Mergers and acquisitions are complex deals where companies consolidate resources and assets into one entity, often with a goal of increasing market share, enhancing product offerings, or other benefits. Especially with large companies, mergers and acquisitions require precise integration management. Between 70% and 90%1 of these endeavors are not successful. This analysis will explore the 2013 merger of Office Depot and OfficeMax from the lens of project management, highlighting the two companies’ actions in the realm of the project lifecycle and more specifically with key knowledge domains.
Project management is a rapidly growing field. In 2017, the Project Management Institute estimated that by 2027, there will be approximately “87.7 million individuals working in project management-oriented roles.”2 Organizations have identified a strategic need for the development and execution of initiatives through project management. Mergers and acquisitions are the ideal setting for project management. Standish’s 2015 Chaos Report3 finds that as a project’s size increases, the success rate declines. It follows that mergers and acquisitions fail more often than not since these types of projects are relatively large.
In 2013, Office Depot and OfficeMax entered in a merger of equals with an estimated new value of $18 billion.4 In the press release,4 the companies outlined a number of strategic benefits as a result of the transaction, including synergy opportunities that would result in $400-$600 million in cost savings annually. A few months after the merger announcement, the companies signed with The Boston Consulting Group to guide the integration process and formed an Integration Management Office.5 The press release stated, “[The Boston Consulting Group] will work closely with the two companies’ integration leaders to establish a detailed integration plan that includes defining Day 1 priorities, preparing functional and synergy planning timelines, refining and establishing baselines and top-down synergies, conducting a culture assessment, and supporting the development of change management and communication plans.”5 From this release, it was clear the consulting group was already thinking in a project management perspective.
In a paper published for EconStor, Kai Lucks discusses the phases of project management in regards to mergers and acquisitions.6 Lucks writes that there are three phases in the overarching project for a merger and acquisition project – preparatory, transaction, and implementation – and that “major milestones” separate the three.6 While many people may think that a project for a merger begins upon the announcement of the intention to merge, in reality, companies launch a project to explore the possibilities of merging prior to the official announcement. Lucks identifies the formal entering of the negotiations process as the major milestone that separates the preparatory phase from the transactions phase. The overarching project lifecycle resembles the project ideation phase of a smaller project, since the ideation phase is typically characterized by exploring projects and selecting one that aligns with organizational goals.7 During the ideation phase, preliminary questions surrounding knowledge domains are explored. Lucks also indicates that integration planning for mergers and acquisitions projects begins in the preparatory phase.
The deal-making process begins in the preparatory phase but transitions into the transaction phase, and upon its conclusion, marks the end of the transaction phase.6 The longest process is the integration phase, which begins right before the deal-making process (in the preparatory phase) and ends just slightly after the beginning of the implementation phase.6 Figure 2 in Lucks’ paper (captured in Appendix A) provides a visual of the three phases and the different projects and planning stages within them.
The implementation stage is characterized as beginning once the negotiations have concluded. The implementation and controlling process also begins here and does not simply conclude once this phase is completed. As described by Lucks, “As integration progresses, there is now room for other fundamental decisions on orientation, such as corrections and follow-up restructuring…Some things take longer than others (such as ‘cultural’ integration) or cannot be initiated until a later point in time (for example, product harmonization’).”6
In project management, project transitioning and closure is a defined phase. Project managers sometimes even plan for transitioning and closing activities in the preparatory phases.7 Lucks suggests that a project or business owner should be idenfied.7 In November 2013, around the same time the transaction was finalized (and the project would enter the implementation phase), the companies named Roland Smith as the new CEO, citing his “decades of experience integrating companies and cultures and…impressive track record in turning around businesses.”8
The new CEO was brought in because of his experience with integrating companies, indicating that he is the project owner for the merger project. With this in mind, Smith would be accountable for ensuring project managers are planning for a project transition so that the merger project is not open-ended in its closing. Merger projects can last a number of years, but Smith is responsible for ensuring all of the sub-projects related to the overarching merger project are closed out in appropriate timeframes and with success in integrating respective parts of the companies. BCG writes that within a few weeks, the new headquarters location (one of the first goals for the new CEO) was finalized,9 meaning the new project owner was already supporting the completion of sub-project deliverables and ensuring total project success for the overarching project of integrating both companies.
