Integration Success – The M&A Holy Grail

Integration Success – The M&A Holy Grail

Acquisitions are often a disappointment in the eyes of the acquirer (forget what the seller thinks for a moment). The deal objectives are often not met. The strategic benefits fail to materialize. Acquirers buy what’s up for sale instead of what really fits their strategy. The acquirer fails to learn from successive deals. I could go on, but by far the biggest reason for failure is quite simple. In research conducted and published by Moeller and Scott – “The Good, the Bad, and the Ugly: A Guide to M&As in Distressed Times”. Cass Business School – research covered 12,339 deals from 1984 to 2008. That’s a lot of deals. Conclusion was clear success is determined by

Post-acquisition integration. That’s it. 

So, how do you maximize the probability of integration success?

It starts with a simple insight. The earlier you start the better your plan. Let’s consider a robust acquisition process (ours). It should contain six distinct phases.

  1. Strategic Definition
  2. Target Search, Discovery and Shortlist
  3. Contact and Dancing Together. Fact gathering.
  4. Negotiation of Terms
  5. Due Diligence and Legals
  6. Post-acquisition Integration

Here is the scary part – many acquirers consider integration thinking starts at Phase 5. It doesn’t. it starts at Phase 1.

Let me explain why integration penetrates every phase.

At Phase 1, when you define the strategic direction of your acquisition strategy and the type of target you want to acquire, you NEED to factor in the ease of integration. An overseas acquisition may be beyond your bandwidth. Culturally acquiring a bunch of smart service people may be beyond your capabilities, as the owner of a group of manufacturing businesses.

Most forms of vertical integration acquisitions demand that the acquirer understands a new business model, often a new culture. The obvious example being the one above where a manufacturing acquirer buys a distribution business. They can work but the integration agenda needs to be thought through from the start.

But integration thinking is also key at the next phase of the process. At Phase 2 where we conduct a comprehensive search for targets (based on criteria in Phase 1) and compile some basic facts, integration should be a key filter as you prioritize your list.

At Phase 3 as you meet targets and engage in detailed discovery work, you need to assess the facts being gathered through the lens of post-acquisition integration. Examples include weak management, lack of operational protocols, weak financial controls, sales and marketing strategies that lack cohesion. These issues should inform your approach to integration and therefore the potential post-acquisition costs. Of course these facts may steer you to walk away, because realistically you have’t the bandwidth to deal with a troubled child.

At phase 4 as you lean in to negotiate the right deal structure for you, it is key to have formed a strong view of the integration strategy. It determines whether an earn-out deal is even practical for example. If you are buying a technology start-up to integrate into your portfolio of products, it will not make sense to structure a EBITDA type earn-out. In fact in this case, you’d need to convince to me to structure any kind of earn-out. During negotiations, the seller wants to understand how you will run her business and how her staff will be treated. Are you ready to answer those questions with clarity and conviction?

At Phase 5, the due diligence phase, many acquirers continue to miss the integration opportunity. They treat due diligence as a financial validation exercise. Of course it is that to some extent but it is mainly a post-acquisition integration validation project. After due diligence the acquirer needs to be comfortable that the integration strategy still seems plausible. Again examples might include validating assumptions like keeping the CEO in place, merging the Asian sales operations, merging R&D projects, sharing new technology to accelerate growth to name a few.

This type of thinking sets you up for success in Phase 6 – post-acquisition execution. It allows the integration plan to resonate with the acquired staff. It contains insights and authenticity because you’ve been thinking about it from Day 1.

Check out our latest book for more details – The Acquirer’s Playbook or start a conversation about how we embed this process into companies.

Good luck.

Ian.

 

 

 

 

 

 

 

Submit a Comment

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>