How to Perform Better M&A integration
The connection between the deal team and the integration team can be siloed. The best model is to have a close alignment between those two teams. You need to be side by side on the front end so integration learnings can build over many deals, and all your experiences can be woven into what the deal team is signing up for on the next round.
Also, you need strong BU leadership to be engaged and aligned with what you're doing. So many leaders are excited to get an acquisition but don't necessarily realize how pivotal their role is in ultimate success. You must have leaders who actively participate, agree to provide a dedicated top talent from within their organization to work on the deal and accept real accountability for the future state.
It's great to have integration involved earlier and a view of everything coming in the pipeline, such as the companies we're evaluating and having early conversations with. It's important to be there early and help provide some context and recommendations in the early negotiations. The earlier you're involved, the better you can achieve.
We have a say in whether to go ahead with the deal, but at the end of the day, they are just recommendations. Everything at the front of a deal is an assumption. You don't know what you don't know. That's why insights from past experiences are relevant because they make your assumptions more data-driven.
Unfortunately, many people are in this position where they're so inquisitive that deals are just coming left and right. They need more time to take these learnings from the last five to 10 deals and apply them in real time. But somebody must look out for that framework and get the house in order, so we're not making the same mistakes.
Setting Up Successful Partnerships
A lot of it has to do with how the reporting structure looks. You might have teams that sit in completely different organizations; obviously, bringing them together under one leader is helpful. Then, you have to figure out a cadence of how you are going to share information.
- Is it direct outreach?
- Is there a structured meeting every week?
- Will you all review retrospective data over the last five, 10 years together and pull insights out?
You just have to be deliberate in how you want to partner. Anytime teams with such dependencies on each other sit in disparate locations, it can get messy unless everyone's uber-focused on staying connected, but having the team together and having a clear plan of how you're going to partner is important.
It can work in various ways, but at one point, everyone on our team was in the same staff meeting every week. The deal team talks about their prospects, and the integration team talks about the activities of the integration, whether it be ED one or BD one. You're getting both sides of the equation, so the folks on the front end can really see what the folks integrating are dealing with and vice versa.
Reporting to Leaders
It's different with different leaders and in time, but there's typically some type of cycle where you will review deals overall, what stage they're in, and the peaks and valleys of how that's going. Hopefully, folks are listening and learning. Next time, everybody is ready to come together and do things a bit differently if necessary or continue to do something we've got right.
This depends on how your company does report. So it might be that every business unit has a quarterly review cycle where they are talking about the state of the business in general, including any acquisitions coming into that business.
But then, there might be other audiences at the C-suite level of the company who just want a read-out on deals, so it really depends on how you choose to do it in your organization.
A critical part of getting M&A right is making sure you're regularly reviewing and talking about stuff and having the difficult conversations you need to have to grow and get better.
You must have a culture of continuous improvement at your company. Generally, you have to understand that feedback is a gift. Some people may think that's cliche, but it's true.
You should always seek feedback, share feedback, and always make time and space to review what happened. That includes the ups and downs.
You have to be willing to be transparent about that, and you have to be willing to do it in a respectful, professional way. We're not trying to throw anyone under the bus, but we're trying to get down to what went wrong here, and there's no blame, but how can we make it better next time?
I usually use a slide or framework at the front to have a respectful conversation around difficult things. We have ground rules for this call, and it's all in the spirit of improvement. We want to keep it at a high level. Here's what I saw and experienced, tell me if that's what you saw and how we can do it better.
You want to create a safe space. We're all here to try to do things better, and we're not here to tear each other down. We're here to help each other and lift each other up.
Ultimately, if you are a serial acquirer and you are not focused on this type of thing, you're not going to do M&A well. So you must be willing to talk about these things and keep improving.
The landscape of M&A changes constantly, so even if you're improving all the time, what you did last year might not be enough for what happens next year. It's not a linear path. We're not just going to keep doing things and getting better; we have to keep adapting and changing.
COVID's a great example of that. You might have rocked integration before Covid. You had a lot of in-person touchpoints and big parties to celebrate the integration and lots of activities and processes that relied on that face-to-face interaction. But when Covid happened, we all had to switch it up and figure out how to integrate completely behind our computer, wherever we were.
Working with BU Leaders
Some business leaders will be the ones to suggest that we look at a certain target so they're leading out front. However, how it originates can be very different, sometimes impacting how involved they are.
- Who is the leader generally?
- What is their work style?
- Are they really bifurcated or can they focus on something really important?
- Do they have the bandwidth?
- Do they have resources?
You never know what people are dealing with. You can get all different levels of participation and engagement from business leaders. We want them there the whole way through. Those receiving businesses are accountable for the deal's success, and they need to own it. But there are other things that you can do to support that, like having thresholds.
- These are the deal breakers for us
- There are commitments that you need to make
Every company will have a list of criteria and hopefully have really good candid conversations with business leaders about their capacity to take on an acquisition in an ideal world. Setting criteria is important. These are the things that we must have to move forward. Whether those folks live up to those commitments is a bit out of your control.
When it comes to workstream leaders, you need to select top talent for integration. Someone who's a subject matter expert and a top performer. How you resource M&A is important to the outcome you're trying to achieve.
