Recent business history is littered with disappointing results from merger-and-acquisition (M&A) deals. An often-cited cause is failure to devote sufficient effort to the many facets of acquisition integration. It is no small task to bring together two companies built around different structures, business processes and cultures.
Smart Business asked Jonathan Dean, who leads Doeren Mayhew’s Strategic Services Group, to describe some of the obstacles that get in the way of successful integration and benefits that can flow when integration steps are done well.
Why is it that acquisition integration doesn’t receive adequate attention?
Most acquisitions present innumerable transaction details to work through, so the focus often is on getting to closing. Yet long-term M&A success hinges to a great extent on what happens starting the day after closing. That needs a dedicated focus by an integration team made up of capable people from both companies. It is generally a good idea to have this team be separate from the deal team working on due diligence, legal agreement drafting and financing. The skills are different. Integration is about people and processes. The deal side is about financial, tax and legal issues.
What benefits can come from well-executed integration?
A disciplined integration process seeks to quickly align the management and employees of both companies around the transaction’s fundamental goals. Without a good integration plan, momentum within both organizations can suffer. Employees are caught between two paradigms for how decisions were made in the past with uncertainties as to which set of expectations to follow.
Is there a standard approach to M&A integration?
There is no cookie-cutter approach for integrating two companies after an M&A transaction is closed. The process needs to be very specific to the companies involved and the goals behind bringing them together.
Integration is considered by experts to be the most difficult aspect of M&A. Yet M&A integration leadership is not an established core competency within most organizations. It can make a difference to have an outside expert work with leaders from both entities to define how best to blend their operations into one harmonious company.
When should integration planning efforts get under way?
There are two critical acquisition integration phases. Most times, neither receives sufficient focus. The first critical planning phase should be kicked off upon letter of intent signing, weeks or months before deal closing. The second vital phase is roughly the first 100 days after closing.
What is the focus of the first phase?
At the front end, important strategic decisions need to be made by senior executives. Most acquisitions start with vague rationale that simply will not motivate the troops. Top management needs to shape a clear and crisp explanation for why the two companies are being brought together. Well in advance of closing, they also need to think through what the combined organization should look like to fulfill the transaction’s goals. Is it better to utilize a single name or to preserve multiple corporate identities? Will customers be presented with a unified product portfolio, represented by a realigned sales force, or will the two units continue to separately market their existing products? What should the new organizational structure be?
Based on strategic decisions made at an executive level, the integration team can start detailed planning in the pre-closing phase and be positioned to hit the ground running right after closing. The team should identify where top talent resides within both organizations to enable a retention program designed to encourage critical individuals to stay. The team should also make sure employees, key customers and important suppliers are kept appropriately informed.
It is important for executives to make crucial fundamental decisions soon after letter of intent, otherwise the integration team will be unable to get under way with execution details.
What are the targets of the second phase?
After closing, the integration team works on aligning people, systems and processes. Sometimes, facility and infrastructure changes are involved. While simpler businesses can be blended together in just a few months, more complex integrations can take two to three years to fully implement in phases.
In longer integrations, several 100-day projects should be launched that can achieve early successes. Project prioritization is important. A sense of urgency is good, but the tendency to rush everything at once needs to be avoided, because it leads to needless instability and disruption.
JONATHAN DEAN is a Certified Public Accountant, Certified Valuation Analyst and director in charge of Doeren Mayhew’s corporate finance and Strategic Services Group. Doeren Mayhew, located in Troy, Mich., is a regional accounting and consulting firm that provides a wide range of professional services to middle-market companies. Reach Dean at [email protected] or (248) 244-3256.