Why 100 Day Integration plan is critical to realize the deal synergies post acquisition in M&A?

Introduction

  1. Over the past couple of days, I have been writing on how a detailed Integration plan is extremely important for the acquirer to capture anticipated deal value and synergies.
  2. My first post talked about having a pre-close integration plan ready and started once the deal is announced to prevent any uncertainties that could disrupt the potential value of the deal.The link to article is here
  3. This will help the acquirer to be prepared with Day1 Integration activities and readiness list.A successful Day1 will go a long way in helping the acquirer build trust with target employees.The link to the article is here
  4. A successful Day1 will put the acquirer in a better position to execute integration in accordance with the deal objectives. The target employees will be better prepared to support the acquirer to achieve deal objectives .They would have a clarity on the rationale behind the acquisition.
  5. Now the acquirer needs to take a step further and design a 100 day plan that would build an end state operating model to capture deal synergies.The target employees are looking at acquirer to chart the next course of action.Prior to the closing of the deal, the acquirer would need to share his integration plan with the target leadership to get their buy in.The target management would continue with the organization post Day1, hence the target leadership can drive some of the activities of Integration plan with their target employees.This would receive better support from the employees which inturn can increase the speed of integration.

First 30 days after Closing

  1. In the first 30 days, the acquirer should focus on activities that would stabilise the business to minimize any disruption in the ongoing business.The acquirer should protect the business from customer and employee risks.The employee morale needs to be good.The employee onboarding needs to be completed by this time and should be a seamless experience for the target employees.Basic functions like employee payroll, compensation plan and benefits changes needs to be implemented.
  2. In parallel, the acquirer should look to integrate the accounts function and related systems of the target to gain access to target accounts, general ledger, invoicing, Account receivable and payable functions.The month end close would require accounts of the target and acquirer to be combined and entered in the books.Prior to that, the acquirer should align the accounts and reporting of target to GAAP and IFRS standards.
  3. The IT systems of the target needs to be integrated with acquirer.Important systems that capture details on Sales, Vendor and Customer needs to be selected.The data from these systems needs to be migrated to the acquirer systems.For customers and vendors, additional customer code/vendor code needs to created in the acquirer system to track revenues coming from them.
  4. Integrating the sales systems with target will help the acquirer to track the pipeline, backlog and bookings.
  5. In many cases, a temporary system would be created which will capture the target data.This data would be then merged with acquirer respective systems.
  6. The HR systems should be integrated so that employee records of target are combined with acquirer.This would help in releasing the compensation, including them in benefits policies and also in aligning the target employee to the performance management system of the acquirer.
  7. In the 1st 30 days, the target employee should be given training to use acquirer systems like timesheet entry, using performance management for appraisals, raise claims and travels.

31-60 Days

  1. Once the acquirer is able to successfully integrate the backoffice functions like HR, IT and Finance, then acquirer is in a position to completely track all important information of target.
  2. The acquirer then compares the synergy targets that was arrived during diligence with the current numbers.Due to limited time and access to target’s complete information, the synergy targets estimated during due diligence might vary at the Integration time.The acquirer then resets the synergy targets based on the latest data along with the timeline to achieve the targets.
  3. Once the acquirer arrives at the revised synergy estimates along with the timeline to achieve that estimate, the acquirer identifies the value drivers that can generate incremental value.
  4. Depending on the time taken to achieve the value, the acquirer identifies the value driver that adds maximum value at shortest time to get quick win.
  5. The acquirer need not integrate all the functions of the target.The acquirer only needs to integrate those functions which would generate maximum value.In cases where acquirer feels that integration would not add any benefits or in some cases be risky, then acquirer can allow the function to run independently.
  6. The degree of integration and post closing governance is based on acquisition strategy.In a bolt on acquisition, the post closing governance could be target run as a standalone entity and integration can be selective.
  7. Areas that is perceived to benefit both target and acquirer can be integrated.For instance if customer satisfaction is the strength for both acquirer and target, then the related process can be integrated.
  8. Hence the acquirer should integrate only those functions which will generate additional synergies. Once the functions are identified for integration, then resources will be allocated and made accountable to achieve the synergies.Each functional integration will have a stream lead who will be responsible for the synergies targets to be achieved in a specific timeframe.

61-90 Days

  1. This time should be for integrating the Salesforce of both companies.The sales model of target and acquirer needs to be analysed in detail during the 1st 60 days to identify the sales compensation, incentives mechanism and how targets are achieved.In addition, the common customers are identified.For customers that are unique to Target and Acquirer, it would be better if those accounts continue to be run by respective entities to meet their targets.The potential for cross selling other services is purely opportunistic and no targets for cross sell should be provided atleast in 1st year.
  2. For common customers, revenues by customers for target/acquirer is arrived and one that get more revenues are generally assigned to own that account.
  3. While integrating the Salesforce, it is good to align the process of target/acquirer so that sales compensation,goals and incentives are standardized.
  4. Integrating Salesforce is extremely risky and needs to be planned in a careful manner.The best sales personnel needs to be identified and retained by providing incentives and perks.
  5. If cultural difference between the acquirer and target is very high, then it is preferred to run both the entities separately. Any effort to integrate cultures would cause value erosion and might end up key employees leaving.

Conclusion

  1. The 100 day plan should allow the acquirer to integrate selected functions or process that would generate immediate value.
  2. When deciding the final integration plan, the acquirer should get the buy in from target leadership.Involving the target leadership in the transition period would increase the speed of integration.
  3. The acquirer should not integrate those functions where there is a risk of losing value and revenues.In those cases, the target function should be allowed to operate independently.
  4. The end state operating model should come to effect at the end of 100 days.The model can further be validated and tweaked in order to capture synergies.
  5. The Integration office has two key goals – To ensure no revenue is lost and business runs normal in the 1st 100 days and at the same time build an end state operating model to capture synergies.


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