If you ask any M&A practitioner, most of them will tell you that the integration phase of the deal is the hardest. Probably because integration can make or break value. This is where all the valuation and all the diligence you did will come up, and you are now trying to consolidate two separate companies into one.
But what actually makes it really hard? Here at M&A Science, we don't want to see value get destroyed. So we are here to discuss why M&A integration is so complex and what can be done to make your integration more successful. Helping us in this discussion are James Timothy Payne, JD, MBA Principal Consultant at Merger Integration Consulting, LLC, and Galina Wolinetz, Managing Director at Virtas Partners M&A Integration | Separations.
"The biggest problem is the lack of continuity between the corporate development team and the integration team." - Galina Wolinetz.
So what makes integration hard? According to Galina, anytime there's a transaction that doesn't meet a certain threshold of size, it seems like it doesn't get the necessary attention required for any other significant transactions.
After the deal is signed, senior leaders lose interest and throw it over to some management team who is not prepared, has no resources, and doesn't have the learned tools to handle the integration process. This is why many deals fail to reach their potential and the strategic rationale and the value creation that the management team has been hoping to achieve. The continuity between the corporate development team and the integration team is extremely important.
The problem is that most corporate development teams have no touch on the integration process and they are not measured on how the acquisitions actually perform afterwards. A lot of people get brought in to do the integration that aren't part of the deal, and they will feel like everything has been dumped on them. They didn't get to pick these goals that they will now try to achieve and get blamed for it if the deal integration fails.
To have a better integration process, you need to have dedicated individuals that will be focused on program management. One of the things that has worked for Galina is that she has developed an incentive program to the people that are involved in the deal. She incentivizes the individuals that directly impact synergies and sets out a target for them to achieve, whether it's revenue or cost synergy.
Also, the integration team should start early in the transaction, preferably during the target selection phase of the acquisitions. This will allow them to help pick the right target, help identify risks and opportunities, and get an initial hypothesis of what the integration would look like and what the overall integration cost is going to be to avoid surprises.
One of the things that you should watch out for is leadership and cultural assessment. It is crucial to understand if the acquired company's leadership will join post-acquisition or if they are looking to exit the business. If they are staying, are they the right people to have in that position? Having conversations with the leadership team of the acquired company is important.
In most cases, cultural differences won't kill a deal. But it is crucial to address the differences and create a plan to ensure that both types of culture can live side by side.
Stop using Excel Spreadsheets. You need to start using web-based professional program management tools and have the ability to interact with the target company, so they can get involved in the program management school as well. Make sure you can communicate through that tool and that it has an archive of conversation.
"Day one is one of these things where you can get it wrong, but it's never going to be great" - James Payne
Day one is the most crucial day and most important thing to get right on the integration program. It is something that truly does set the tone. This is where everyone is anxious because of the uncertainties, and this day has to be perfect. You need to communicate with the stakeholders, employees, and clients that business continuity is your number 1 priority.