particularly benefits regional banks that need greater size and scale to strengthen their competitive position for deposits versus larger banks—where they have been challenged.

US regional banks face intense pressure to build new capabilities in robotics, machine learning/artificial intelligence, and advanced analytics (e.g., people and talent analytics) as banking increasingly digitizes. M&A is one of the best ways to acquire skills or generate cost efficiencies that can fund internal efforts. For example, when BB&T acquired SunTrust, it announced a cost-savings target of $1.6 billion and plans to invest a substantial portion into digital banking. 5 JPMorgan Chase earmarked $11.5 billion in 2019 alone for technology investments, with machine learning, artificial intelligence and blockchain identified as top priorities; a good example is the bank’s recent acquisition of InstaMed, to support its position in payments. CapitalOne purchased Wikibuy, an online website that allows shoppers to compare prices for items, to help customers “feel confident in their purchasing decisions.” 6

The US is home to a lot of banks. While consolidation has steadily reduced the number of US banks from roughly 15,000 in 1985 to about 5,000 today, many industry executives and experts expect the consolidation trend to continue. Our research shows that more than 60 US banks with assets of $10 billion to $25 billion might be attractive acquisition targets for well-positioned regional banks—for example, regional banks with a high cost-income ratio and a low loans-to-deposits ratio, among other factors.

Beyond these trends favoring M&A growth, we believe that M&A will prove critical to next-generation transformation in US banking. Leading digital European markets clearly demonstrate the power of digitized banking, as banks there are achieving cost-to-asset ratios as much as 60 to 80 percent lower than US banks. A smart, well-executed M&A strategy can equip US banks to make slow internal efforts history. Banks can dramatically improve their cost productivity, with machine learning and robotics, and their people development, with advanced people analytics that better match talent to value and develop future leaders.

Successful bank acquirers get nine things right

In our experience, successful bank acquirers of other banks and fintechs take a strategic, long-term approach to M&A. They invest time and resources to build an end-to-end M&A approach, including deep understanding of how M&A serves their overall strategy, optimal candidate development and cultivation approaches, the merger management expertise required to execute, and the long-term capability development that enables them to deliver consistently. In our work, we see the most effective acquirers apply nine principles to realize full value from their M&A strategy.

1. Make M&A a core plank of the overall strategy—don’t rely on opportunistic M&A.

Too many acquirers resort to M&A as a way to buy growth or acquire an asset opportunistically, reacting to available deal flow to drive activity, without thorough understanding of how the deal will create value.

The best acquirers embed M&A in their strategic planning process. They require businesses to identify where inorganic moves are necessary to advance the bank’s strategy and then translate these moves into actionable deal theses that guide candidate scanning, prioritization, and progress review. Only after pressure-testing and prioritizing these themes do leaders develop lists of M&A targets that fit the investment themes within the overall strategy.

For banks, this means making M&A an integral part of the capital-planning process, with the annual capital plan adjusted—materially—to support the highest-potential investment themes. Practically speaking, this effort requires getting very clear on the decision rights and governance model for M&A execution; for example, who leads pre-diligence exploration of companies on the M&A candidate lists, what role the CFO plays, and what triggers full diligence.

2. Continuously cultivate top-priority deal candidates with a programmatic approach, not one-off efforts.

The best bank acquirers source and develop potential M&A candidates continuously and develop them across all stages of the M&A process. These efforts extend from conducting rapid pre-diligence review of prioritized targets, including high-level valuation and assessment of synergy potential, to proactive outreach to targets, supported by talking points on the bank’s partnership vision.

3. Assess the full spectrum of opportunities, including partnerships, joint ventures, and alliances, to gain scale and capabilities.

Highly innovative industries like pharmaceuticals and high-tech have long relied on joint ventures and alliances to develop their businesses. As banking advances further into digitization and advanced analytics, JVs and alliances are becoming much more relevant, especially for regional banks that lack the digital and fintech M&A resources of the larger money center banks. In particular, to succeed in digitization, many regional banks will have to assess the full range of partnership opportunities, from full joint ventures (with or without equity) to strategic partnerships to contractual alliances.

4. Tap divestitures to strengthen value creation—don’t buy without understanding the potential for a simultaneous sale.

Our analysis of thousands of deals finds that companies active in divesting, not just acquiring, achieve TRS that is 1.5 to 4.7 percent higher than the TRS of companies focused on acquisitions alone.

Successful bank acquirers use forcing mechanisms like the budget process to review the landscape of potential assets to sell and proactively shape the assets for sale based on an understanding of their value to a more natural owner. These winners also pay special attention to managing the stranded costs that can represent huge value leaks for banks.

One leading money center bank makes divestiture review part of its annual strategic planning process, evaluating businesses throughout the year on their strategic importance, operational value, and amount of capital freed up, if sold. The bank has a “productivity czar” who reports to the CEO and uses an algorithm-supported approach to counter the tendency of division leaders to protect assets in their portfolio by overstating their importance. The algorithm deepens insight into growth contribution (or lack of), required management resources, operational complexity, capital deployed, and ROE impact. This approach makes the bank much more nimble in divestitures and ready to use “acquisitions for growth” as catalysts for simultaneous value-adding divestitures.

5. Establish a value-added integration management office (IMO) led by an “integration CEO”—don’t make integration a checklist exercise.

We often hear financial industry executives say that they have a merger playbook and know how to execute. But the TRS numbers show that banks have struggled to create value through M&A.

Beating the odds requires more than checklists used in past integrations or third-party process support. M&A winners establish an IMO and empower an integration CEO to tailor how they manage every integration effort to deal rationale and sources of value. For example, winners heavily discount cost synergies envisioned beyond 24 to 30 months because they know the importance of realizing the lion’s share of the synergies in year one. Winners also move purposefully to take control of the acquired bank, particularly its credit decisions, portfolio management, and back-office systems and costs. One leading bank mobilized a “SWAT” team to stabilize the target’s shaky balance sheet and free up substantial capital. Winners also implement cost-saving measures as soon as possible. Failure to do so poisoned the culture in one bank’s branch sales network through delaying inevitable branch headcount reductions until several months into the integration effort.

6. “Open the aperture” on capturing value—don’t rest with the due diligence numbers.

Failing to update synergy expectations during integration is one of the most common, but avoidable, pitfalls in any transaction. This is especially true in banking, where the industry structure invites treating M&A as a project. This project typically sets synergy targets during due diligence, builds the targets into department operating budgets, and creates a checklist-based PMO process to monitor progress against the targets.

M&A winners regularly exceed due diligence synergy estimates by 200 to 300 percent because they reassess synergy potential throughout the life cycle of the deal, especially pre-close, pushing hard to uncover upside and transformational synergies. In successful banking deals, this often means dividing synergy-capture efforts into two time-based categories ─ initiatives that move quickly to generate maximum bottom-line impact in the first year (and often capture 50 to 70 percent of the cost synergies) and larger, longer-term initiatives that are typically technology-dependent.

Protecting the base business is a critical component of value capture that often goes unappreciated in banking mergers. M&A leaders make taking frequent temperature checks and attending to the health of the front-line business and customer satisfaction during integration a core responsibility of the integration CEO. For example, customer churn in corporate banking requires special attention early in the merger, since many customers do business with multiple banks. In a recent successful merger, this meant proactive outreach to corporate customers by pairs of acquirer/target relationship managers and careful manual migration of customers to the acquiring bank to avoid any errors or complaints.

Ensuring that the value capture team opens the aperture on synergies is particularly important given the recent tendency to announce a banking deal as a “merger of equals.” The intent is admirable but impractical to enact. Merger-of-equals positioning may benefit pricing, but it typically slows and softens decision-making, hamstrings implementation, and raises the risk of value leakages throughout the integration effort. 

7. Build an independent technology roadmap—don’t let current business operators and maintenance dictate the approach to capturing value.

In our experience, IT enables about 70 percent of a bank’s cost synergies but, without careful planning, can easily take 50 percent longer than expected to capture the value and can add incremental costs of 50 to 100 percent to what the bank already spends on IT. Making tough choices on IT integration is especially challenging for banks because they rely heavily on third parties to maintain their many custom-built legacy platforms. Banks can’t always count on those providers to provide objective advice on the right technology roadmap to follow.

Successful bank acquirers make IT integration a strategic priority, rather than a PMO-managed integration project. They develop an overall technology blueprint aligned with their strategy, sources of deal value, and customer-service requirements before launching costly IT integration initiatives and project management. One M&A leader looks to independent, internal subject-matter experts to build the “no case” for proposed technology roadmaps, tasking them with pressure-testing the logic and forcing discussion of other options.

This approach is particularly salient in fintech deals, since, along with talent, the technology platform is often the raison d’être of the deal, but in some cases that platform may meaningfully exceed the experience and expertise of the bank’s IT team. The bank must determine as early as possible what capabilities of the target the deal should preserve and what target-specific attributes (people, processes, and platforms) make those capabilities work so the integration effort can protect and nurture those attributes to scale.

