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Guide to Managing Mergers and Acquisitions KPIs

Posted by Protiviti KnowledgeLeader on Thu, Feb 08, 2018 @ 05:03 PM

mergers-acquisitions-300x201_0-1.jpgFew things can be as fraught with stress and complication for top executives and business owners as evaluating mergers and acquisitions. Some mergers are consummated to capitalize on new geographic or demographic markets, expand product offerings, facilitate the acquisition of key employees, boost productivity, reduce competition by absorbing a rival company, or even more long term strategies. Whatever the reason, the process and outcome must be measured to determine if it was successful in meeting business objectives.

Key Performance Indicators (KPIs)

KPIs are generally defined as quantifiable measures used to evaluate the success of an organization, employee or process in meeting the objectives for performance. In other words, you can only really know if you did well if you know how success is measured.

This is why it is important to establish a set of well-defined and clearly stated objectives. These key objectives articulate the ideal performance results expected from the process. In this case, the business process is the complex activity of merging or acquiring another business entity. This area can be fraught with possible legal, ethical and strategic pitfalls. To ensure that the process is meeting expectations, it is important to establish the proper measurements of success.

There are three areas that will need to be established:

  • Key objectives to articulate the performance results the company expects from the business process
  • Outcome measures to determine whether the company has reached the key objectives
  • Activity measures to monitor the performance of those activities that are instrumental in reaching the key objectives

Our document on KnowledgeLeader, Manage Mergers and Acquisitions Key Performance Indicators (KPIs), provides a table of examples with key objectives for managing the legal and ethical issues, the outcome measures associated with the objective, and the activity measures that drive the outcome measure.

For example, the portion of the table below relates to improved earnings:

Key Objective

Outcome Measures

Activity Measures

Improved Earnings

Revenue Growth Rate

  • Market share in markets before the merger or acquisition.
  • Market share in new geographic areas after the merger or acquisition.
  • Revenue from sales of new products added in the merger or acquisition.

 

Cost Reduction

  • Labor Costs
  • Costs for Buildings and Supplies
  • Marketing Costs
  • Research and Development Costs

For the analysis of improved earnings, you may want to revisit the key performance indicators and apply the formula to quarterly and yearly revenue numbers and even out two, three and five years after the mergers or acquisition.

Other KPI measurement descriptions in this document include key workforce retention and retention of the loyal customer base for each company.

Before any business activity can be declared a success, the concept of success needs to be defined and evaluated with a balanced scorecard of measurements. Do you have the right performance measurements in place for your merger or acquisition?

If you find this resource useful, you can visit other benchmarking tools on KnowledgeLeader, such as the following:

Collateral Risk Key Performance Indicators

Settlement Risk Key Performance Indicators (KPIs)

Pricing Risk Key Performance Indicators (KPIs)

Topics: initial public offering, accounting/finance, performance management/measurement, KL Tools, Mergers & Acquisitions

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