Importance of Integration
Coming out of banking, integration wasn't really on my radar. I knew about it and spent some time with it, but it wasn't one of those areas I needed for my career development. It was necessary, but I didn't know how important it was.
I was more focused on the "why," the strategy piece of M&A, and the deal's aftermath or impact. But having gone through from idea inception to finding targets, diligence, acquisition, and closing the deal. Having been through several of those reps, I've noticed and started hitting that integration is just as crucial as any of those other pieces are.
Without a proper integration process and without really dedicating the resources to it, and flawlessly executing the diligence and negotiating a great deal, you can turn what could be the best idea, the best asset, and your win into a loss fairly quickly if you're not really planning for that future state.- Brent Campbell
Particularly, given how we've wanted to do things, we're not buying separate businesses just to set aside and let them continue to run and do their own thing. We want to integrate it and make it part of the bigger story, the bigger strategy, the story we're telling the street, and real value for our clients.
Seeing that firsthand opened my eyes to being serious about this and we need to make it something that is not just an afterthought. It needs to be considered upfront at the very beginning of a deal.
Integration needs to get involved in a transaction's go or no-go decision.
- Is there a culture fit?
- Is this something we can integrate without disrupting their business or our business?
Those kinds of things are critical to the success of any type of deal.
Gaining integration perspective
Just going through some of the reps, it's not quite as sexy as some other things on the deal. This will open us up to new geographies or team, or we can sell this to new clients. And let's talk about the purchase price, about negotiating. Those are the things that get a lot of attention in the deal.
Sometimes, it can be an afterthought. And coming out from Aon and Alight, we really wanted to hit the ground running with acquisitions and trying to beat up some of our solutions to market and things like that.
And being a carve-out, there were many learnings and some education that needed to happen there. While we were an established company, we were part of the Hewitt acquisition going all the way back when Aon bought that a decade ago.
We were a company that had been around a long time, but as a standalone company, we were new–new C-suite, new infrastructure, we were on TSAs, and things like that. So it wasn't an automatic process.
Some things were still getting built up. We still had to get off the TSAs, get on our own, and so we didn't have some of the benefits of that infrastructure that a more established company might have. And so, we were trying to build that up simultaneously.
We were trying to get some of these deals done to make our clients happy and get into areas that we really wanted to get into. So we had a couple of deals where we did have an integration plan, but there were so many things in the process.
There were so many moving pieces to it early on that many of the plans we had for integration, by the time we were starting to execute on that, people were in different positions. We had other ideas about the direction of the company or direction of specific areas.
It was one of those things where a lot was going on. In a tough situation, you can't really blame anyone, but it was just a lot of moving pieces, so the integration didn't get as much attention as it should have.
We had some growing pains with some of these acquisitions. First, we had to go back and think about what we wanted to do in the deal model. And then, other people that came in after the deal happened had different ideas and things like that, so I saw firsthand what it could do if there's not a core focus on that.
And the deals ultimately ended up being successful, but some took much longer than we had anticipated, much longer than we had thought. So seeing that happen, it was quite eye-opening for me.
Negative consequences of neglecting integration
There are absolutely consequences when you neglect integration. If you're acquiring an asset or a management team, depending on how you've evaluated that, typically, you'd want to bring some of those leaders over. If things start to take longer than they are, or if plans get put off for another year, you can potentially lose talent. You can lose market momentum or even clients.
Many acquisitions we've done were very exciting to the clients. They were very appreciative that we bought the solution they needed. But then, all of a sudden, if we're not delivering on time, that can cause an issue as well.
There are certainly some negative consequences to not being able to move at the speed you have anticipated and which you had maybe originally told the target company that you acquired. That can slow down the momentum.
The idea is you acquire an asset and make that initial splash with the market, clients, and the target company's employees. You talk about the great things you will do with it and keep that going. You want that just to continue on. You want to keep seeing big or small successes to build upon that.
Now that we're public, integration is more critical than ever. Not that it wasn't important before, it certainly was, but nailing that down because our leadership team tells us a message to the street, and we are expected to deliver on that.
And if we're not moving in the manner we had forecasted to the street, then that raises questions and becomes an earnings call or things like that potentially becomes an issue in terms of the expected outcome. So you don't want to have your leaders on the call saying they're behind on that.
You get it from that end, and you get it from the clients. So it all comes together, and so you want to keep that momentum and speed going. You want to get that going and deliver on that first hundred days, that hundred-day plan, because it can snowball.
If you're not moving as quickly, then maybe you start making some decisions that weren't necessarily in the deal model or in the plan to speed it up. That can cause some problems as well.
How corporate development can focus on integration
Every corporate development group is structured differently. I'm lucky to be in one where I report to the chief strategy officer, so alignment with the strategy is there from day one. I'm involved and aware of why we're doing the deal and what's going on from before we even identify the target.