One M&A leader has repeatedly chosen its future platform within the first months after deal announcement, using workarounds after close to maintain an adequate customer experience until the optimal systems integration roadmap is ready. This bank often migrates first and transforms later because it knows that advancing on both fronts at once is too complex. In a recent successful bank-fintech merger, customer migration proceeded in two waves—manual migration of corporate customers, followed by automated migration of retail customers. Goldman Sachs’ acquisition of Final is a good example of a deal that augments strategy, in particular Goldman Sachs’ publicly stated objective to invest in its consumer-centric business. Final impacts Goldman Sachs’ partnership with Apple Card by adding digital features for fraud and theft protection, including those which allow consumers to monitor their spending in real time.

8. Take a scientific approach to identifying cultural issues and change management—don’t pay lip service to cultural integration.

Mission, vision, and values can look very similar across banks. Executives often return from pre-deal announcements convinced that the cultures of the companies involved are very similar and that smooth organizational integration will be a snap. This is a major source of deal failure. M&A leaders don’t underestimate the importance of proactively tackling the challenges involved in integrating cultures. They understand that culture goes beyond values and comes alive in a company’s management practices—the way that work gets done, such as whether decisions are made by consensus or by the most senior accountable executive.

If not addressed properly, cultural integration challenges inevitably lead to friction among leaders, decreased productivity, increased talent attrition, and lost value. M&A leaders rigorously assess top management practices and working norms early and design the overall program to align practices and mitigate risks early and often. Alphabet, for example, is well-known for a programmatic approach to M&A and integration of fintech acquisitions that proceeds in phases linked to talent and sources of deal value.

Successful cultural integration often lends itself to an added area of opportunity in scale mergers. In these cases, the merger itself can be leveraged to reinforce critical behaviors that may be lacking in the acquiring organization, thereby creating not just an integrated culture but putting a stop to bad behaviors that might have existed pre-integration. In these situations, leading organizations choose to evaluate culture, and more broadly talent management and experience, holistically across both organizations and set a clear aspiration for a merged culture that will best enable the new organization’s strategic goals. This is particularly important when the acquisition brings in fundamentally new talent pools that may have different definitions of success, progression, and experience, as in the acquisition of a fintech into a large traditional bank.

M&A leaders also don’t skimp on formal change management planning. They take a rigorous and regimented approach to each phase of the integration, engaging stakeholders through the process and ensuring a dedicated handoff period for the transition to steady state.

9. Build capabilities for future deals—take full advantage of every opportunity to deepen the bench.

M&A leaders treat each deal as an opportunity to upgrade their M&A team’s skills and expertise. In banking M&A, talent is increasingly emerging as one of the primary sources of competitive advantage. Banks that allocate human capital, as well as financial resources, strategically and dynamically stand to generate significant economic return. This makes leadership and talent development the “next big thing” for unlocking value in banking M&A, with direct impact on the bottom line. After doing a deal, M&A leaders are just as rigorous in measuring success. They carefully track deal impact across critical KPIs, such as lower cost-income ratios, increased revenue growth above base trajectory, and more efficient use of capital.

Many CEOs and top teams in US banking and fintech see increasing their existing talent bench as critical for success, as has been raised with McKinsey in multiple CEO discussions and recent banking executive roundtables. Most need to make building M&A and integration skills a top priority. This calls for defining their talent development needs comprehensively and responding appropriately—for example, with executive training programs, leadership development, functional capability-building, coaching, and proprietary diagnostics for the talent development “playbook.”

One winning financial industry acquirer regularly devotes a full day, usually a weekend, to reviewing the profiles needed for the integration of a specific deal. This M&A leader spends substantial time identifying the right talent for each role and making sure that the hand-picked leaders get the right training to succeed in the context of the given deal.

Deal-making by US banks spiked in 2018 and shows an upward trajectory for 2019. Many banks can capitalize on the opportunities, especially if they apply the principles of M&A strategy and integration that have served the few successful acquirers in the industry so well.

The authors would like to acknowledge the contributions of Alok Bothra, Alex Camp, Kameron Kordestani, Steve Miller, and Zoltan Pinter to this article.

1 “BB&T and SunTrust to Combine in Merger of Equals to Create the Premier Financial Institution,” SunTrust press release, February 7, 2019.

2 “Chemical Financial Corporation and TCF Financial Corporation Close Merger of Equals to Become the New TCF,” Business Wire, August 1, 2019.

3 “Why United Capital Chose Goldman, Not a PE Backer,” Barrons, May 16, 2019.

4 Based on comparison with an index of peers’ TRS during the two years following an acquisition.

5 “BB&T and SunTrust to Combine in Merger of Equals to Create the Premier Financial Institution,” SunTrust press release, February 7, 2019.

6 “Changing the Game: Saving Money Online Is Easy, Lightning Fast With Wikibuy from Capital One,” CapitalOne.com.

7 “U.S. Bank expands fintech partnerships to B2B space,” usbank.com, October 29, 2018.

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The Case for M&A in a Downturn

• Brian Salsberg

Companies that made significant acquisitions during the financial crisis outperformed those who didn’t.

As companies begin planning for a post-Covid future, there may be opportunities to make one or more long-sought acquisitions. Deal premiums are likely to come down and assets that companies had been reluctant to sell may become available. But the window for maximizing value could be relatively short, if history is any indication. An analysis of evidence from the global financial crisis shows that companies that made significant acquisitions outperformed those that did not. Companies considering an M&A will need to consider some of the unique aspects to getting a deal done, from transaction diligence to post-acquisition integration.

In these difficult times, we’ve made a number of our coronavirus articles free for all readers. To get all of HBR’s content delivered to your inbox, sign up for the Daily Alert newsletter.

Most companies are still in the early days of assessing the impact from the Covid-19 crisis on their business. But as they begin planning for the future, there may be opportunities to make one or more long-sought acquisitions.

• Brian Salsberg is the EY Global Buy and Integrate Leader. In this role, he leads fully-integrated M&A management services across sectors for the EY organization. He has experience working directly with CEOs, executives, business teams and boards of directors, as well as PE-backed companies, in all facets of strategic planning, due diligence, corporate development and M&A.

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Mastering M&A: Your Ultimate Guide for Understanding Mergers and Acquisitions

• August 11, 2023

Table of Contents

The process of two companies or their major business assets consolidating together is known as an M&A (merger and acquisition). It is a business strategy involving two or more companies merging to form a single entity or one company acquiring another. These transactions take place entirely on the basis of strategic objectives like market growth, expanding the company’s market share, cost optimisation and the like.

M&As are also an essential component of investment banking capital markets . It helps in revenue generation, shaping market dynamics, and more. This article will provide a profound understanding of mergers and acquisitions including the types, processes, and various other nitty-gritty involved in the investment banking fundamentals relevant to this business strategy . 

Types of Mergers and Acquisitions 

There are many types associated with the mergers and acquisitions strategy. These are:

Horizontal Mergers 

The merger or consolidation of businesses between firms from one industry is known as a horizontal merger. This occurs when competition is high among companies operating in the same domain. Horizontal mergers help companies gain a higher ground due to potential gains in market share and synergies. Investment banking firms have a major role to play in identifying potential partners for this type of merger. 

Vertical Mergers 

A vertical merger occurs between two or more companies offering different supply chain functions for a particular type of goods or service. This form of merger takes place to enhance the production and cost efficiency of companies specialising in different domains of the supply chain industry. Investment banking firms help in the evaluation of said synergies to optimise overall operational efficiency.

Conglomerate Mergers 

A conglomerate merger occurs when one corporation merges with another corporation operating in an entirely different industry and market space. The very term ‘conglomerate’ is used to describe on company related to several different businesses. 

Friendly vs. Hostile Takeovers 

Leveraged buyouts (lbos) .

A leveraged buyout occurs when a company is purchased via two transactional forms, namely, equity and debt. The funds of this purchase are usually supported by the existing or in-hand capital of a company, the buyer’s purchase of the new equity and funds borrowed. 

Investment banking services are majorly relied upon throughout the entire process encompassing a leveraged buyout. Investment banking skills are necessary for supporting both sides during a bid in order to raise capital and or decide the appropriate valuation. 

Mergers and Acquisitions Process 

To succeed in investment banking careers, your foundational knowledge in handling mergers and acquisitions (M&A) should be strong. Guiding clients throughout the processes involved in M&A transactions is one of the core investment banking skills.

Preparing for Mergers and Acquisitions

To build a strong acquisition strategy, you need to understand the specific benefits the acquirer aims to gain from the acquisition. It can include expanding product lines or entering new markets.

Target Identification and Screening

The acquirer defines the requirements involved in identifying target companies. They may include criteria like profit margins, location, or target customer base. They use these criteria to search for and evaluate potential targets.

Due Diligence

The due diligence process begins after accepting an offer. A comprehensive examination is conducted wherein all aspects of the target company's operations are analysed. They may include financial metrics, assets and liabilities, customers, and the like. Confirming or adjusting the acquirer's assessment of the target company's valuation is the main goal.