Cultural integration tends to be relegated to HR. While HR plays a role in that, it really should be owned by everyone working across the deal, especially the business unit. Even within a company, different business units have different cultures, different ways of doing things, and different operating models.
It's not exactly the same across a company and you can't expect every business to be working in the same way. So the acquiring business should own and drive big chunks of that cultural integration.
Any cultural assessment you can do is good, but often on deals, some standard cultural assessment is in due diligence, which you've only got two or three weeks to complete.
The cultural assessments should continue much longer than that. It should be ongoing, and you need to get down to the things that aren't readily observable. The real culture is in the nuance. It's in the things that you can't necessarily see when you're first looking at a company.
You have to have a commitment from many leaders across different functions and roles to work actively on this cultural assessment and then how we will integrate them.
How to Look at Culture
We look at culture in conjunction with the operating style.
- How does work get done at your organization?
- Is it top-down?
- Is it very collaborative in terms of competitiveness?
Many of our surveys have gone out to both the target leadership and the target employees separately because you'll find you get different results.
During cultural assessment, leadership often has a different view of their culture than what the employees perceive. And the answer is somewhere in the middle there.
You can also do an ambassador team. Have the target folks nominate individuals who are natural influencers, change leaders, open, collaborative, and willing to provide feedback. You can launch an ambassador team where you meet with them regularly and ask:
- What are you hearing?
- How are employees feeling?
- What are their misconceptions?
- What are the open questions that we still need to answer?
- And other perspectives that you need to have.
Also, an external objective cultural assessment is important. I'm not saying that companies can't do this well themselves, but if you're in your company, you're already biased. So you have to make sure that you have a neutral party that comes in and can assess both cultures.
And every business unit has a different culture, and you need to understand both. You must understand overall how an organization functions.
- What are their norms?
- What are their habits?
- What are the things they hold dear?
But at the same time, the marketing team might have a different dynamic than the engineering team. So in due diligence, try to understand what things are going on on a team level. There might be radical attrition in one area, and then everywhere else is pretty stable. And it could be many different things compounded, like a snowball that just gets bigger and bigger.
It's really hard to understand culture on a granular level, but you should try because it really is such a crucial part of getting a deal right.
Your financial model can be great, and you can have great leadership, sponsorship, and an awesome plan, but if you don't get the cultural part right, you're in real trouble.
Problem Solving Framework
You have to get involved wherever the problem is. Part of being an integration lead is understanding why one team might be struggling and get in there and helping them.
- Are they struggling because their leadership isn't giving them the bandwidth and resources to work on this deal?
- Are they struggling because they were assigned to this deal but didn't have any expertise?
I get down in the details based on whatever's going on. There's no one thing that goes wrong, but you run to every buyer and try to figure it out.
Step one: you need people to articulate the problem statement. You would be shocked at how many people will escalate up the chain and come to you and want help and support, but are not able to clearly, concisely tell you what the problem is.
Step two: Basically, ask. How can I help? Who else do you need help from that I can facilitate?
Advice to Business Unit Leaders
Be available and be willing to be brought up to speed on the acquisition, and take an active role in it.
That's a really simple one. These leaders are usually stretched in a million directions. They're flying around the world all the time. They've got their hands in a lot of pots. They're under a lot of pressure. They have to meet their numbers, and they're working with our CEO. And they will tell you that the problem is that they don't have the time.
But that goes back to what I was saying before; you need to have your list of criteria. I don't expect this particular leader of a giant business who has no bandwidth to be meeting with me every 48 hours about this deal. Still, I do expect that you have some leader on your LT who will be the day-to-day person I can communicate with regularly, who is looking out for the interest of the deal and doesn't have 40 other competing priorities.
They have to commit time and resources. If everyone's overworked, that's going to be a problem. I need a warm body to focus on this, so it's about reprioritizing work, delegating the appropriate resources, and ensuring that everybody can give care and feeding that is required in an integration.
Speed of the Integration
Speed is an interesting topic on integration because you're balancing wanting to do things deliberately and properly and with data behind it, but you also want to get them integrated as quickly as possible because that's where you derive the value. So there's always this push-pull.
There shouldn't be one answer for how to move it faster, because every deal has its own issues. They might be in an interim operating model for a year or two before you can integrate their systems and their tools. You can't necessarily rush that because there's a reason that it's going to take that time to integrate.
They may be doing things and using platforms that are very different from ours, and we have to figure out how we're going to get everybody to talk together and function, and that takes time and planning.
Generally, if you're able to move fast on integration, it's a smaller, easier deal where there aren't so many disparities in how you're doing things, and then you can push faster. But, anytime you need to do that, it goes back to the same stuff. You need commitment, buy-in, and good governance, and everybody in the boat is headed in the same direction.
Handling Incoming People
From a people perspective, diligence tends to be quick. You're trying to get as much information as possible, and it's the most critical information. You leave a lot off the table for now, but you're looking at publicly available information a lot of the time.
Certain platforms like Glassdoor and Indeed give you some rich insights. Of course, you can't trust all of it, but there are typically some common themes that might come out, and you'll learn a bit about their culture, leadership, and how things are generally going at the company.
