01. Scale
Growing in scale allows TMT companies to access more customers, to spread large investments across a broader customer base, to gain synergy savings and at the same time increase their buying power when negotiating content and partnership deals with the US giants.
02. Quad play or convergence
Many of the deals in the UK and European TMT sector will allow these joint entities to offer more products to their customer base. The long-awaited monetisation of quad play deals is seen as both a revenue generator, but also a defensive churn reduction mechanism.
03. Efficiency
The UK and European TMT sector is one of the most highly competitive markets in the world and M&A enables companies to drive down their cost base and offer lower prices to their customers while maintaining, or improving, margins.
04. Shareholder returns
Long term corporate shareholders and Group parent companies are looking to monetise their stakes in these businesses, to ward off predatory buyers and unlock hidden value and higher valuations.
05. Obtaining more capabilities, fast
Accessing new products and capabilities that can help the companies accelerate their transformations and quickly take advantage of the disruption in the market. For example, Telecoms and Media companies becoming more like Technology companies, driving platform businesses, and accessing new customer segments.
Opportunities from M&A
In addition to the five main drivers, there are also a number of other benefits that M&A can drive:
1. Being a catalyst for change
Due to the historical pace of change in the industry many
Telecoms, Media and Technology companies recognise that they might
have an outdated operating model for today's business environment.
It is, however, often very difficult to make the case for changing
the Operating Model when the management team is focused on
day-to-day trading in an aggressively commercial world.
This can be short termist and reduce shareholder value over the
long term. M&A forces a business to re-think its operating model
and gives it an opportunity to re-base its operation to be more
relevant to the future trading environment and to move to new
business models and bring on new capabilities, for example,
digital, agile, platforms.
2. Delivery of synergy savings
M&A, if planned well, helps organisations deliver short term and
more strategic synergy benefits. Near-term benefits from legal
entity rationalisation, head office synergies and procurement
savings, through to more strategic savings in networks
(consolidation/wholesale) and IT rationalisation. Also, improved
Revenue Generating Units (RGUs) and Average Revenue per User
(ARPU), resulting from new and more integrated products and
services. If managed well, the efficiencies can make the combined
organisation more competitive and the revenue benefits can drive
improvements in market share and ARPU.
3. The challenge of the status quo
All organisations have a list of operations that have been set in stone for years, that are difficult to challenge - for example, the move away from engineer installs to self-install, breaking down product siloes and product P&Ls to move to a more customer-centric P&L, how far to drive the self-service and online agenda, how much high street presence to have (if at all).
M&A allows both businesses to directly compare their operations and, if managed well, can be used to challenge the status quo and to transform – usually to the benefit of the P&L.
4. A refresh of management and better engaged workforce
M&A gives both the opportunity to retain top talent by promoting them into larger roles in a larger business, as well as the ability to replace less able/relevant management via the integration process. If selected people in management positions leave as part of an integration, it gives opportunity for progression to more junior staff – something they might not have achieved during the status quo. Therefore, a well-managed integration can leave the business with a refreshed leadership team and a more engaged work force.
A well-managed integration can leave the business with a refreshed leadership team and a more engaged work force.
Forewarned is forearmed
- Take the time to plan properly
- Look at the triple constraint of financial outcome, scarce resource and ability of the business to absorb the change.
- Prioritise ruthlessly, be ambitious but realistic and make sure the Integration Leadership Team raise all potential conflicts early, to drive decisions.
Division of labour
- Clear, visible leadership from the CEO and the Exec for both Integration and BAU trading priorities.
- It is imperative that a cadre of senior management is 100 per cent focused on trading, on the market and on competitor activity.
- It is equally important that another cadre of management is focused on integration and delivery of a successful Day One, as well as setting up the synergy programme for success (a strong, proven integration team).
- These teams must work together but you will need to make sure your management team is set up for success - don't expect them to focus on all areas, otherwise something will drop - and that something could have a larger than normal financial impact.
Clarity of integration
Clarifying the purpose and scope of integration and actively managing scope creep is essential to successfully delivering the benefits from M&A.
Being clear on the purpose of integration
- Set a clear and detailed description for the purpose and scope of integration.