My team and I work very closely with the strategy team. We're all in one team. We all work together with some of the business leaders we bring in from an early stage who sign off on the strategy and are aligned with it.
From day one, we are aware of what we're doing, why we're doing it, why we need to do it and what it's going to give us and our clients and how it's going to help our clients. And so, our continued involvement post-acquisition is an essential piece of that integration part because every company does it differently but sometimes there's just a handoff. That may work for some tuck-ins or things like that but if you're doing real strategic acquisitions, you need to keep some level of involvement.
Our goal and what we're working towards is to keep our involvement as hands-on as possible post-acquisition. Now, that's not always possible, given some of the other conflicting time elements and things like that, but that's the goal.
Certain things will come up during integration that you never thought about and having someone who's been in it from the start, really making sure that there's continuity, and not a disjointed process, that's the thing that can cause people to be upset and that can cause morale issues.
Nobody's perfect. There will be problems and miscommunications and things like that, and we've certainly had them. That's a continuing process of learning from previous mistakes and getting better. We've also had some good continuity in many of our work streams who are doing the day-to-day work on the integration. They've been through a bunch before, and we're really opening those lines of communication, making sure that there's no miscommunication, and getting those reps for them too, is also critical.
Challenges in integration
In terms of culture, that's an area we focus on during the diligence. We're involved with that because we're on every call during diligence. We'll typically do some site visits or meet with the management team and key employees.
The workstreams are certainly working with their counterparts on the other side to get that fit as well. It's never an easy answer because you talk about a company's culture, you talk about the culture of a group. Even within a company, a company could set a culture or have a certain culture, but even within different groups within that company, they can behave differently or at an individual level.
We try to look at it in the aggregate. There are those quantifiable metrics. We each have our benefits.
- How does that work together?
- How do we pair those?
- Are people going to be upset about that?
We make decisions to make sure we're keeping people whole. But then, those intangibles are where it's difficult.
Is this a more mature company with more of a corporate culture where they've defined lines, or are they more flat? Those considerations play an important part in how we look at a deal. Because what we don't want is for them to come in and say they can't work with a company like this because it doesn't work for them.
It's never perfect. You're getting interviews when you're doing diligence. You're getting their best foot forward. On the other hand, you're not going to get the negative side, so you must read between the lines occasionally and decipher that.
It's not easy, and you don't always get it right, but try to learn from that. Try to make the transition as seamless as possible. Tell your people to continue to do their good job and that their job doesn't change just because the company logo changes or something like that.
We make it easier for some companies or gradually ease into it with other companies. We're going to give a grace period of six months. The target can continue to call themselves the same, but we'll transition that slowly over to our company after some set period of time that makes sense. It's a tough one, but it certainly has to play a role. You can't ignore it because the last thing you want is to lose major talent.
Challenges in aligning stakeholders
We've been trying to make those decisions upfront. From a technicals perspective, some of the key decisions are:
- When do we switch over their technology?
- When do we switch over their CRM?
- When do we switch over various systems internally?
Getting those decisions made upfront is really crucial because there are things you don't think about when you're acquiring a company. It can greatly impact the employee experience of the target you're making or acquiring.
There are conflicting desires in some groups. We need to move everything over to day one because that's the easiest for my group. Or some groups would want six months to get aligned and do that. Particularly internally, that's where a lot of conflict comes in.
As it relates to the business decisions of stakeholders, they'll ask whether we're going to change the go-to-market strategy that we had put in the deal model, or that we had come up with for the thesis for the transaction.
We want to change that because we don't think it works. So we get involved in that. We tend to defer to the business on what makes the most sense, but we need to make sure if there's a deviation from what we had said previously, why are we doing that?
- Is it going to cause problems with clients?
- Is there going to be an issue there?
- What's the benefit of doing it a different way?
That's where having a strong integration team and having us aligned with that is important because some of those decisions, mainly, you can come up with a go-to-market strategy as the buyer.
There are certain rules in how you interact with the seller in terms of how you will go to market post-acquisition until you've closed the deal. You have HSR restrictions and things like that. You don't want to be seen as operating the company combined before owning it. That's where you start to see some deviations from what you had expected.
That's where we come in. We need to know what's going on. We need to be aware of it to track if it's the same deal we've put together or if it's changing. The other reason is so that we can provide insight into what we think. So that's another critical area because it helps us explain to the teams and all the people we worked with during the deal.
Sometimes we say things during the actual deal, but things change, and you can't just stay poorly rigid and stick with what you put together 12 months ago, then information fails. So, we are involved in all that.
