- June 26, 2019
- Posted by: Ramkumar
- Category: Mergers And Acquisitions
- The strategic rationale for an acquirer to do an acquisition is to capture market share, entry into new markets, accessing new technology/capability or adding new product/service offering.
- As the acquisition rationale in most of the recent deals is to increase revenues as against reducing costs, capturing revenue synergies becomes the critical parameter in integration that will decide the success of the deal.
- The integration strategy for the deal follows the strategic rationale and deal thesis that was responsible for the deal to take place.The revenue synergies targets are arrived in the due diligence phase after identifying the opportunities that could add additional revenues for the acquirer. At the same time, the risks present in this transaction for acquirer and how these risks can be mitigated is also documented in the due diligence report.The Integration manager devises his integration strategy based on the Due Diligence report and identify the value drivers that can contribute to revenue synergies.
- The integration strategy also describes how would the target company be integrated in the acquirer organization.Based on this, Target Operating model for the combined entity is arrived.The future state operating model would capture the overall revenue synergies and value addition in the medium to long term.
At What phase of the M&A deal should the Integration be involved?
- In order to achieve deal success, it would be better if the integration team is involved early in the deal, atleast in the due diligence phase.The integration team should have a clear idea on the deal rationale and investment thesis behind the acquisition.The integration team should be led by the Senior Sales leader in the organization and should involve members from Due Diligence and other functional areas of the organization.
Day 0 Integration Planning
- The Day 0 of the transaction is when the deal is announced by the acquirer. Before this, the following activities should have been completed by the acquirer:
- Identifying the integration leader and the key members of the Integration Management office.
- Reporting structure of the target management team.The revised organizational structure of the combined entity can include either the relevant/best sales members of both organization or the target CEO can report into key business leader in the acquirer organization.Both approaches have merits but the important point is to identify the leadership team for the combined entity and integration leader responsible for overall integration strategy and success of the deal.This will ensure transparency and clarity to all the stakeholders.
Plan for Day zero integration and important activities to be implemented in Day zero integration.
- The announcement of the deal would create uncertainty among the customers, employees and channel partners of both Target and acquirer entities.This uncertainty can be due to in the target employees anxious about their future role, their job certainty and their reporting structure. Customers of the Target would start to worry if their services from Target would continue or if there could be a disruption due to the acquisition.
- The key approach for successful Day zero integration is to ensure there is no disruption to the customers and to their service or revenues of both the entities.The business operations of Target and buyer needs to continue normally and Target sales team should continue to focus on their daily activities to attain their quota/targets.
- The integration team needs to reach out to Target customers to assure them that there would be no impact to the services.In addition, the integration team needs to communicate to the customers, the rationale behind the acquisition, deal thesis and how this acquisition would benefit the customers in longer term by providing additional services to the ones already provided.This would mitigate any anxiety that the target customer had on the proposed acquisition.The customers would also be happy that they are involved in the integration process by the buyer which gives less scope for customer attrition risk or poaching from the competitors who take advantage by exploiting this uncertainty period.
- The acquirer need to have a detailed communication plan for target employees who might be affected by the announcement of this deal.The target employees needs to motivated and promised that this deal is the best that can happen to them.The target sales employees need to given assurance that they would be no change in their sales targets, incentives and accounts they own.They would be no change in their current reporting structure and they shall continue to report to their current managers.
- The objective of Day 0 integration is to protect the existing business from any disruption and ensure that there are no Customer/Employee attrition risks posed by uncertainty period post deal announcement.
Day 1 Integration Planning
- After protecting the existing business and customer base followed by clear communication strategy for Customers/Employees on how this deal would benefit all the stakeholders, the acquirer would start with Day1 Integration.
- Day1 integration is when the deal is closed after the regulatory and antitrust team gives their approvals on the proposed acquisition.
- Day1 Integration planning can broken into 30-60-90 day planning cycle for easy planning and tracking of goals
Activities from Day 1-30
- This phase would involve the integration team communicating the proposed deal rationale to all the stakeholders and how this acquisition would positively affect each of them.These communications would happen by way of townhall meetings, department meetings, team meetings and 1-1 meeting.The messaging needs to be consistent and align to the deal thesis and strategic rationale.
- Sales incentives and compensation of Salesforce that linked to the goals/target.The goals are aligned to the KPI which are the growth drivers identified in the integration strategy to capture revenue synergies.
- The back office integration of IT and Finance systems should start to happen.The data model capturing the current sales operations of the target like Opportunity management, configuration, Pricing and Quota Management needs to identified and migrated to acquirer SFA – Sales Force Automation.The target accounts and books closed at Day1 needs to be migrated to buyer accounting system.The sales team would be responsible for achieving revenue capture/synergies and Finance team would track the synergies achieved.
- Reporting of Target and buyer sales operations needs to be available. The report should include KPI like revenue booking achieved, order backlog status and pipeline management.
- Employee onboarding should be completed after giving access to target employees, the acquirer payroll system, internal sales and finance systems and generating Employee ID, pension ID and Insurance ID.
- This sales team should be assigned additional targets and given incentives for pitching in the services of the target/buyer.Incentives for achieving quota for cross sell revenues are also provided.
- The Sales operations team should have access to an interim CRM/Sales systems where the booking/billing numbers and pipeline management of both buyer and seller are available
- The sales force of both the buyer and seller needs to be given training on the portfolio of cross sell services/service bundling that needs to be pitched to customer.
- Joint account planning is done for the key accounts.For accounts that are overlapping to both buyer and seller, detailed planning on who will manage the account and any change in pricing due to the effect of acquisition and upselling additional services should be undertaken.
- In this phase, maximum interaction between the buyer and seller employees are encouraged by assigning them on joint projects or the combine sales force should jointly hunt for a new deal that requires the services of both buyer and seller.
- This is basically the end state of the target operating model where the sales operations processes and system of buyer and seller are integrated to track the synergies realized.
- At this stage, salesforce of both the entities are working on the quota assigned for key accounts and on cross selling/up selling targets.
- The sales process is harmonized with complete visibility on sales data of both buyers/sellers which enables tracking of synergy targets.
- The value drivers identified during integration planning are evaluated to check if they provide revenue capture.Some of the key value drivers would be Pricing, Bundling of services, Cross selling each other services and increasing the account coverage by providing services in new geos or penetrate underserved customer segments that would contribute to revenue synergies.
- Customer contract agreements needs to tweaked to include services of both the target and buyer along with new set of T&C and revised pricing.
- Sales Integration is the most critical part of integration process to attain revenue synergies targets by cross selling each other services and target new customers/markets.
- Addressing sales integration by retaining customer base, key employees, building opportunities pipeline and robust customer communication management increases the probability of success to achieve revenue synergies and long term growth from the deal.