- Communicate it consistently and regularly throughout the business.
- Closely monitor the programme to minimise scope creep - otherwise an already difficult delivery becomes increasingly hard to achieve
- Be clear on what is to be delivered as part of 'integration', what will be delivered 'post integration' and how this will be delivered e.g. continuous improvement or a dedicated Operational Efficiency programme.
Clarifying the purpose and scope of integration and actively managing scope creep is essential to successfully delivering the benefits from M&A.
Being flexible on synergies and not declaring success too early
Because of confidentiality sensitivities surrounding deals, synergy cases are usually written behind closed doors, by a small group of strategy consultants, banks and company leadership.
The synergy benefits are typically directionally correct (in terms of scale of opportunity) but often need to be re-worked by operational management once they are communicated more broadly into the business.
It is a balancing act to deliver these synergies. It is important not to walk away from the macro synergies – these, after all, are the rationale for the deal. Having said that, it is the operational management who have the best view of how to deliver these synergies in the best way, for lasting effect – and many will not have been involved in the synergy case definition.
Take, for example, quad play. Many telco merger synergy cases have quad play at the heart of them. Quad play can sound attractive but can also be value destroying if managed poorly. Front line sales, marketing and customer management leadership will have the best view on how to execute this.
Being firm on the quantum of the synergy savings is key, but being flexible on how they are delivered is crucial to delivering ongoing, sustainable value.
Likewise the timing of synergy savings is important – expectations have been set with shareholders and Boards. It is important to drive these synergies at pace, to drive the operational and financial improvements.
However, we also see many examples where success has been declared, companies have told the market that integration has been completed, yet on the ground the integration feels anything but complete – different technology stacks exist with high levels of technical debt, speed to market for new products is slow, and businesses struggle with agility resulting in a poor customer and employee experience.
Setting key timelines at the start of integrations is common place (Day one, brand launch etc.), however it is just as important towards the latter stages of integrations.
Synergy execution
- Set a clear target for synergies and stand behind them
- Give operational management flexibility on how best to achieve these
- Don't declare integration success too early leaving the business with years of inefficiencies which impact profitability and customer experience
Set stretching synergy goals, but empower operational management on how best to deliver.
People don’t like to be kept in the dark
M&A is an incredibly stressful time for staff and management alike and people are already under unprecedented levels of stress amid the impending financial downturn.
People like to be communicated to and kept aware and it can be difficult to do this during M&A deals – as the deal is coming to fruition it is rightly kept secret. While it gains regulatory approval you want to avoid the business getting distracted by the deal when there is still a chance it may not come to fruition. When the deal is approved, there is often a period of uncertainty during consultation and people re-interviewing for their jobs. All the while, everyone is working hard to prepare for Day One, deliver the plan and present to the City or shareholders on synergy savings.
Throughout this cycle, people are often under-communicated to and, as we mention above, people will be thinking about different things when a deal is announced – from calculating their potential pay out, to worrying about career prospects.
People in the TMT sector are often already working flat out and may be carrying vacancies in their team, so they may not be set up to cope with the additional level of new workload coming from integration. If communication is poor and people don’t understand the integration plans, the business priorities, their own future roles, their new ways of working, the degree of extra workload ahead of them (and associated timelines and resource commitments and when there will be a return to BAU), then the M&A will quickly feel arduous and this will create an enormous people risk.
If people in key roles exit the business, or the level of stress related sickness increases, then the business will be weakened and their ability to deliver the synergy case and compete in an aggressively competitive market will dwindle.
Given that it is people that make a successful company, and that M&A offers companies the ability to refresh their leadership teams, this is an area which needs constant and regular focus throughout the deal cycle. It is all too easy to focus on delivering a successful Day One, preparing for brand/product launches and synergy savings, and looking at bottom line performance without focusing on the people and communication aspect until it is too late.
People and good communications are critically important
- People are your number one asset as a business and you must prioritise them.
- You want your people to be engaged by the proposition of becoming a different company, brought into new ways of working and you want to recognise that you will be asking a lot of them over the next two to three years during an extremely busy and intensive period.
- Therefore, the people agenda must be front and centre of any integration planning.