Shanghai, March 31, 2014

The latest Roland Berger Strategy Consultants THINK ACT content study identifies six key success factors Chinese companies need in order to manage the post-merger integration (PMI) process following an international M&A. These six factors are designed to help Chinese companies maximize the value of their overseas M&A, despite the hurdles of an unfamiliar business environment and lack of PMI experience and know-how.

Chinese companies are on the rise. In the past few years, they have become increasingly active in global M&A, and it appears that their appetite is not yet satisfied. As more and more Chinese companies globalize through M&A, the importance of professional PMI to fully leverage M&A benefits is becoming increasingly apparent. However, unfamiliar business environments and unfamiliar business techniques pose significant challenges to Chinese overseas PMI. To support Chinese companies in their PMI endeavors, Roland Berger reviewed more than 30 Chinese overseas acquisitions and post-merger integrations in various manufacturing sectors that took place between 2008 and 2013.

"Our review found that Chinese companies are inexperienced and lack the guidance of professional, systematic PMI," said Yi Ping, Roland Berger Partner and co-author of the study. "They therefore often fail to capture the full value of their overseas acquisitions." Of the 21 manufacturers that made overseas acquisitions worth more than USD 100 million between 2008 and 2013, 33% had no previous M&A experience at all, and 80% had no overseas M&A track record.

Roland Berger's analysis of China's overseas acquisitions revealed two main challenges facing Chinese companies: unfamiliar business environments and unfamiliar business techniques. "Chinese companies only have a short history of going global. Their unfamiliarity with the business environments in the US and Europe, coupled with their lack of M&A and PMI experience, makes for a particularly challenging situation. Even when there's a strong willingness to invest, they may not necessarily know how to go about doing so," said Christian Neuner, Principal at Roland Berger and co-author of the study.

The study, which is based on interviews, press research and Roland Berger project experience, pinpoints six key factors for a successful and systematic PMI approach:

• Fine-tune globalization strategies to the new business environment
  Gathering overseas information can be more difficult than in the familiar home market. During the actual process of acquiring a company abroad, a Chinese company needs to progressively learn more about the new business environment and the target company. Then, with a revised and more detailed understanding, the buyer can validate its M&A rationale and fine-tune its globalization strategy in order to provide direction for PMI initiatives.
• Define ambitious but achievable PMI targets
  Companies that attempt to pursue all PMI objectives simultaneously frequently fail. Prioritization is key, as is defining the specific size of the targets and the expected timeline. If the targets are not ambitious enough, acquisition value will be lost. If the targets are unrealistic or too ambitious, they will not bring the team onboard to realize the defined goal.
• Create an internationally capable organization
  Being an "internationally capable organization" depends on two main factors: 1) people, especially leaders, who are capable of working internationally; and 2) a governance model that can steer overseas business operations and performance.
• Choose the level of integration
  In order to capture the value of an acquisition, various synergies are typically considered. Each synergy requires a different level of integration. The level of integration depends on the PMI target and on which synergy sources have priority.
• Manage the psychological side of M&A
  M&A and PMI inevitably bring change to the acquired organization and its customers, suppliers and other external partners. As a result, anxiety, uncertainty and vulnerability are commonly observed emotions. Companies must take a proactive approach to tackling the psychological aspect experienced by all stakeholders early on and in a positive way in order to motivate both organizations.
• Apply systematic PMI organization and processes
  Systematic PMI execution requires a structured PMI organization with committed leadership to ensure fast decision-making. Capable, high-performing, experienced and respected individuals must lead the overall integration project and individual task forces. It also requires a set of tools for efficient, detailed PMI planning and continuous progress tracking.