Valuation Methods

Assuming positive initial discussions, the acquirer requests detailed information from the target company, such as current financials, to further evaluate its suitability as an acquisition target and as a standalone business.

Negotiating Deal Terms

After creating several valuation models, the acquirer should have enough information to make a reasonable offer. Once the initial offer is presented, both companies can negotiate the terms of the deal in more detail.

Financing M&A Transactions

Upon completing due diligence without significant issues, the next step is to finalise the sale contract. The parties decide on the type of purchase agreement, whether it involves buying assets or shares. While financing options are usually explored earlier, the specific details of financing are typically sorted out after signing the purchase and sale agreement.

Post-Merger Integration

Once the acquisition deal is closed, the management teams of the acquiring and target companies cooperate together to merge the two firms and further implement their operations.

Taking up professional investment banking courses can help you get easy access to investment banking internships that will give you the required industry-level skills you need to flourish in this field. 

Financial Analysis   

Financial statements analysis  .

Financial statement analysis of a merger and acquisition involves evaluating the financial statements of both the acquiring and target companies to assess the financial impact and potential benefits of the transaction. It may include statements like the income statement, balance sheet, and cash flow statement. It is conducted to assess the overall financial health and performance of the company.

In investment banking, financial modelling is a crucial tool used in the financial statement analysis of a merger and acquisition (M&A). Investment bankers develop a merger model, which is a comprehensive financial model that projects the combined financial statements of the acquiring and target companies post-merger. 

Cash Flow Analysis  

Examining a company's cash inflows and outflows to assess its ability to generate and manage cash effectively. In investment banking jobs , one of the primary roles is to assess the transaction structure, including the consideration paid and the timing of cash flows. 

Ratio Analysis  

Utilising various financial ratios to interpret and analyse a company's financial performance, efficiency, and risk levels. Investment banking training equips professionals with a deep understanding of various financial ratios and their significance. They learn how to calculate and interpret ratios related to profitability, liquidity, solvency, efficiency, and valuation.

Comparable Company Analysis  

Comparable Company Analysis (CCA) plays a crucial role in mergers and acquisitions (M&As) due to its importance in determining the valuation of the target company. In investment banking training , you will learn how to conduct a CCA and identify a group of comparable companies in the same industry as the target company. 

By comparing the target company's financial metrics to its peers, you can identify the company's strengths, weaknesses, and positioning within the industry and provide appropriate guidance.

Discounted Cash Flow (DCF) Analysis

Discounted Cash Flow (DCF) analysis is a crucial valuation technique used in M&As. It helps determine the intrinsic value of a company. It helps project the potential cash flows of a company in the future. DCF analysis involves factors like revenue growth, operation costs, working capital requirements and the like.  

Investment banking training provides the skills in building complex financial models that are required for DCF analysis. They develop comprehensive models that incorporate projected cash flows, discount rates, and terminal values to estimate the present value of a company.

Merger Consequences Analysis

Merger Consequences Analysis helps assess the potential outcomes and impact on financial performance, operations, and value of the entities partaking in the M&A. Investment bankers conduct an extensive evaluation to identify and quantify potential synergies that may result from the merger or acquisition, encompassing cost savings, revenue growth opportunities, operational efficiencies, and strategic advantages. 

This analysis aids in estimating the financial implications of these synergies on the combined entity.

Legal and Regulatory Considerations

If you are pursuing an investment banking career , knowledge of the various legalities involved in M&As will help you nail any investment banking interview . The regulatory legalities involved in the process of M&As that partaking entities and investment banking services need to consider:-

Antitrust Laws and Regulations

Antitrust laws and regulations aim to foster fair competition and prevent anti-competitive practices. In the context of M&A, it is vital to assess whether the combination of the acquiring and target companies could potentially harm competition significantly. 

Complying with antitrust laws may involve seeking clearance from regulatory bodies or implementing remedies to address any potential anti-competitive concerns.

Securities Laws and Regulations

Securities laws and regulations are of utmost importance in M&A transactions, considering the issuance of securities or transfer of ownership interests. Compliance with these laws governs the disclosure of material information, fair treatment of shareholders, and the filing of requisite documents with regulatory entities.

Regulatory Approvals and Filings

M&A transactions often necessitate obtaining approvals from various regulatory bodies, including government agencies, industry regulators, or competition authorities. These approvals ensure adherence to specific industry regulations and are typically indispensable for proceeding with the transaction. 

Additionally, filings and disclosures like Form S-4 or 8-K, may be mandatory for furnishing relevant information about the transaction to legal authorities.

Confidentiality and Non-Disclosure Agreements

Confidentiality is crucial throughout M&A transactions. To safeguard sensitive information and trade secrets, parties involved usually enter into non-disclosure agreements (NDAs). These NDAs outline the terms and conditions governing the sharing and handling of confidential information throughout the entire transaction process.

M&A Documentation

The following M&A documents are instrumental in organising and formalising the holistic M&A process. They give clarity, safeguard the interests of all parties included, and guarantee compliance with pertinent legal and regulatory prerequisites all through the transferring process.

Letter of Intent (LOI)  

The Letter of Intent (LOI) is the first and most urgent document that frames the agreements proposed in an M&A. It fills in as the commencement for exchanges and conversations among the gatherings participating in the business procedure.

Merger Agreement  

The Merger Agreement is a legally approved contract that covers every detail of the merger. It may include crucial information like the price of purchase, terms of payment, warranties, post-closure commitments and representations. This arrangement formalises the responsibilities between the partaking parties.

Share Purchase Agreement  

The Share Purchase Agreement is a legally binding contract that oversees the assets of the target organisation being acquired. It frames the terms, conditions, and legitimate liabilities connected with the exchange of ownership interests.

Asset Purchase Agreement  

An Asset Purchase Agreement is utilised when particular assets of the target organisation are being gained. It is a legal contract that sets out the regulatory commitments attached to the procurement and division of those assets.

Confidentiality Agreements  

Confidentiality Agreements, also known as Non-Disclosure Agreements (NDAs), play a major role in protecting sensitive data collected during the M&A cycle. They lay out rules and commitments to guarantee the safe handling and non-exposure of restrictive proprietary information and secrets.

Due Diligence Checklist  

The Due Diligence Checklist is a broad list that helps direct the assessment process by framing the important documents, data, and areas to be evaluated. It works with an exhaustive and deliberate evaluation of the objective organisation's monetary, legal, functional, and business viewpoints.

M&A Case Studies   

M&A case studies serve as a hub of knowledge, enabling companies to make informed decisions and avoid common pitfalls. By delving into these real-world examples, organisations can shape their M&A strategies, anticipate challenges, and increase the likelihood of successful outcomes. Some of these case studies may include:-  

Successful M&A Transactions  

Real-life examples and case studies of M&A transactions that have achieved remarkable success provide meaningful insights into the factors that contributed to their positive outcomes. By analysing these successful deals, companies can uncover valuable lessons and understand the strategic alignment, effective integration processes, synergies realised, and the resulting post-merger performance. 

These case studies serve as an inspiration and offer practical knowledge for companies embarking on their own M&A journeys.

Failed M&A Transactions  

It's equally important to learn from M&A transactions that did not meet expectations or faced challenges. These case studies shed light on the reasons behind their failure. We can examine the cultural clashes, integration issues, financial setbacks, or insufficient due diligence that led to unfavorable outcomes. 

By evaluating failed M&A deals, companies can gain valuable insights so they can further avoid the pitfalls and consider the critical factors to build a successful M&A strategy.

Lessons Learned from M&A Deals  

By analysing a wide range of M&A transactions, including both successful and unsuccessful ones, we can distill valuable lessons. These case studies help us identify recurring themes, best practices, and key takeaways. 

They provide an in-depth and comprehensive understanding of the various pitfalls and potential opportunities involved in an M&A that can enhance their decision-making processes to develop effective strategies.

Taking up reliable investment banking courses can be instrumental in taking your career to unimaginable heights in this field. 

M&A Strategies and Best Practices   

By implementing the following M&A strategies, companies can enhance the likelihood of a successful merger or acquisition:

Strategic Fit and Synergies  

One of the key aspects of M&A is ensuring strategic fit between the acquiring and target companies. This involves evaluating alignment in terms of business goals, market positioning, product portfolios, and customer base.

Integration Planning and Execution  

A well-balanced integration plan is crucial for a successful M&A. It encompasses creating a roadmap for integrating the acquired company's operations, systems, processes, and people. 

Effective execution of the integration plan requires careful coordination, clear communication, and strong project management to ensure a seamless transition and minimise disruption.

Cultural Integration  

Merging organisations often have different cultures, values, and ways of doing business. Cultural integration is essential to aligning employees, fostering collaboration, and maintaining morale. Proactively managing cultural differences, promoting open communication, and creating a shared vision can help mitigate integration challenges and create a cohesive post-merger organisation.