That's the Hart-Scott-Rodino Act. It's basically antitrust. It dictates anti-competitive behavior, and for all transactions over a certain size, like 90 million or something like that, you have to file with the government to get approval for the transaction. And often with that, you have to supply deal materials, communications, things like that that the government reviews to make sure you're not doing anything that will impact the consumers or clients.
So think of things like pricing discussions, talking about what will happen once you buy the target. Avoid talking about dominating the market once you acquire them to ensure you get approval.
A lot of those go-to-market discussions and joint discussions on how you're going to approach a certain client, you can't really do that until after you actually own the business. Because the question then becomes: are you buying this business to get rid of the competitor so you can raise prices? And your clients have no outlet or channel aside from you after this acquisition.
It gets sensitive on some of those topics, particularly regarding clients, sales, and go-to-market. This applies to private companies as well. We were making the same rules that applied to us before our IPO.
While we don't have a dedicated team for every deal, we have a significant amount of continuity around who's involved. So, the teams that do the diligence, take for instance the technology team that's doing technology diligence on the deal, they'll be heavily involved in integration.
We don't have an Integration Management Office (IMO) yet. That's something we're thinking about and seeing how it works. We have specific project managers who have done it before. We have one lady who's super organized, hawkish, and on top of things and who has had some reps. She's been like our de facto IMO, working with us on a couple of deals.
We have the right people and the right teams. So it's more a matter of making sure it all comes together and having more involvement from the Clover Development Strategy team on top of all of what we have right now.
We have all the right places in place. It's just a matter of making sure it continues with that process and continuing improvement and there's the higher level strategy continuity on why and what was intended. Because one of the other issues that come up often is you've got Transition Services Agreements (TSAs) or other things.
You can only put so much on legal documents; believe me, they put plenty, but you can't spell out every potential scenario in those. Otherwise, it would just be thousands and thousands of pages.
Helping to interpret the intent on certain things and what was discussed and maybe verbally agreed to. So to honor our word and ensure we're keeping in line with what was told to the employees and the sellers, having our interpretation of that is also helpful.
Building the integration muscle
It's a great question. We do currently use some external resources. We'll bring in some consultants and things like that. A lot of it is more for excess capacity and extra pair of arms and legs because many of our people aren't necessarily dedicated to M&A or integration. They've got their day job and this is something that's added on top of it.
When you're going through a particularly big integration or something that you're maybe not getting all the resources for the carve out in particular, we'll bring in third parties for sure. They should be great at what they do, they're professionals and experts at it so they can help out with that. But the flip side of that is they're extremely expensive. There's that element to it.
If you're going from consultant to consultant on different deals, you don't necessarily always have that continuity or familiarity with:
- how we do things
- what our business is
- how we're structured
And so, you end up with some reeducation on how we want to do it and how we want to do things. This isn't a perfect world, but if you can have those resources in-house who get those reps and who can take those learnings from one scenario to the next, and they're familiar with the company because they work here, that is an ideal situation.
Looking at it through an M&A lens, that's easy to say because I don't control the whole budget and things like that. That's obviously a perfect world. It only really applies if you're kind of a serial acquirer as well, if you have those constant workflows, integrations, and constant diligence going on. That would be the perfect world but we don't live in one.
Sometimes, if you're opportunistic, which we sometimes are in M&A, or when we come across a deal that makes sense and we're moving more quickly than we usually would, and we don't have a lot of time to get the resources in, we will have to bring in some third parties to help out.
How a Corp Dev Should Start Adapting
I would first take a look at what's working for you. Have you had problems with integration in the past? If the answer is yes, then let's consider how you look at that. What you described, I've certainly seen. Let's start thinking about diligence two to three weeks before we sign or close the deal.
What are some of the issues with that? First, you will have to bring someone up to speed who's coming in totally cold.
- Do they know why you're doing the acquisition?
- Do they know who the players are on the other side?
- Do they know what outcomes you're looking to get from the integration and the deal?
Likely not. Let's think about how we can make it as seamless as possible. Let's consider bringing in that person.
You don't need to bring them in on every deal when going through the Indication of Interest (IOI) phase because for every IOIs you send out, you might get to full-on diligence on a handful of them. You don't want to waste people's time, so I understand the concept of bringing in people late, but sometimes it's unavoidable.
We've certainly done a fair amount of proprietary deals, but we also have a good amount of bank deals. Our CEO has good relationships with many companies, so we were able to take them off the market first. But in a bank deal, you're against the clock. So you don't have as much room to negotiate and move on your timeline as you want.
Getting those people early who will be working with their counterparts, whether it's for diligence or immediate integration right after the deal closes, especially if you're talking about a sign and close, you can avoid quite a few pitfalls and delays if you do that early.
