October 11, 2016
Megadeals in the Entertainment, Media and Communications (EMC) sector pose a unique set of challenges along the value chain, particularly with people, technology platforms and partnerships, often creating barriers to success that are challenging even for executives with significant acquisition and integration experience. In our recent blog post, Megadeals are transforming the Entertainment, Media and Communications Sector. Here’s how., we introduced our analysis of the types of megadeals happening in the EMC space. Now, what can you do to help set yourself up for success?
To succeed, even seasoned executives should make adjustments to navigate the specific challenges associated with EMC megadeals (which we define as those where the target/acquired business is an EMC company) of at least $1 billion in size. We have identified seven critical strategies for success and how to fulfill them.
#1: Assigning Accountability
Leadership needs to focus on both the revenue driving and cost cutting aspects of the deal —and hold the correct internal parties accountable. The more effective deals tend to involve a combination of the following:
- Enhanced functional accountability – C-suite leaders in technology, sales and marketing, content, operations, and corporate functions, should be empowered and held accountable for quantification, execution, and delivery of synergies in their areas.
- Increased board governance – Risks arise when the CEO champions or directly leads the transaction; a board member should assume a co-leadership role, and the board should more actively participate throughout the acquisition process.
#2: Retaining and Relying on Acquired Management
Retention is particularly important where knowledge about a new technology and/or intellectual property is held by a small group of creative and/or technology leaders. It is also important where the company is buying large operating units and needs experienced managers in place from day one to make certain the units continue to run smoothly.
The acquiring company should assess how much it will rely on these senior managers, for how long, and their likelihood of departure, and build relationships with the second level and other sub-line leaders at the acquired company who might be able to step in and run the business unit on a longer-term basis.
#3: Valuing Cost and Revenue Synergies
Past megadeals have shown that cost synergies are more achievable than revenue synergies. For valuation purposes it is therefore beneficial to overweight cost and underweight revenue opportunities. It is a particularly tough to achieve and measure revenues tied to a big new strategic vision, or long-term assumptions that require technology integration or changing customer behavior over many months or years.
Many acquisitive companies have developed extensive M&A playbooks and invested in internal M&A capabilities. However, these playbooks may not be useful for megadeals. Given the huge size and complexity of certain deals, their unpredictability, and the higher volume of requirements across the enterprise necessary to execute these transactions successfully, leaders should step back, start with a clean sheet of paper and tailor the integration approach to the specifics of the deal at hand.
#5: Doing MORE Diligence
Despite the size and complexity of megadeals, there is sometimes pressure to fast-track the due diligence, with the net result that companies involved in megadeals often know surprisingly little about each other. For EMC acquirers added due diligence is particularly relevant in several areas. Media and Entertainment companies should understand what content and intellectual property the company will own, how to leverage it, and its value. Communications companies should understand the age, complexity, and required maintenance associated with the network/core infrastructure being purchased.
#6: Communicating Effectively
Good external communications from the moment a deal is announced is critical to explain the benefits of the deal to customers in order to retain them. Internal communication is also key when joining two very different cultures. Leadership needs a well-structured internal communications plan to put both sides at ease.
#7: Manage the Transaction as a Business Process
The business process for these types of deals must include a clear set of guiding principles and goals connected to sustaining everyday operations and capturing synergies and relentlessly focus on quantifying, reporting and executing on value capture opportunities. Moreover, the process must empower leaders to keep the integration on track by giving them latitude to make quick decisions regarding organization, people, customers and priorities–and hold these leaders responsible for communicating those decisions to customers, employees, shareholders and partners.
We see more megadeals on the horizon, and to help realize the continued transformation of the EMC sector these deals must be executed with thoughtful and skillful integration.
Check out the full report to dig deeper into the research and learn even more about how to avoid the typical megadeal pitfalls and achieve game-changing success in M&A.
If you’d like to discuss the research with our team or dig into one of the 7 strategies, please connect with one of our PwC Deals professionals: Gregg Nahass, Tom Rooney, Paul Kennedy, and Lori Bistis.