Managing Stakeholders  

M&A transactions involve multiple stakeholders, including employees, customers, suppliers, investors, and regulatory bodies. Managing their expectations, addressing concerns, and communicating the strategic rationale and benefits of the deal are all crucial. 

Engaging with stakeholders throughout the process helps build trust and support, ensuring a smoother transition and post-merger success.

Risk Management in Mergers and Acquisitions  

M&A transactions involve inherent risks that need to be effectively managed. Conducting comprehensive due diligence, identifying and assessing potential risks, and developing risk mitigation strategies are essential steps. 

It's important to consider legal and regulatory compliance, financial risks, operational challenges, cultural integration issues, and potential resistance from stakeholders.

Post-Merger Performance Evaluation  

Evaluating the performance of the merged entity post-transaction is critical to assessing the success of the deal and identifying areas for improvement. This involves tracking financial performance, measuring synergies realised, monitoring customer and employee satisfaction, and conducting periodic assessments. 

Continuous evaluation helps refine strategies and ensure the realisation of intended benefits.

Conclusion   

Mergers and acquisitions (M&A) are intricate processes that require in-depth knowledge and expertise in investment banking operations. The components discussed, such as M&A documentation, case studies, and strategies, emphasise the importance of comprehensive analysis, due diligence, and risk management. 

Many students tend to pursue investment banking careers because of the comparatively high investment banking salary involved. If you are one of these enthusiasts, pursuing a Certified Investment Banking Operations Professional course from Imarticus can provide you with the investment banking certification you need to get started . 

This course help you develop the specialised skills and knowledge required for a successful career in investment banking . It covers essential topics related to M&A, financial analysis, valuation methods, and regulatory considerations, equipping learners with the necessary tools to navigate the complexities of M&A transactions.

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Ace Your M&A Case Study Using These 5 Key Steps

• Last Updated November, 2022

Mergers and acquisitions (M&A) are high-stakes strategic decisions where a firm(s) decides to acquire or merge with another firm. As M&A transactions can have a huge impact on the financials of a business, consulting firms play a pivotal role in helping to identify M&A opportunities and to project the impact of these decisions. 

M&A cases are common case types used in interviews at McKinsey, Bain, BCG, and other top management consulting firms. A typical M&A case study interview would start something like this:

The president of a national drugstore chain is considering acquiring a large, national health insurance provider. The merger would combine one company’s network of pharmacies and pharmacy management business with the health insurance operations of the other, vertically integrating the companies. He would like our help analyzing the potential benefits to customers and shareholders.

M&A cases are easy to tackle once you understand the framework and have practiced good cases. Keep reading for insights to help you ace your next M&A case study interview.

In this article, we’ll discuss:

• Why mergers & acquisitions happen.
• Real-world M&A examples and their implications.
• How to approach an M&A case study interview.
• An end-to-end M&A case study example.

Let’s get started!

Why Do Mergers & Acquisitions Happen?

There are many reasons for corporations to enter M&A transactions. They will vary based on each side of the table. 

For the buyer, the reasons can be:

• Driving revenue growth. As companies mature and their organic revenue growth (i.e., from their own business) slows, M&A becomes a key way to increase market share and enter new markets.
• Strengthening market position. With a larger market share, companies can capture more of an industry’s profits through higher sales volumes and/or greater pricing power, while vertical integration (e.g., buying a supplier) allows for faster responses to changes in customer demand.
• Capturing cost synergies. Large businesses can drive down input costs with scale economics as well as consolidate back-office operations to lower overhead costs. (Example of scale economies: larger corporations can negotiate higher discounts on the products and services they buy. Example of consolidated back-office operations: each organization may have 50 people in their finance department, but the combined organization might only need 70, eliminating 30 salaries.)
• Undertaking PE deals. Private equity firms will buy a majority stake in a company to take control and transform the operations of the business (e.g., bring in new top management or fund growth to increase profitability).
• Accessing new technology and top talent. This is especially common in highly competitive and innovation-driven industries such as technology and biotech. 

For the seller, the reasons can be: 

• Accessing resources. A smaller business can benefit from the capabilities (e.g., product distribution or knowledge) of a larger business in driving growth.
• Gaining needed liquidity. Businesses facing financial difficulties may look for a well-capitalized business to acquire them, alleviating the stress.
• Creating shareholder exit opportunities . This is very common for startups where founders and investors want to liquidate their shares.

There are many other variables in the complex process of merging two companies. That’s why advisors are always needed to help management to make the best long-term decision.

Real-world Merger and Acquisition Examples and Their Implications

Let’s go through a couple recent merger and acquisition examples and briefly explain how they will impact the companies.

Nail the case & fit interview with strategies from former MBB Interviewers that have helped 89.6% of our clients pass the case interview.

KKR Acquisition of Ocean Yield

KKR, one of the largest private equity firms in the world, bought a 60% stake worth over $800 million in Ocean Yield, a Norwegian company operating in the ship leasing industry. KKR is expected to drive revenue growth (e.g., add-on acquisitions) and improve operational efficiency (e.g., reduce costs by moving some business operations to lower-cost countries) by leveraging its capital, network, and expertise. KKR will ultimately seek to profit from this investment by selling Ocean Yield or selling shares through an IPO.

ConocoPhillips Acquisition of Concho Resources

ConocoPhillips, one of the largest oil and gas companies in the world with a current market cap of $150 billion, acquired Concho Resources which also operates in oil and gas exploration and production in North America. The combination of the companies is expected to generate financial and operational benefits such as:

• Provide access to low-cost oil and gas reserves which should improve investment returns.
• Strengthen the balance sheet (cash position) to improve resilience through economic downturns.
• Generate annual cost savings of $500 million.
• Combine know-how and best practices in oil exploration and production operations and improve focus on ESG commitments (environmental, social, and governance).

How to Approach an M&A Case Study Interview

Like any other case interview, you want to spend the first few moments thinking through all the elements of the problem and structuring your approach. Also, there is no one right way to approach an M&A case but it should include the following: 

• Breakdown of value drivers (revenue growth and cost synergies) 
• Understanding of the investment cost
• Understanding of the risks. (For example, if the newly formed company would be too large relative to its industry competitors, regulators might block a merger as anti-competitive.) 

Example issue tree for an M&A case study: 

• Will the deal allow them to expand into new geographies or product categories?
• Will each of the companies be able to cross-sell the others’ products? 
• Will they have more leverage over prices? 
• Will it lower input costs? 
• Decrease overhead costs? 
• How much will the investment cost? 
• Will the value of incremental revenues and/or cost savings generate incremental profit? 
• What is the payback period or IRR (internal rate of return)? 
• What are the regulatory risks that could prevent the transaction from occurring? 
• How will competitors react to the transaction?
• What will be the impact on the morale of the employees? Is the deal going to impact the turnover rate? 

An End-to-end BCG M&A Case Study Example

Case prompt:

Your client is the CEO of a major English soccer team. He’s called you while brimming with excitement after receiving news that Lionel Messi is looking for a new team. Players of Messi’s quality rarely become available and would surely improve any team. However, with COVID-19 restricting budgets, money is tight and the team needs to generate a return. He’d like you to figure out what the right amount of money to offer is.

First, you’ll need to ensure you understand the problem you need to solve in this M&A case by repeating it back to your interviewer. If you need a refresher on the 4 Steps to Solving a Consulting Case Interview , check out our guide.

Second, you’ll outline your approach to the case. Stop reading and consider how you’d structure your analysis of this case. After you outline your approach, read on and see what issues you addressed, and which you didn’t consider. Remember that you want your structure to be MECE and to have a couple of levels in your Issue Tree .

Example M&A Case Study Issue Tree

• Revenue: What are the incremental ticket sales? Jersey sales? TV/ad revenues?
• Costs: What are the acquisition fees and salary costs? 
• How will the competitors respond? Will this start a talent arms race?  
• Will his goal contribution (the core success metric for a soccer forward) stay high?
• Age / Career Arc? – How many more years will he be able to play?
• Will he want to come to this team?
• Are there cheaper alternatives to recruiting Messi?
• Language barriers?
• Injury risk (could increase with age)
• Could he ask to leave our club in a few years?
• Style of play – Will he work well with the rest of the team?

Analysis of an M&A Case Study

After you outline the structure you’ll use to solve this case, your interviewer hands you an exhibit with information on recent transfers of top forwards.

In soccer transfers, the acquiring team must pay the player’s current team a transfer fee. They then negotiate a contract with the player.

From this exhibit, you see that the average transfer fee for forwards is multiple is about $5 million times the player’s goal contributions. You should also note that older players will trade at lower multiples because they will not continue playing for as long. 

Based on this data, you’ll want to ask your interviewer how old Messi is and you’ll find out that he’s 35. We can say that Messi should be trading at 2-3x last season’s goal contributions. Ask for Messi’s goal contribution and will find out that it is 55 goals. We can conclude that Messi should trade at about $140 million. 

Now that you understand the up-front costs of bringing Messi onto the team, you need to analyze the incremental revenue the team will gain.

