Most merger and acquisition integrations fail to realize their intended value. The five best practices offered in this article will help ensure your integration succeeds.
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Most merger and acquisition (M&A) integrations fail. The internet is littered with articles proclaiming high failure rates. A staggering claim by the Harvard Business Review is quoted often. It states, “study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%.”
Acquirers should not despair. While integrations pose many challenges, routes to success do exist.
Five M&A integration best practices
Every integration project should include the following five best practices:
- Know and communicate widely what success looks like.
- Structure your diligence and integration plans to align with deal value drivers.
- Recognize that integration is not free; plan to invest time, resources and money.
- Address people and culture issues quickly to avoid delays and loss of value.
- Manage to your success measures; be prepared to adjust your plan to meet them.
As early as possible, work with the sponsor and executives to determine their measures of success. Obtaining this information before a Letter of Intent (LOI) is signed is ideal. Possible success measures are numerous and include:
- Retaining/obtaining key talent
- Using intellectual property in an offering
- Increasing revenue
- Reducing expenses through synergies
- Opening a new channel
- Expanding into a new market
- Becoming the market leader
- Being recognized as THE thought leader
Often executives will discuss the reasons for the acquisition publicly, which can be a good starting point for defining success. Best practice in driving the value starts with not only documenting the success statement, but also a metric and a timeframe.
Once defined, share the definition of success and goals with the entire team; the executives, the managers, and the individual contributors that will be working on the integration, and obtain concurrence that these are the shared visions. This step will provide a way to measure success and it will enable you to focus and prioritize your efforts through the rest of the integration.
Plan for success
Many companies initiate Due Diligence by evaluating the financials, legal documents, and intellectual property. But it may not be obvious if your objectives can be attained.
As an example, assume your objectives for this transaction are:
- Retain/Obtain Key Talent – so you can build your next widget within a year
- Increase Revenue for the current widget by 10% within the year, and by 50% in the next two years
With these two objectives in mind, look for the following during Due Diligence:
Staff for integration
Many companies believe integration can and should be done in-house. This makes sense for repeat acquirers. Oftentimes, however, the integration of a new company is being added to someone’s already full time job. Planning for and executing a successful integration can’t be done after work, and you need to ensure the core business continues to run smoothly in the meantime. You may not need a full-time integration team, but the leader should be dedicated to the role until the work load subsides. Coordination between groups, trouble shooting unexpected issues, ensuring the new team is welcomed and productive, and adjusting internal processes, requires full time focus. Communication is essential and managing the change can be the difference between a smooth integration and one which creates mistrust and disruption.
Key individuals are:
- Integration leader
- Functional/workstream leaders in each of the following areas: Finance, IT, HR, Go-to-Market (Marketing and/or Sales), Real Estate and Change Management (Communications)
- Project managers can keep everything running smoothly, especially in larger transactions
Create an integration budget
Beyond the actual cost of the transaction, consideration must be given to the cost associated with integrating the acquired organization. Travel, foreign translations, consultants/contractors, software licenses, real estate fees, welcome events, legal fees, retention bonuses, and software modifications in key systems (ERP, CRM, HRIS) to support the new business are common integration costs.
When establishing the transaction model, ensure each function is considered from a one-time cost perspective. Planning for and including integration-related costs in your metrics is an important part of defining success in a meaningful way.
Address people and cultural issues
More often than not, the integration effort is focused on the tasks in a checklist. Unfortunately, the real value of the acquisition, the people, can get overlooked. Regardless of how good the acquisition looks on paper or sounds in theory, the importance of change management to address the questions affecting employees personally cannot be stressed enough. People are at the heart of every acquisition, and are necessary to run the current business and accomplish the goals of the combined company. If uncertainty exists at the personal level for those people, it will be very disruptive and difficult to move forward with integration activities. At a minimum, employees in both organizations (Acquirer and Acquiree) need to know the answers to the following basic questions:
- Will I have a job?
- Who will be my manager?
- How will my compensation and benefits change?
- Will I need to relocate? How will this impact my commute?
- How will my life/job be impacted?
Providing answers to these questions and addressing other people-related issues quickly are the cornerstones of successful integrations. While cultural differences such as casual Fridays or the ability to work from home might seem insignificant, removing such privileges can cause turmoil and create resistance. One consistent regret of Integration Management Office (IMO) leaders is that they wish they could have understood and communicated the information most important to the employees much sooner. Addressing the personnel issues as soon as possible, whether positive or negative , will remove the uncertainty that can plague the most well-planned integrations. Securing employee buy-in from both organizations should not be underestimated in terms of importance and difficulty.
Track your success
Just having metrics and a plan to achieve them doesn’t guarantee success. You will need to monitor the progression of the metrics to ensure they’re achieved in a timely manner. Developing early indicators and dashboards to illustrate progress and issues to the Steering Committee can help keep you on track.
Identify a handful of leading indicators – additional metrics you can measure before the quarterly numbers are available. For example, if revenue achievement is your success metric, tracking the pipeline or number of leads may be a metric you can capture weekly or monthly. If employee retention is a goal, evaluating survey data or tracking the number of helpdesk calls might be a way to evaluate employee experience.
The majority of integrations fail to recognize their intended value. To ensure yours does, (1) define success metrics, (2) structure your diligence and integration plans to align with deal value drivers, (3) plan for costs related to the integration, (4) address people and cultural issues quickly, and (5) track and manage your success measures.
About the author
RGP Managing Consultant, Natalie Brader has over 10 years of Merger and Acquisition integration experience leading cross-functional teams and overseeing integration program management on a global basis. She has participated in over 20 deals worth $3B in acquired revenues.