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December 15, 2022

Tying up M&A Strategy and Integration

A strong deal strategy doesn't guarantee success. Integration is where value is created and must be prioritized immediately. Darrell Heaps, CEO at Q4 Inc, discusses how to tie M&A strategy and integration together.

"Deals can be a strategic fit and make a lot of financial sense, but it will only deliver value if integrated properly." - Darrell Heaps

Getting the deal done and the negotiations are the easier part. Getting the integration right to deliver on the intended value is harder. He learned this the hard way during their second deal. They didn't plan too much, and things took a lot longer than expected. It costs twice as much to implement things to realize the intended value. So after that deal, they started focusing on integration very early in the process. 

Plan integration pre-LOI

Without question, integration has an apparent effect on the deal structure. Integration planning needs to start pre-LOI to impact the deal structure. The deal team needs to understand the costs associated with realizing the intended value of the transaction, even at a high level. 

Planning integration pre-LOl also helps Darrell’s team determine the ROI of the deal, which dictates if they want to pursue the deal or not. Finally, they create an investment memo that includes the strategy outline, market thesis, financial aspects of the deal, risk factors, and how risks will be mitigated to present to the board for approval.

Focus on culture

Culture is also one of the most vital parts of an acquisition. Understanding how the target company operates is crucial to M&A success. If there are two very different cultures and the teams cannot work together, realizing the intended value of the deal will take much longer. 

When assessing culture, look beyond the management team. Just because the leadership team gets along doesn't mean the rest of the business will get along. Spend more time with the people in the target company. People are typically on their best behavior during deals, so seek to spend time with people outside of the deal process.

Technical due diligence

When buying a product or a technology, understand how the asset works and plan how it will be integrated into the company as soon as possible. An accurate view of how an asset works post-close will prevent redundancies during integration planning. Also, understanding the integration process will uncover costs if additional resources are needed. 

Team continuity

Desired deal value can be achieved if the integration team is brought in right from the beginning. Over at Q4 Inc, the same people doing the diligence are also doing the integration. Darrell believes that most deals fail to deliver value because of poor integration planning, not because of a lack of strategy.

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