An acquisition that lacks an integration plan is a recipe for disaster. Oddly, it’s a dish that countless boards continue to serve on a regular basis, as they make the error of thinking that the end has been reached the moment the deal is signed.
Nothing could be further from the truth. Julian Goldsmith
, Senior Relationship Manager at Criticaleye, comments: “It is understandable that so much attention is given to getting a deal over the line. If an acquisition is going to deliver longer-term value to all stakeholders, a well thought-through integration plan must be in place first. I have seen first-hand the importance of clear lines of accountability and hard timelines.
“The temptation is to take a much-deserved post-deal ‘breather’, but the reality is that there needs to be a laser-like focus in order to build a new sense of purpose and culture.”
We spoke to a range of experts and decision-makers with first-hand experience of transformational M&A, to understand what actions leaders should take to ensure a return on investment.
As long as both chief executives, and ideally both sets of management teams, are clear on what is going to happen and enter the process with the same intent, then that offers the best chance of it working out. The worst thing you can do is to start off on one road and then change paths just before or after the deal.
The easier things to integrate are often the commercial, externally facing areas, which are usually the main driver for the transaction. Communicating with customers and clients is, I think, pretty straightforward.
By contrast, the parts of the process that take the most time, and the areas where you can never do enough diligence are the IT platform, the operational side of the business and finance. In these areas, there are always unexpected surprises no matter how much diligence you are able to do.
We take a very regimented approach to integration and regimentation is key... You have to measure progress, assign KPIs, and document everything. We also have a long-term incentive plan that is linked to share options that are awarded after three years.
This makes people think about the long-term/medium-term and the overall profitability of the business, not just about driving sales.
, Chief Operating Officer, Survitec Group
Create an Integration Team
During the twenty acquisitions that I have been involved with, I have found that the key to success is excellent communication with your new staff members. No matter what business you buy, everyone within it will be terrified, because they think that they are about to lose their jobs.
To set minds at rest, we spend the first few days talking to our new employees. Inside the first 24 hours, after the completion of a deal, we will have a one-on-one meeting with everyone in the newly bought business. It is also important to remember that people working within your own company will need reassurance too.
To ensure that both people and culture adapt to the new arrangement, an integration team needs to be set up that has the full backing of the CEO. This will allow the team to make decisions within the acquired company with confidence.
Build a Roadmap for Integration
Acquiring companies should look to use the information gleaned during due diligence to inform their integration strategy and create a high-level roadmap for integration.
To do this successfully, I believe that the acquirer needs to make sure that they do not simply hand-off responsibility for the integration to a new team, with a limited knowledge of what the due diligence revealed. This is an easy mistake to make. Instead, it is preferable to maintain the same team across due diligence and integration to the greatest extent possible.
Value creation is important in every deal and, as such, it is important for the deal team to identify synergies during the due diligence process and subsequently track synergy realisation after the deal has closed.
The most acquisitive companies create internal centres of expertise, comprised of people who repeatedly perform diligences and have developed diligence checklists and supported integrations. They tend to have an excellent knowledge of the business and enable a smoother integration process by continuing to leverage on lessons learned from previous acquisitions that may have gone wrong, either during diligence or integration. This also allows them to be more realistic when assessing potential synergies.
Link Earnouts to Retention
Earnout terms are frequently the most talked about and heavily negotiated element of an acquisition, but they often don’t work out as planned. One problem tends to be that the parties usually need the target business to be ringfenced so that they can monitor performance against earnout targets, but this runs contrary to the notion of good post-deal integration.
The success of earnouts and the success of the integration are often linked. Some time ago, we sold a company in which the senior executive team had a three-year earnout and a three-year constrictive covenant. As soon as their covenants were up, a number of them decided to leave, almost certainly because the two companies had not integrated properly.
Earnouts can be linked to retention, as well as to performance, so that the amount of money an executive receives is linked to how many key individuals stay on at the company in the longer-term. This can encourage a greater focus on the importance of successful integration.
On the whole, integration is often not managed well and it is a common cause for the failure of an acquisition. Often, particularly in mid-market deals, there is nobody to take responsibility for the people aspects of the integration; instead there is a big sigh of relief when the deal is done, the deal team go away and the employees are left to work things out for themselves.