There's a fine line between diligence and integration. A lot of diligence questions have integration implications to them. For instance, if you look at treasury, bank accounts, and things like that, that's the question you want to ask during diligence because it's needed for understanding how the company's cash flow works.
But at the same time, you're thinking in the back of your head, on day one, you will have to close a bunch of these bank accounts and transfer funds and do this kind of thing for some period of time if we acquire this deal.
If you're doing it the way where you're waiting until just a few months or a few weeks before a close, you're not necessarily setting that person up for a lot of success. They won't know their counterparts or where the diligence pitfalls were.
We have two or three times a week calls or we have all the work streams get together so they all can hear some of the issues that each work stream has, and it can sometimes be a bit tedious. If you're doing it all in silos and not having those conversations, you can certainly miss a lot. That person coming in late will not have that wealth of knowledge. Then they have to decide on their own, it gets ignored and then they have to problem-solve it on their own, which is not the position you want to put them in.
Bring them along for the ride so they're not just playing catch up the whole time. So that's the idea, but it doesn't always work that way because sometimes you go into a diligence process but there's still some pretty big dating items that we need to get to the bottom of before we really give that green light on it.
But yeah, to the extent you can, particularly for those workstreams that will be very much involved in diligence. And I'm probably biased, but like a lot of the big ones are going to be technology because we're buying technology companies, HR, because you want to keep your personnel there and those kinds of things. Finance for obvious reasons. Those are critical ones to have very early on and have them thinking about integration.
There was a call early on one of our last deals. That we should start thinking about integration today. Everything that you're doing should be in the guise of one, making sure there's no deal breakers or anything that impacts valuation.
Obviously, that's diligence, but also, let's start thinking about integration right now. What are these diligence findings, and how do they impact integration? How are they going to impact what this looks like on our books?
When we had very clear and consistent business sponsors for deals, I've seen that they're very much aligned with seeing all this and thinking about it upfront. Some conflicts do arise post-close. Anything that can make their job easier, they're typically onboard with because a bad integration, slowness to market, any hiccups that cause problems with clients is going to impact them. The smoother that transition can be, the better for them.
Every so often, I'll shoot them some IM or talk to them about something we're going to decide on or have to deal with in the first week after closing. I remind them because they've got a million different things going on and just like everything else, integration isn't always on the top of their mind.
They're thinking about how many salespeople, revenue, or cost they will get. Will they need to right-size any of those? How are they going to market? Stuff that business people should be thinking about, and stuff you want them to think about. But at the same time, there are things they need to be involved with that aren't quite as sexy as those elements but can have just as much of an impact on it.
If your employees can't access email on day one, you're screwed. In terms of clients and managing the business, and things like that, it can cause a lot of problems. While it's not how the synergies are going to look like, it's very much related. You will not be able to execute on any of those synergies if this business isn't running the way we want it to.
How to measure integration success
Employee retention is one way to look at it. It's not necessarily the defining factor but you hear about it if things are going poorly. If they're managing two different email systems and they're not able to see certain things on the Alight side and other employees can see, you hear about that.
That's one of those things where no news is good news. If you're not hearing negative feedback, you're probably doing it okay because it happens quickly where you start to hear that negative feedback on where things have gone wrong, and that's employee experience.
Two, measuring success is, you put in a business plan and a model, that's how you get to the valuation. The closeness to that ultimately when you're doing a postmortem 6-12 months later or whatever it is, and the deviations from that, the hits and misses, those kinds of things are kind of a very easy, quantifiable way to tell whether it's been successful.
To me, integration plays a massive role just because you can't execute on those things. You can, but it makes it much more difficult if things are running poorly, and it's not integrated and you've got duct tape and band-aids on certain things that you're just trying to cobble along and bring together. Those are two fairly easy metrics to see.
There's also an overall, it takes some time, but you start to see success from some of the people in the target company. Sometimes that means they're getting bigger roles within Alight or they take on a bigger leadership role within the target.
To me, it goes hand in hand with retention. But a good integration experience and a good employee experience will help create that pathway for success for employees and open up bigger opportunities. Because typically, we're buying smaller companies who have opportunities in them, but when they become part of the bigger organization, all of a sudden, that starts to open up doors. But if things are dysfunctional and you have a really bad experience your first six months with the company, you're probably not going to either:
- stick around for very long
- Or go that extra mile to get that recognition to where you can grow your career within that company.
And we've had several of those within Alight that have come in here and gone on within Alight to do even bigger things than what they were doing. So that makes me happy to see that kind of thing.
Some of those are easier to see than others, but you get a good feel of it. You get a sense of it. It's not a hundred percent quantifiable, but when you've done a bad integration, it's easy to tell that. Short of that, then you can start to notice some of these other things and say that actually went well. That worked out well for both companies.