Scope management follows closely from the idea of the overarching project and its sub-projects discussed in the previous section. Since merger projects can last very long, it is even more important to define a project charter for not only the overarching project, but for the sub-projects as well, in order to accurately define the scope of the project(s). In the merger announcement,4 the key strategic benefits listed by the companies as reasons for merging can also be considered project scopes for different projects related to the merger. For example, “significant synergy opportunities” can be a sub-project of the merger to understand where the companies can reduce costs, combine resources, and create efficiencies. The scope for that project would need to set goals related to the synergies to create (as mentioned, the goal was cost savings of $400-$600 million annually). In this way, each sub-project had its own scope, and working with sub-projects allowed the project team to ensure the overarching project for the merger was on track.
Especially with a project like a merger that can span several years, schedule management is essential for projects. Wu writes, “…throughout the ideation phase as the ideas are captured, developed, nurtured, and transformed into business initiatives, the scope and schedule should become more concrete and take definitive shape.”7 The integration team for this merger project began working on developing a schedule in the early phase. First, there is the notion of Day 1, demonstrating that the project team is considering all activities that must be completed by the finalization of the transaction phase, or by the end of the deal negotiations. Second, BCG writes that the IMO “categorized all major decisions into two groups: those that could be made prior to the close (because the steering committee was aligned) and those that couldn’t be made during that period.”9 Again, the project team is showing that there was an immediate consideration of schedule management by figuring out how soon deliverables would need to be presented, and whether that was feasible or not. Moreover, BCG describes, “…the IMO’s rigorous plans included timelines for how the businesses would evolve over the first, second, and third years of the merger, helping to align functions and manage interdependencies.”9 Not only was the IMO extremely focused on working out a schedule for the overarching project, the team was focusing on how sub-projects has dependent timelines. BCG indicates that all of this schedule management occurred during the preparatory phase, meaning the project team was ready to present certain deliverables on Day 1. Efforts related to this knowledge domain shows the project team’s organization in managing several interdependent projects while remaining focused on which deliverables needed to be prioritized.
Procurement/Supply Chain Management
David Elford, the Senior Director of Procurement for Office Depot, presented on how the integration approach would address procurement synergies. The IMO was built with multiple teams related to merchandising, real estate and facilities, IT, retail operations, and other departments.10 Each integration team had two leaders, likely one from each company, tasked with finding ways to create synergies in their respective departments. Procurement was involved in the early phases of the merger project with this goal in mind. Appendix B (a chart displayed in Elford’s presentation10) presents a timeline of how procurement and each integration team worked together (and individually) in each milestone of the project. The first step with finding procurement synergies was to “harmonize indirect procurement spend,” then “identify sourcing categories,” and finally “create a sourcing wave plan.”10 This organized method of addressing the procurement knowledge domain in the merger project allowed for the integration team to identify synergies for working efficiently by Day 1, and improve from there.
When merging two companies, not only does the revenue double, the costs do, as well. In the merger announcement, the companies highlighted a goal of $400-$600 million in cost savings by the third year, annually.4 According to BCG, the joint company “captured cost savings close to three times management’s original targets; cost savings of the end-state organization were 50% more. In all, the merger unlocked about $700 million…”9 The CEO and the consulting group often reference the swiftness in which the integration team was assembled and began to work, from preparatory to closure. These cost savings came from efficiencies managed through the overarching project.
Project managers and stakeholders should be involved, even in the most minimal ways, from the very beginning of a project. This is exactly what the project team for Office Depot and OfficeMax did with this merger project. BCG writes, “The IMO created playbooks for 15 integration teams, addressing finance, marketing, the supply chain, and e-commerce operations…,”9 and as later described, included many other departments. By bringing in stakeholders from each department, with representation for both companies, the integration team ensured all stakeholders were available to share knowledge, plan activities, and oversee the implementation of new processes.