Calculating Incremental Revenue in an M&A Case Example

In your conversation with your interviewer on the value Messi will bring to the team, you learn the following: 

• The team plays 25 home matches per year, with an average ticket price of $50. The stadium has 60,000 seats and is 83.33% full.
• Each fan typically spends $10 on food and beverages.
• TV rights are assigned based on popularity – the team currently receives $150 million per year in revenue.
• Sponsors currently pay $50 million a year.
• In the past, the team has sold 1 million jerseys for $100 each, but only receives a 25% margin.

Current Revenue Calculation:

• Ticket revenues: 60,000 seats * 83.33% (5/6) fill rate * $50 ticket * 25 games = $62.5 million.
• Food & beverage revenues: 60,000 seats * 83.33% * $10 food and beverage * 25 games = $12.5 million.
• TV, streaming broadcast, and sponsorship revenues: Broadcast ($150 million) + Sponsorship ($50 million) = $200 million.
• Jersey and merchandise revenues: 1 million jerseys * $100 jersey * 25% margin = $25 million.
• Total revenues = $300 million.

You’ll need to ask questions about how acquiring Messi will change the team’s revenues. When you do, you’ll learn the following: 

• Given Messi’s significant commercial draw, the team would expect to sell out every home game, and charge $15 more per ticket.
• Broadcast revenue would increase by 10% and sponsorship would double.
• Last year, Messi had the highest-selling jersey in the world, selling 2 million units. The team expects to sell that many each year of his contract, but it would cannibalize 50% of their current jersey sales. Pricing and margins would remain the same.
• Messi is the second highest-paid player in the world, with a salary of $100 million per year. His agents take a 10% fee annually.

Future Revenue Calculation:

• 60,000 seats * 100% fill rate * $65 ticket * 25 games = $97.5 million.
• 60,000 seats * 100% * $10 food and beverage * 25 games = $15 million.
• Broadcast ($150 million*110% = $165 million) + Sponsorship ($100 million) = $265 million.
• 2 million new jerseys + 1 million old jerseys * (50% cannibalization rate) = 2.5 million total jerseys * $100 * 25% margin = $62.5 million.
• Total revenues = $440 million.

This leads to incremental revenue of $140 million per year. 

• Next, we need to know the incremental annual profits. Messi will have a very high salary which is expected to be $110 million per year. This leads to incremental annual profits of $30 million.
• With an upfront cost of $140 million and incremental annual profits of $30 million, the payback period for acquiring Messi is just under 5 years.

Presenting Your Recommendation in an M&A Case

• Messi will require a transfer fee of approximately $140 million. The breakeven period is a little less than 5 years. 
• There are probably other financial opportunities that would pay back faster, but a player of the quality of Messi will boost the morale of the club and improve the quality of play, which should build the long-term value of the brand.
• Further due diligence on incremental revenue potential.
• Messi’s ability to play at the highest level for more than 5 years.
• Potential for winning additional sponsorship deals.

5 Tips for Solving M&A Case Study Interviews

In this article, we’ve covered:

• The rationale for M&A.
• Recent M&A transactions and their implications.
• The framework for solving M&A case interviews.
• AnM&A case study example.

Still have questions?

If you have more questions about M&A case study interviews, leave them in the comments below. One of My Consulting Offer’s case coaches will answer them.

Other people prepping for mergers and acquisition cases found the following pages helpful:

• Our Ultimate Guide to Case Interview Prep
• Types of Case Interviews
• Consulting Case Interview Examples
• Market Entry Case Framework
• Consulting Behavioral Interviews

Help with Case Study Interview Prep

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Successful and Failed Mergers and Acquisitions to Learn From

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

Mergers and acquisitions are nothing if not learning experiences. It’s rare that a transaction doesn’t provide the participants with at least some takeaways.

DealRoom has worked with hundreds of companies over the years on their M&A transactions, and when asked about what they’ve learned, the breadth of their answers is astounding.

However, most answers tend to fall into one of a few broad categories.

Below, we look at some of these lessons, three positive and three negative, as well as the well-known examples that you can learn from.

Learning from Successes

Here are examples of successful acquisitions:

1. The right price is the right price for you: Morgan Stanley and E*Trade acquisition

Overpaying for a target is always a mistake.

But it’s also important to distinguish between what most people think is the right price and what constitutes the right price for the buyer.

There is a fine line here, where hubris can quickly make things go awry, but if there’s sound logic underpinning the deal for the two companies to come together, it may make sense to pay a premium to ensure you land the asset.

This was the case in 2020 when Morgan Stanley acquired E*Trade for $13 billion - a 30% premium on a stock that was already trading at 13 times earnings.

Coupled with news of a Covid-19 shutdown, it’s fair to say the market didn’t react well to the acquisition: Morgan Stanley’s share price dropped from $55 to less than $30 within a month.

But move forward to July 2021 and the stock is worth $75 . It was right for them. Just not for everybody else.

2. Understand where the market is going: Facebook and Instagram acquisition

It’s easy to believe that everyone that makes a successful acquisition simply understands at what stage their market is at.

In theory, that should be easier for people already operating in that market, but shifts in technology take even the most experienced companies by surprise (see the number of retailers that have gone bankrupt, failing to anticipate the rise of ecommerce by way of example).

Facebook’s acquisition of Instagram for $1 billion in 2012 makes it look like a company that knew exactly where social media was headed. It seemed like a lot to pay for 25 million users - particularly when Facebook had hundreds of millions.

But Instagram allowed advertisers to advertise in ways that Facebook couldn’t. And Mark Zuckerberg knew that advertising was key to the survival of social media. Fast forward to 2021 and Instagram has 1 billion users.

3. When the right company appears, acquire: Walt Disney Co. and Pixar acquisition

Some of the best acquisitions are opportunistic. Just because a company isn’t actively looking to make acquisitions doesn’t mean that undertaking M&A is a bad idea.

A number of factors can conspire to make buying another company a good idea when least expected. On the rare occasions when these deals present themselves, you’ll be able to identify them because both sides of the transaction will know that a deal makes perfect sense.

This was what happened when Disney acquired Pixar in 2006. The two had a distribution agreement which was coming to an end and had to be renegotiated. But as soon as both sides considered it, a merger made far more sense.

The synergies were huge. Best of all, Disney was able to acquire Pixar with a share deal that valued it at a premium of less than 5% of its going market price.

A match made in heaven.

7 Steps to a Successful M&A Deal (Useful Guide)

Learning from Failures

Here are examples of acquisition failures:

1. Underestimating culture: Amazon and Whole Foods acquisition

Underestimate culture at your peril. Perhaps culture in M&A isn’t given the importance it deserves because  it’s considered the ‘soft’ side of a deal.

A litany of failed deals owing to culture clashes between two companies shows what a colossal error this is. When Amazon acquired Whole Foods in 2017, from the outside, it looked like a match made in heaven.

Amazon had a way into the grocery market, and Whole Foods instantly overtook its rivals in technology.

Only everybody forgot culture. Amazon, whose culture is largely based on efficiency and making incremental gains using technology, runs contrary to the more traditional and homespun values of Whole Foods.

In a way, the whole point of organic food is that it’s not efficient. It’s quality at the cost of efficiency.

Although the two companies remain an entity, it’s now generally accepted that their cultures were far too misaligned from the outset for the deal to be a success.

2. Rushing due diligence: Caterpillar and ERA acquisition

As soon as a company makes the decision to undertake a transaction, there’s an inherent desire to get the deal done.

This desire shouldn’t overtake the necessity to make sure that everything is in order beforehand.

The example of western companies trying to get on the China bandwagon through acquisitions at the turn of the century is littered with examples of companies failing to take ample due diligence in order to just get the deals done.

One such example is provided by Caterpillar and ERA in 2002. On the surface, Caterpillar was acquiring an industry leader in China, giving it the ideal launchpad into the world’s largest coal market.

Underneath the surface?

ERA’s coordinated accounting misconduct which had gone on for years. Caterpillar was cavalier in its attitude to due diligence . The result was a $580 million write down in the value of the target.

3. Overestimating synergies: News Corporation and MySpace acquisition

M&A synergies may be the most commonly cited reason for executives for undertaking mergers and acquisitions. As a rule, the bigger the deal, the bigger the estimated synergies from the deal will be.

And while synergies usually do exist, so does the temptation to overstate them. A sort of built-in bias in dealmakers’ thinking.

A Bain survey of executives showed that around 60% of them state that they’re guilty of overestimating synergies from deals.

Mixing new with traditional media provides ample cases of companies overpaying for new media with the idea that it will generate huge synergies.

The case of News Corporation acquiring MySpace for $580 million in 2005 is a case in point. News Corporation, with its speciality in delivering media adverts, thought Myspace would generate $1 billion in synergies per year.

A huge overestimation. Some years later, it was divested for a figure of $35 million .

The 8 Biggest Mergers and Acquisitions Failures of All Time

Top 10 reasons why mergers & acquisitions fail.

