Importance of Mergers and Acquisitions Integration Strategy

Mergers and Acquisitions Integration Strategy

Mergers and Acquisitions integration strategy is a crucial component of the M&A process and is a critical factor to the overall success of the deal.To increase the probability of success, a sound Integration strategy is very important.
Integration strategy should be in place before the deal announcement.Post due diligence, when deal team is negotiating the SPA agreement, the acquirer should have started to build an Integration Management office along with the Integration manager who shall be tasked with the responsibility of integration.

Critical Component of Mergers and Acquisitions Integration Strategy

  1. The integration strategy is primarily decided by the acquirer executive team and once the team reaches a consensus, they involve the target management team to share the high level integration strategy.
  2. The integration strategy should basically cover the value drivers of the proposed deal and synergy projects that needs to be prioritized, which would needs to be planned and executed immediately post the Day1.
  3. The other points like reporting structure, target operating model and communication strategy also needs to be finalized. The communication strategy should include how the customers and external media will be addressed on the deal rationale and who will take care of the media communications.
  4. In case of companies with divergent cultures, it is prudent to allow the cultures to allow to operate independently and efforts should be undertaken only to integrate those process which have a dependency.For the process which needs to be integrated, it would be better to have a process which is high performing and merit oriented.
  5. For teams with divergent sales model, the executive team should provide guidance on how integrated the sales team will be, terriority coverage along with performance targets and designing an incentive model for meeting annual targets along with meeting synergies targets.
  6. The hiring and retention strategy needs to be agreed to along with plans to engage with the highly skilled talent to retain them in the organization.The process for hiring an external hire, which could be a senior executive or a normal employee needs to be addressed.
  7. If the deal structure includes earnouts structures, then the executive committee should decide on the authority and power of the target post acquisition.In general, the target would want to have complete control of their business so that it would be easier for them to reach their earnout targets.
  8. The integration management office would be tasked with the governance model along with key roles and resources assigned to the IMO.
  9. The stabilization phase post acquisition to retain customers and employees is extremely important to the integration success.There is a high chance of competition poaching both the customers and employees if this phase is not properly handled.The phase immediately post acquisition is a period of high uncertainty and turbulence, so if proper communication strategy is not there, then the integration can quickly erode existing value.
  10. Important hairy issues which are highly contentious between acquirer and target are not decided at this point and pushed to a later stage.This is not correct and it is better if these disputes are addressed atleast to a certain extent prior to the integration.These issues generally can result in high ego conflicts between the two parties which can deteriorate to an extent of ruining the deal.To mitigate such conflicts, many companies hire consultants to guide them.The consultants will ensure that the parties focuses on the objectives of the deal.

What happens on the lack of adequate integration strategy

  1. A lack of adequate integration strategy would derail the deal.The integration strategy requires a directional guidance from the executive team.This will help the IMO to come up with an operational integration plan that is aligned to the integration strategy.
  2. In addition, the integration strategy should not be restricted only to the strategy, the executive team should also review the integration plans along with milestones and deliverables to confirm if the IMO is following a right direction on integration
  3. Integration strategy is a strategic eexercise where the strategic guidance has to come from top and perfect execution is bottom-up.In some cases, the integration execution can happen at a faster pace than integration strategy.This is not right and can result in cost and effort overruns.

Conclusion

  1. Mergers and Acquisitions Integration strategy is the most important success factor that determines the success of integration.The integration strategy should cover the value drivers of the deal along with lists of synergies projects that needs to be executed immediately post integration.
  2. The integration strategy decides the degree of integration between the target and acquirer along with the target operating model which covers the organization structure post acquisition.
  3. Lack of an Integration strategy and proper executive directional guidance would result in a haphazard integration planning which would integrate activities/process that does not provide any value addition or support in meeting the synergies targets.


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