Integration management is considered the most important knowledge domain and with reason. Integration management is an area controlled by project managers, which brings together all other knowledge domains.7According to the Deloitte 2020 Mergers and Acquisitions Report,11 20% of respondents rated effective integration as one of the most important factors for a successful merger and acquisition, tied for the top voted factor with accurately valuing a target. BCG explains the goal of the IMO: “The companies also created an integration management office (IMO) that addressed areas that were critical for business continuity, specifying which units would be integrated and which would be left as is…Once the deal closed, all this preparation allowed the two organizations to start the integration process immediately on day one.”9 Integration planning should be a formal effort that begins in the preparatory phase and is ready for rollout on Day 1 and beyond, which is exactly what Office Depot and OfficeMax did. BCG considers this merger one of the most successful in the recent history due to the efforts of the project team in regards to integration management. All of the other knowledge domains discussed throughout this analysis would not have been successful on their own; project managers facilitated that success by managing the integration of numerous moving parts, both on the overarching project and various sub-projects.
It is clear that Office Depot and OfficeMax valued the structure and experience of a project management team. As previously quoted in the introduction, BCG highlights a number of priorities set to be accomplished before Day 1, including setting timelines and implementing change management plans. BCG shows how this merger is developed from a project management perspective, with a large emphasis on integration management. The companies originally merged with the main goal of overcoming online competition, but a merger can be a difficult project to manage. Still, the efficiencies became apparent quickly, and the companies achieved their projects cost savings earlier than anticipated. If the merger were led without a focus on project management, the Office Depot and OfficeMax merger would likely become part of the statistic on failed mergers. While the merged company may have seen declining stock shares in recent times, it is safe to say that this is not a result of the project management techniques applied throughout the merger project.
About the Author:
Daniela Fonseca is an MBA candidate at Montclair State University and earned her bachelor’s degree in marketing from Rutgers University in 2017. She is employed by Ultimate Kronos Group (UKG) as the Global Salesforce Administrator and holds her Salesforce Administrator certification. Prior to UKG, Daniela worked as a Digital Marketing Associate.
1Christensen, C. M., Alton, R., Rising, C., & Waldeck, A. (2020, June 18). The Big Idea: The New M&A Playbook. Retrieved August 14, 2020, from https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook
2Project Management Institute, 2017. Talent gap: Job growth and talent gap 2017–2027, Project Management Institute, 2017. Retrieved from www.pmi.org/learning/careers/job-growth on August 14, 2020.
3Standish Group 2015 Chaos Report—Q&A with Jennifer Lynch, October 4, 2015.
4OfficeMax Incorporated. (2013, February 20). OfficeMax And Office Depot Announce Merger Of Equals To Create $18 Billion Global Office Solutions Company [Press release]. PR Newswire. Retrieved from https://www.prnewswire.com/news-releases/officemax-and-office-depot-announce-merger-of-equals-to-create-18-billion-global-office-solutions-company-192021211.html
5OfficeMax Incorporated. (2013, May 23). Office Depot And OfficeMax Select The Boston Consulting Group To Provide Integration Support For Pending Merger [Press release]. Retrieved August 14, 2020, from https://www.prnewswire.com/news-releases/office-depot-and-officemax-select-the-boston-consulting-group-to-provide-integration-support-for-pending-merger-208714641.html
6Lucks, K. (2003). Project management for mergers & acquisitions. Arbeitsberichte – Working Papers.
7Wu, T. (2020). Optimizing project management. Boca Raton, FL: CRC Press, Taylor & Francis Group.
8Sweeney, B. (2013, November 12). Meet the new CEO of Office Depot. Retrieved from https://www.chicagobusiness.com/article/20131112/NEWS07/131119926/office-depot-names-roland-smith-ceo-after-merger-with-officemax
9Löfgrén, I., Faeste, L., Seppa, T., Cunningham, J., Dawson, N., Friedman, D., & Wolf, R. (2018, November 12). Lessons from Eight Successful M&A Turnarounds. Retrieved August 15, 2020, from https://www.bcg.com/publications/2018/lessons-from-eight-successful-mergers-acquisitions-turnarounds
10Elford, D. (2015, October 27). Delivering Merger Synergies: Procurement Paves the Way [PPT]. Huntington Beach: SIG Global Executive Summit.
11Thomson, R., Dettmar, S., & Garay, M. (2020, April 28). 2020 M&A Trends Report. Retrieved August 15, 2020, from https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/m-a-trends-report.html