There’s no need to reinvent the wheel every time you decide to participate in mergers and acquisitions.

There are enough deals that have been concluded - good and bad - that can be learned from. Even if the examples aren’t associated with your industry, or the companies are several sizes the size of your own, take some lessons from each.

Applying them gives anybody a good roadmap on their M&A journey.

Set yourself up for success!

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Tata Group and Air India: Successful Acquisition Means Acquisition of People

• By: Nidhi Maheshwari & Divya Mishra
• Publisher: SAGE Publications: SAGE Business Cases Originals
• Publication year: 2023
• Online pub date: January 02, 2023
• Discipline: Human Resource Management (general)
• DOI: https:// doi. org/10.4135/9781071915196
• Keywords: air , airlines , aviation , customers , government , India , market share , organizations , public sector , team leadership Show all Show less
• Contains: Teaching Notes Region: Southern Asia Industry: Air transport | Transportation and storage Organization: Air India | Tata Airlines Organization Size: Large info Online ISBN: 9781071915196 Copyright: © Nidhi Maheshwari and Divya Mishra 2023 More information Less information

Teaching Notes

On 27 January 2022, the Tata Group, a strong player in the aviation industry, acquired the debt-laden Air India airline with the ambition of making the latter a world-class airline. The Tata Group has a strong presence in the in the aviation industry: it has a majority share of AirAsia and has taken part in joint ventures with Vistara and Singapore Airlines. With the combination of the two airlines, the Air India acquisition presents the Tata Group with an opportunity to create synergies and become the second-largest domestic carrier in India (after IndiGo). The key focus areas during the acquisition are to reward management and to improve management performance, process alignment, organizational structure, employer branding, employee engagement, and retention. A committee of 40 members (Krishna Veera Vanamali, 2022) and a 100-day revival plan was formed to revamp Air India thoroughly. The case study examines the challenges organizations face in the aftermath of a merger and problems related to processes, systems, and people for successful acquisition. Integration and alignment of the acquired entity need to be well planned, taking care of discords and synergies for balancing the employee organizational expectations and needs. The case emphasizes the integration of various HR functions. The case also discusses integration tools and tactics that can be used during a successful acquisition. Students will be asked to analyze the critical issues that an organization faces while acquiring a company with a distinct corporate culture.

Learning Outcomes

By the end of this case study, students should be able to:

• describe the numerous management challenges faced by an acquiring firm as it seeks to merge the employees of the acquired firm with existing employees;
• discuss the critical role of leadership and corporate culture in the successful acquisition of a government-owned organization by a private organization, each of which has a nationally recognized presence;
• describe the numerous people-management challenges faced by a firm after an acquisition
• describe the relevance of expectation-planning and stakeholder management for a successful acquisition.

Introduction

N. Chandrasekaran, Chairman of the Tata Group, was seen working in the corporate office of the Tata Group in Mumbai, waiting for the Air India divestment process to end. It was 4:03 p.m. on October 8, 2021, when Tuhin Kanta Pandey, a secretary of the Department of Investment and Public Asset Management, started presenting the whole divestment process of Air India, the national carrier. At 4:12 p.m., Mr. Pandey announced that the Tata Group had won the bid with USD 2.25 billion, beating the bid of USD 1890 million (INR 15,100 crore) by SpiceJet’s Ajay Sing ( Air India: Struggling national carrier sold to Tata Sons – BBC News, 2021 ) N. Chandrasekaran was happy that Air India was, after 67 years, again part of a Tata enterprise.

Jehangir Ratanji Dadabhoy Tata, a pioneer of Indian aviation, launched Air India as the first national carrier in 1932. Air India was finally handed over to the Tata Group on 27 January 2022, when the Tata Group chairman N. Chandrasekaran met Prime Minister Narendra Modi to conclude the process ( Figure 1 ). Prime Minister Narendra Modi was overjoyed with the first major privatization of any public sector company since he came into power in 2014. N. Chandrasekaran announced to the team members and Air India personnel that:

The Tata group is overjoyed to have been named the winner of the AIR INDIA bid. This is a historic moment, and owning and operating the country’s flag carrier airline will be a once-in-a-lifetime opportunity for our Group. Our goal would be to create a world-class airline that will make every Indian proud (“Air India Privatisation HIGHLIGHTS: Tata Wins Bid to Buy Air India for INR 18,000 Crore | the Financial Express,” 2021).

Figure 1. . Discussion Between Tata Sons Chairman N. Chandrasekaran (left) and Prime Minister Narendra Modi (Right) to Conclude the Acquisition Process

Source: https://www.livemint.com/news/air-india-handover-tata-sons-chairman-n-chandrasekaran-meets-pm-modi

With the purchase by the Tata Group of state-owned Air India for USD 2.25 billion ( Times of India, 2021 ), the conglomerate will have immediate access to valuable airline rights and landing platforms, allowing them to regain market share from foreign rivals.

However, industry insiders cautioned that success will be a lengthy and arduous process that may cost more than USD 1 billion and need the company to address a slew of issues, including its aging fleet, poor service, and a lack of a dynamic CEO.

Indian Aviation Industry

The Indian aviation industry in 2020 was worth USD 359.3 billion (in terms of global market size of the industry) and is estimated to have increased to USD 471.8 billion by 2021 ( Global airline industry market size 2018-2021, 2021 ). In 2018, the Indian aviation sector was the fastest-growing sector in the country, and the ninth-largest domestic aviation industry globally. By 2020, Indian aviation was the third largest after the United States and China and is forecast to be the largest by 2030 ( The Economic Times, 2022 ) ( In the next 10–15 years, India’s hypercompetitive aviation sector will be one of the largest “domestic civil aviation industries” globally.

The Tata Group was founded in 1932 by Jehangir Ratanji Dadabhoy and had a substantial presence in the aviation industry. The Tata Group was constantly touching the skies with its airline portfolio of 51% market stake in Vistara and a joint venture of 84% of AirAsia India ( Tata’s Air India coup to shake up Indian airline sector, 2021 ), with Singapore Airlines owning the other 49% market share in the aviation industry. The two joint venture airlines have different business models and run independently, with AirAsia as a low-cost carrier and Vistara as a full-service carrier. AirAsia was known for building its brand with an excellent customer experience and highly efficient services. Vistara was the highest-rated airline on the airline ranking platform Skytrax and Tripadvisor, a consumer platform. With 2,000 employees each at Vistara and AirAsia India, the Tata group has the potential to surpass their competitors IndiGo and SpiceJet in the near future.

Tata Airlines to Air India

In July 1946, Tata Airlines was converted into a public limited company named Air India. The Government of India acquired 49% of the stakes in 1948 after India stepped toward independence. Air India had a fleet of 140 long-haul aircraft that flew to approximately 41 international and 72 domestic destinations, accounting for 10.9% of the domestic airline industry ( India: Domestic airline traffic share by passengers, 2021 ) represented by the number of passengers ( Figure 2 ) and 11.6% of the market share ( India: Market share of airlines based on international traffic 2021, 2021 ) based on international traffic ( Figure 3 ). The Air Transport Inquiry Committee in 1950 proclaimed that Air India was proving successful as India’s national carrier. Later, in 2007, Air India was merged with the low-cost carrier Indian Airlines by the Government of India ( Figure 4 ) to form the National Aviation Company of India Limited ( The rise and fall of the Maharaja, 2018 ).

The horizontal axis lists the values and ranges from 0% to 55% in increments of 5. The vertical axis lists the Indian airline brands. The data from the graph are tabulated below.

Figure 2. . Market Share of Airlines in India as of May 2022

Source : https://www.statista.com/statistics/575207/air-carrier-india-domestic-market-share/ accessed on May 13, 2022

The horizontal axis lists the values and ranges from 0% to 14% in increments of 2. The vertical axis lists the Indian airline brands. The data from the graph are tabulated below.

Figure 3. . Market Share of Airlines in India Based on International Traffic 2020

Source : https://www.statista.com/statistics/643889/market-share-of-leading-airlines-india/ accessed on May 12, 2022

The details from the timeline are depicted as follows.

1932: Nations first carrier TATA airlines launched.

January 2020: Government invites E O I to sell 100% stake.

September 2021: TATA GROUP and SpiceJet Ajay Singh as financial bidder.

1953: Air India Nationalised.

May 2018: Bids not received.

October 8, 2021: TATA Group bids for 18000 crore.

1994-1995: Private player emergence, Air India market share decline.

March 2018: Expression of interest (E O I) invited to sell 76% stake.

January 27, 2022: TATA group gets Air India ownership.

2000 - 2001: Government fails to sell 40% stake of airlines.

2007: Air India merged with Indian airlines, losses increased.

Air India back to TATA GROUP after 67 years.

Figure 4. Phases of the Air India Acquisition

Source : Created by authors from various sources.

