Postmerger integrations are tough. Generally, the acquirer puts the target’s distinctive capabilities under its own management and then struggles to pull the two companies’ operations together. Managers often end up plugging holes in dikes instead of focusing on the core business, and, when they finally emerge from this distraction, they often find that their customers have wandered off and competitors have moved in. It’s no wonder that acquisitions so often destroy value.
If integration is so hard, why not outsource it? That’s essentially what Hungary’s MOL Group, a $7 billion energy company, did when it outsourced its finance and accounting, treasury, tax, and information technology processes in 2001. MOL plans to become a dominant player in consolidating the central European oil and gas industry. Outsourcing its support activities, says CFO Michel-Marc Delcommune, allows company managers to sidestep the distraction of aligning accounting systems and integrating staff during acquisitions and to stay focused on MOL’s core operations and aggressive acquisition strategy. According to Delcommune, when MOL acquired full control of Slovnaft, a $2 billion Slovakian energy company, in 2004, the efficiency of the postmerger integration was palpable. Because the acquisition took place in two steps—MOL had bought 36% of Slovnaft and options for the rest in 2000—the company had time to ready itself for the full merger on the horizon and deliberately delegate postmerger integration to its outsourcing provider.
This made all the difference, Delcommune says. To integrate Slovnaft, the management team assembled 26 task forces to address all the critical business processes, from how the company set wholesale prices to how it managed the supply chain. By contrast, MOL spent none of its management resources on integrating the back office.
It’s hard to measure the value of efficient integration and undistracted management. But profits and revenues are easy to track. Between 2000 and 2003, MOL’s sales doubled to $7.3 billion and its profits quintupled to $478 million; 2004 profits are expected to top $1 billion. Slovnaft turned its 2000 financial losses into a $400 million profit in 2004. That growth would have been hard to achieve, Delcommune says, if MOL had kept the back office in-house.