- How's morale?
- Is everyone in good spirits?
- Does everyone believe in what the company's doing?
Understand who they are and why they're different from the last group you acquired because many of the things you do can be rinse-and-repeat from a process and tools perspective. But you need to leave room for 10 to 20% customization based on who these people are and how they're unique and different.
- How do they like to be communicated to?
- Have they ever undergone large-scale transformation?
We deploy pretty early surveys to try to understand:
- What are the things that you value about your company?
- What do you think is the special sauce?
- What are those two or three things that if we broke them or removed them, it would really derail your view of the integration?
Try to get at all of that stuff as early as possible, and then hopefully close the loop. Don't launch a survey and get the information; just talk amongst yourselves. Come back to them, encourage them and listen and then come up with a game plan.
- Analyze the results.
- Listen to the things that are most important to them.
- Listen to what they're most nervous about.
- Directly address those things.
So, for example, if it comes out, and it usually does, one of their biggest concerns is job security. If you have already made the decision of what's going to happen, then you must proactively communicate as much as you possibly can at the time because people are worried about this.
This is pretty much in every integration. You don't need a survey to tell you that, but there are other things that you might want to understand and work on with the business leaders.
In the last couple of deals, people have wanted to know where my company stands on working from home? Because they think if they have to go back to an office when they've been at home for a certain amount of time. They need to understand our strategy because that's a big factor for them.
Ideal Employee Experience
Make sure that you're talking and listening to both the leadership and the employees because the leadership might think things are a certain way, but the employees are actually the ones who are living that. It might be a little bit different, so you have to come together between those two.
Before the deal closes, a lot of that is going to fall to the target company because we can't technically directly communicate with their employees. But then after that, the deal closes when the floodgates open and we're allowed to communicate, that's when my company at least launches an onboarding site.
We host webinars and we begin that communication plan and start regularly communicating where we are along the roadmap, what you can expect in the next week or two, and what we need before close.
Partial vs. Full integration
If things are just very different between the acquirer and the target, you might want to think more about how to leave them alone longer.
It tends to be an unpopular idea at many companies, but people need to think more about it because you want them happy, functioning, and delivering on their business goals–that's why you bought them.
We need to consider whether we're going to integrate or some other level of it fully.
Companies should think about this more. Obviously, it's a lot harder to do, and that's why people tend not to focus energy there, but sometimes, the company that you're acquiring is doing something better. You should pay attention to that instead of just trying to get them to do things the way that you're doing it.
You need to understand the context. Maybe it's not scalable. Maybe they're only able to do it because they're a small company, and it wouldn't work at your company. But there might be other reasons why this is better, and yes, it will be more work to switch a giant company to their way of doing things.
Integrations generally are complicated, and it's quite hard and there's more work on top to try to do something that's transformational like that, but it might be worth it in some instances. So, at the bare minimum, we should be evaluating these opportunities closer than we are.
Step one: Figure out what are they doing better than we are?
Step two: If they are and you agree that they're doing it better, ask: Are they only able to do that better because they're a smaller employee population or because they're in a specific country? This is not something that you could scale globally for a larger population.
Step three: Would you have the support, resources, and funding to pursue this and to consider such a big change at your company? If all of that falls in line, you can check all those boxes and pursue it.
Working with CEOs and Founders
With founders, it's really important to understand their motivations. Why are they doing the deal? Of course, money can typically be a really big part of it, but some folks are also just motivated by leading a company, by having innovated something and built it from the ground up.
There are lots of different motivations for founders to sell their companies. You have to understand fundamentally what those things are. Then, you have to determine if you have a role for them that's going to meet their needs.
You don't want to take somebody who is super innovative and creative and then bog them down with a bunch of tactical integration tasks for two years. So you have to ensure that whatever role you offer them plays to their strengths.
If you don't have a role, you can't craft one like that. So you need to think if you are going to have them stay around, if so, tell them the dos and don'ts, and make sure we're all on the same page.
Every acquisition is its unicorn. What I don't like is when you have a founder or any senior level leader who doesn't want to let you into their staff meetings or town halls with their employees.
I don't know if they're hiding anything or if they're saying anything bad about the integration, but I would like to be welcomed. I would like us all to be on the same page if we're doing this acquisition, sharing information and being a team. I definitely prefer when the founders are open and welcoming us in from the start.
Leadership Retention Strategy
In the last few years, it's a lot bigger than just money. Money is always great, money is always motivating, but there are bigger things going on in the world. People, especially younger generations, care about where you stand on environmental and social issues.
Career pathing. Many folks want to know that they have a path and it's actually laid out for them. It's articulated, and they won't have to try to claw their way to some next level or new role.
Trust is a big one. If you have leadership they can trust right off the bat, they'll feel like they're being candid and straightforward with them, but they'll feel like they're bringing them in on this shared vision of the future, which is really important.
Communicating your expectations around offers. Who's going to have a job? If you wait too long to communicate something about that, people aren't going to stick around to see what the offer is.
There are a lot of things that are really important that are more on the soft side in getting people to stick around.