The merger of the two airlines led to a series of problems, namely clashes in the company cultures, continuous strikes by employees, human resource problems, inefficient compensation packages, the failure of the HR department to solve the conflicts, aging staff, corruption in the hiring process, and repeated customer complaints related to the poor quality of services ( Agrawal et al., 2020 ; Economic and Political Weekly, 2011 ; Sen, 2012 ).

Since the merger in 2007–2008, neither Air India nor Indian Airlines made a profit. In fact, Air India started sinking into a massive debt trap due to incompatible working operations, remuneration, entitlements, and work culture ( Gupta, 2015 ). According to the Annual Reports of Air India ( Figure 5 ) for the financial year 2020–2021, the total airline debt was USD 878.17 million. The Government of India supported Air India by spending millions for a fresh equity infusion to cover the operating expenses of Air India. Government efforts failed as the situation was becoming increasingly untenable ( India Today, 2022 ). The question became how long Air India would survive on government support to recover its expenses. The value of Air India has significantly decreased during the last 20 years, according to the government. When businesses are not handled in a way that fosters competition, their value is steadily eroded as they become more out of touch with their target markets, customers, technology, and necessary skill sets. Therefore, the government desired targeted stakeholder-centric management, and acquisition was the end result ( Tatas back in Air India cockpit, 2022 ).

The details from the statement are as follows.

Figure 5. . Air India Statement of Profit and Loss for the Year Ended 31 March 2021

Source : Internal company documents – https://www.airindia.in/images/pdf/17-Annual-Report-of-AAAL-2021-EN.pdf

Strategic Disinvestment of Air India by Indian Government

The strategic disinvestment of Air India and its five subsidiaries was approved in June 2017 by the Cabinet Committee on Economic Affairs. The Air India Specific Alternative Mechanism or Panel of Ministries was formed for privatization. The Government of India announced the deal in June 2020 by inviting an expression of interest. It stated the opportunity to get a 100% stake in Air India, 100% in Air India Express, and 50% in the ground and cargo handling company AISATS. On October 8, 2021, the divestment process was over when the Tata Group acquired Air India for Rs 18,000 crore. A government mega-privatization program was kicked off when a subsidiary of the Tata Group’s holding company, Talace Private Limited, took over the debt-ridden airline. The ownership of Air India was transferred to the Tata Group on January 27, 2022, which marks the first major total privatization of any public sector company in India. N. Chandresekaran, Chairman of Tata Sons Vijayaraghavan, 2022, said: “We are excited to have Air India back in the Tata Group after 67 years and are committed to making this a world-class airline. I warmly welcome all the employees of Air India to our Group and look forward to working together.”

Post-acquisition, the Tata Group has a 34% domestic market share Mishra, 2022 in the overall Indian market, including Vistara airlines (8.3%), AirAsia India airlines (5.2%), and Air India airlines (20.3%). After acquiring Air India, the Tata Group emerged as the second-largest domestic airline in the country after IndiGo ( Figure 6 ). In addition, the Tata Group will have access to hundreds of planes and thousands of qualified pilots and personnel. Aside from the 900 attractive parking positions internationally (including Heathrow), it will receive 4,400 domestic and 1,800 international landing and parking slots in India.

The details for the airline operators are tabulated below.

Figure 6. . Market Share of Airlines Operating in India, May 2021

Source : Directorate General of Civil Aviation. Note: In the figure, load factor refers to percentage of available seating capacity filled with passengers and passengers ferried (lakh ) is the number of passengers carried by the airlines.

In addition to the profit motives mentioned above, a major incentive for the purchase was that, after 97 years, the airline was returned to its original owners. It has sentimental meaning for retired chairman of the Tata Group, Ratan Tata, who believes that this acquisition will boost the group’s position in the industry and restore the grandeur of the past.

Tata’s Post-acquisition Challenges

N. Chandrasekaran and his team of advisors had to address many issues that required careful and thorough analysis of the discords and synergies between the airline brands. Bottlenecks will inevitably develop in the establishment of a uniform seniority, rank, and remuneration system, in addition to issues related to cultural integration. Previous acquisitions demonstrate that resistance is typically so strong that pilots refuse to fly the planes of other airlines that join the acquisition, defeating the whole goal of the acquisition. The business community, employees, and union representatives see this deal as a potential model for future government privatizations. A strong sense of long-term trust must be developed between the unions and the Tata management. In order to recover competitiveness, personnel must be willing to endure the necessary “pain.” This is only possible with credible leadership that is capable of controlling this giant.

In the aviation industry, Tata is in a unique position to attract the best talent. Based on individual employees’ future needs and potential, a timely and prudent decision must be made to retain the workforce. Air India’s workforce is its greatest asset. Some of the top pilots and aircraft engineers are Air India employees. The main obstacle in this situation will be integrating people. A total of 8,500 Air India employees need to be retained by the Tata Group. N. Chandrasekaran was particular about four core areas ( Tata Group revamps Air India, 2022 ) to be worked upon in Air India: making it the most technologically advanced airline globally, providing best-in-class customer service, hospitality – both in-flight and off-flight, and upgrading and modernizing the airline fleet. Tata should adopt strict measures from the start of the integration process to ensure transparency in decision-making and operations. Top management was expected to explain the desired working methods and create realistic goals. Tata should establish a structure and command chains and appoint people with similar mindsets to lead the system.

The thorough revamp and the integration of Air India kicked off with the “100-day plan for improvement.” The Tata Group formed a large committee, including N. Chandrasekaran as the chairman of Air India, existing functional directors as advisors to N. Chandrasekaran, and Air India employees, to provide support, insights, and guidance for the transformation of Air India. Former HR head of Air India, N. K. Jain, cautioned that managing employees would improve airlines' efficiency by “improving the overall operations processes that can save 15 to 20% cost and reduce redundancies and wastages. A transparent rostering system should be formed for cabin crew members and the cockpit to remove employees’ 40% of complaints” ( The Economic Times, 2022 ). The main focus would be on addressing the immediate concerns of Air India, such as improving on-time performance, enhancing in-flight services, faster resolution of passenger complaints, fostering a corporate culture, upgrading and maintaining the fleet, and removing inferior cabin equipment on older aircraft. Tata needs to properly manage the integration of Air India and Air India Express with AirAsia and Vistara for a successful acquisition.

On January 21, 2022, Tata Group started a social media campaign ( Figure 7 ) named “Wings of Change” to improve the brand image of Air India airlines. Vasudha Chandna, executive director of Air India, issued a list of Standard Operating Procedures on January 27, 2022 ( Sirower & Weirens, 2022 ) to be followed by cabin crew members, such as “crew members should wear minimum jewelry, avoid consuming beverages and food during and before onboarding processes, closing aircraft’s door on time and many more… To improve the passenger experiences of Air India, Tata has taken specific measures such as “crew members should be well-groomed and smartly dressed, treat passengers as guests, ensure excellent service quality and safety standards, enhanced meal services for passengers.” The online article Tata Group revamps Air India (2022) announced that Ilker Ayci would be appointed as Managing Director and Chief Executive Officer of the recently privatized Air India. Former Turkish Airlines Chairman Ilker Ayci declined the offer on January 17, stating political controversies as the main reason. The decline turned into a major setback for the new owner of Air India and created a new challenge: finding a new CEO for the recently privatized airline.

The comments reads as follows.

Hashtag FkyAI: We’ve heard you and we look forward to giving you what you’ve asked. We’re making a commitment today. We have been the wings of a nation. Now, we will also be the wings for its future.

Welcome to a new era. Hashtag Wings of change Hashtag ThisIsTata hashtag TataAirIndia.

Figure 7. . Wings of Change Campaign

Source : The “Wings of Change” Twitter campaign launched by TATA GROUP

Following this, N. Chandrasekaran, on February 16, 2022, addressed Air India Employees and outlined the group’s "Plans for Revival” ( Air India; culture change when PSU turns corporate, 2022 ): namely, Tata Group will make efforts to make Air India a world-class airline globally. The entire group will work to improve the flying experience of the passengers and expand the footprint of Air India. Air India will gain customers' confidence again by flying on time and changing customer experiences from the food served to welcoming guests. To regain the brand image in the international market, Tata Group will work on aircraft modernization, expanding networks, and deploying more wide-body aircraft with new services and experiences. Tata Group has assured that 10,000 employees of Air India will not be retrenched for one year and will be eligible for all benefits, such as Provident fund rights, passage rights, retirement, and medical benefits, according to the guidelines of the airline business. On April 15, 2022, Tata Group overhauled the entire Air India board ( Tata chalks out 100-day plan to make Air India soar higher again, 2022 ) to build synergies, including the Chief Financial Officer, Chief Operating Officer, and commercial technology HR advisors. Four new appointments were made, mainly from the Tata Group itself, including the Chief Commercial Officer (CCO), Chief Human Resources Officer (CHRO), Head of Customer Experience and Group Handling, and Chief Digital and Technology Officer. Therefore, the immediate HR functions that the Tata Group needs to perform after the acquisition process of Air India are compensation management, performance management, process alignment, restructuring of organizational structure, employer branding, employee engagement, and retention.

Public Sector Air India Turns Corporate: Aligning People Strategy With Different Cultures

Air India gets a new lease on life under Tata’s leadership. There have been many instances where the Tata Group has taken over private entities. However, the Air India acquisition marks a historic event because, for the first time in the history of Indian aviation, a private business took over a public sector undertaking (PSU) to turn it around and make it profitable again. The most significant aspect of the acquisition process was adequately comprehending the cultural subtleties of the companies involved. There would undoubtedly be difficulties and setbacks with Air India personnel going from a government job to a private job: “Benefits such as free family travel, free housing, lifelong postretirement benefits, etc., may be reduced to meet private-sector norms” ( Krishna Veera Vanamali, 2022 ). The crew members’ maximum age will also be reconsidered to align with private guidelines. Many non-core functions will be outsourced, such as ground handling, belly space (cargo) optimization, and line maintenance. Labor unions may lose bargaining power since a private-sector employer may not have the same lenient standards as a public-sector employer. Air India may bring in younger personnel, raising salaries to compete with other private sector players. Tata Group will work to change the mindset of Air India employees as they are accustomed to old ways of doing things, and The top management will make clear and frequent communication with Air India personnel to instill the vision and culture of Tata Group.

PSU-based personnel are not used to high corporate customer-centric standards and performance assessment systems; thus, adjusting was difficult. To match the expectations of the high-performing culture, Tata Group gave Air India employees a value proposition with a meaningful purpose and linked the organizational strategy and vision with the reward strategy. Tata Group is well known for its ethics, culture, and employee wellbeing. Therefore, Tata Group management was under pressure to maintain the same reputation and work on cultural alignment. N. Chandrasekaran and his team rolled out a 100-day plan to prioritize Air India’s service standards, airline operation, modernization plans, technological advancements, and customer satisfaction. The turnaround story of Air India would serve as a model for the success of India’s ambitious privatization program over the next few decades.

100 Days Revival Plan for Successful Acquisition of Air India

Tata Group formed a 40-member committee on January 27, 2022 ( Krishna Veera Vanamali, 2022 ), soon after acquiring Air India, to enhance the passenger experience, improve the airline’s customer services, and improve aircraft conditions. The committee is working continuously to change the attitude, perception, and image of Air India employees toward their customers. A four-member committee was also formed to give continuous guidance to the 40 members, and works toward the timely resolution of customer complaints and a seamless customer experience. The airline also launched a help desk on January 28, 2022, to cater to customers’ needs and continuously enhance customer experience during the onboarding and ticketing process. Ratan Tata’s recorded message was broadcasted on all Air India flights to make Air India an employer of choice.

Organizational Design

On April 15, 2022, Tata Group rejigged the Air India board and inducted veterans from the Tata Group to finalize the senior management teams and executive and non-executive directors. Four Air India boardmembers, namely the , CCO, CHRO, Chief Digital and Technology Officer and Head of Customer Experience and ground handling

Performance Management

After the acquisition process, N. Chandrasekaran and Suresh Dutt Tripathi intended to integrate 2,000 experienced engineers and 1,500 well-trained pilots into the talent bank of AirAsia and Vistara airlines ( Modgil & Modgil, 2021 ). Therefore, it was essential to retain the top talent and maintain employee engagement and retention for the coming year. Keeping this in mind, the Tata Group focused on performance management. The Tata Group started restoring the salaries of Air India employees who were forced to take significant pay cutbacks because of the COVID-19 pandemic. From April 1, 2022, Tata Group started restoring the salaries of cabin crew members and pilots and restructured the allowances and wages to align with other airlines ( Sirower & Weirens, 2022 ). The employees’ salaries were restored by almost 75%, pilots' flying allowances were restored by 20%, pilots’ special pay and allowances were restored by 25%, and officers’ allowances were restored by 25%. The gross emoluments of Indian employees based at foreign locations were restored by 5% to a maximum of USD 150.

Similarly, gross emoluments of India-based officers were restored by USD 150. Amrita Sharan gave a memo to the employees of Air India stating that salary cuts have been reviewed and restored since April 1, 2022. Salaries will be further increased in line with the improvement in the performance of Air India in the coming years.

Employee Welfare Measures

According to the plans made by the Tata group, they would take over the 12,085 employees of the Air India airlines, with 8,084 as permanent employees and 4,001 as contractual employees. After the takeover, employees of Air India would be retained for one year, and their performance would be reviewed. In the second year, Tata Group would provide a voluntary retirement plan to those employees with poor performance. Tata Group will work to honor all the benefits and align them with other airlines ( Modgil & Modgil, 2021 ), namely pension fund, gratuity, and postretirement medical benefits. The government will provide medical benefits to eligible existing employees (55 years of age or completed 25 years of service), retired employees, and spouses. The retired employees of Air India, approximately 50,000 people, will get the Central Government Health Scheme (CGHS) facility and National Health Insurance schemes for outpatient and hospital requirements.

Additionally, employees of Air India will be brought under the Employees Provident Fund (EPF) scheme. The Employee Provident Fund Organization (EPFO), announced on January 29, 2022, demonstrates the acceptance of the airline’s application to provide social security coverage by providing security benefits to Air India employees ( Figure 8 ).

The comments from the handle reads at the rate socialepfo onboards Air India for social security coverage to service the social security needs of their employees.

The benefits will be provided to around 7,453 employees.

Read more: pib.gov.in / PressReleasePa…

Logo of Employees’ Provident fund Organisation. India.

Figure 8. . Employee Provident Fund Organization (EPFO) Announcement to Provide Social Security Coverage

Source : Press Information Bureau Twitter account

The free travel facilities given to Air India employees will be removed, and only retired employees will be allowed to obtain free travel opportunities. The employees will be allowed to live in residential colonies (airline owned residence) for six months from the date of acquisition. According to EPFO, social security benefits will be granted to approximately 7,453 employees for whom Air India has filed contributions with EPFO for December 2021. Employees will receive an additional 2% employer contribution in their Provident Fund accounts at a rate of 12% of their earnings. They will be entitled to a minimum pension of INR 1,000 and pensions for their families and dependents in the event of the employee’s death. Employees will now be covered by the EDLI 1976, EPF Scheme 1952, and EPS 1995. In the event of a member’s death, assured insurance benefit of at least INR 2.50 Lakh and up to .INR 7 Lakh will be provided. This benefit will be provided at no cost to EPFO members.

The Continued Challenge

The Tata Group now has four airlines – Air India, Air India Express, AirAsia India, and Vistara – and handling them and their various offerings is tough. Air India’s new path to reclaim its lost glory under the Tata Group will be laden with challenges such as inferior cabin items, outdated aircraft, and human resource issues. The success of the much-discussed privatization will rely heavily on the seamless merger of the group’s existing air carriers with the formerly government-owned airline. The salt-to-software conglomerate’s plan to turn around the national flag carrier has sparked discussion. Experts and global competitors envisage the airline becoming a challenger in the international sector.

Air India’s regular travelers described the journey experience while flying from Delhi to Chennai. Travelers assumed that nothing had changed when not given the option of a vegetarian or nonvegetarian lunch during the journey. Four days later, travelers were pleasantly surprised to be given an option, and by the flight attendants’ firm demeanor, and kind and polite nature, on the return flight. Even better, the flight was 20 minutes ahead of schedule. The travelers stated that “the general opinion of people related to Air India is changing quickly after acquisition.” In the last week of December last year, people tried booking flights from London to Mumbai, but all tickets were sold out. Travelers also faced many problems; for example, one of the passengers on Air India’s international routes to Europe and the United States complained about a shortage of wi-fi. Some seats on the flights lack even in-flight entertainment systems. The Air India app was also not working, which caused problems when the flight was delayed from 9:30 a.m. to 11:30 a.m. A passenger from Air India stated that there is no difference seen between the Air India run by the Sarkari (government) and the private sector.

The turnaround story of Air India serves as a model for the success of India’s ambitious privatization program over the next few decades. The 100-day revival plan paved the way for tapping the maharajah mascot. The question remains unanswered whether 100 days were sufficient to make the acquisition successful or whether the Tata Group needed to take baby steps and keep making plans for three, six, and 12 months to achieve the desired results. Turnaround takes time, and consistent efforts matter a lot in the long run. Another intriguing question that needs to be addressed is how the Tata Group will revitalize Air India, given that it currently owns two failing airlines, Vistara and AirAsia.

Discussion Questions

• 1. Describe the key challenges faced by the Tata Group in their effort to successfully merge employees of the acquired Air India with their current AirAsia employees.
• 2. Evaluate the steps taken by the Tata Group to ensure successful acquisition planning and execution.
• 3. What did N. Chandrasekaran do to set the stage for the anticipated cultural change that the employees of Air India were about to encounter? What are the key design choices Chandrasekaran made in the acquisition integration program?
• 4. If you were N. Chandrasekaran, how would you choose your leadership team among the Tata and Air India employees?

Further Reading

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

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