Integration Planning during Due Diligence in M&A Deal

Integration planning during due diligence in M&A deal

Integration planning during due diligence in M&A deal is vital for its success. Majority of the M&A deals do not achieve the expected success rates and one of the main reasons is inability in identifying value creation opportunities much earlier during the Due diligence.
In this blog, we shall discuss on the importance of involving Integration team earlier during due diligence and the benefits that can be achieved in realizing value and speedy execution post deal announcement.

Role of Due Diligence Team

  1. The Due Diligence team is involved in Target screening to identify the right target for acquisition based on Strategic fit, Quality of Target Management and attractiveness of Target capabilities.
  2. The Due diligence team is responsible for evaluating the target business operations and financials to come up with Quality of Earnings report and commerical business review of the target company.
  3. The Due Diligence facilitates discovery sessions with Target Management team and identifies risks in the target Sales, Financials, HR, Legal and IT that can impact the valuation of the Target company.
  4. The Due Diligence team involves resources from Functional teams like HR, Sales and IT to identify risks, one time costs and the functional Integration issues that can rise after deal is closed.
  5. Once the due diligence team confirms that there are no deal killers and show stoppers that can derail the deal, it then identifies the synergies that can be realised as the result of this transaction.The synergies can be either cost savings or opportunities for adding revenues.The identification of Synergies can impact the valuation of the target company.
  6. The Due Diligence team then coordinates with functional leads who were involved in Due Diligence to come up with a Due Diligence report that documents the risks identified in the deal, actions to be taken to mitigate the identified risks and the value creation opportunities that exists.High risks identified will lower the valuation and high synergies identified will increase the valuation of the target company.
  7. The final Due Diligence report is then submitted to Investment Committee and Board to get their approval.Based on the findings of the reports and recommendation, the deal can either proceed further with Definitive agreement or will be abandoned.

Importance of Integration planning during due diligence in M&A deal

  1. Based on the probability of the deal to progress to deal signing phase, the integration team is included in the Due Diligence stage.If the deal team thinks that there is high probability of the transaction proceeding further due to the lack of identified risks, then including an Integration team proves to be far more beneficial.The benefits will far outweigh the costs incurred.
  2. The Integration team will assess the synergies identified by the Due Diligence team and identifies integration risks post acquisition along with Integration costs to be incurred.
  3. The transition from Due diligence team to Integration team should be smoother.To have smoother onboarding of Integration team, the Due Diligence team needs to share the findings of the deal with Integration team.
  4. The Integration team should also have discovery sessions with Target management to identify the Integration Strategy, Target operating model and the Final Organization structure post acquisition.
  5. Based on the deal, value creation opportunities are identified.Areas that impact the most are identified and prioritised for Integration planning.
  6. The Integration team also assess the quality of Target management, its credentials, skillsets and its ability to add value to combined entity.
  7. The Integration team identifies the critical employees that needs to be retained post acquisition and the revised headcount of the combined entity.
  8. Finally the Integration team assess any misfits and alignment issues that can arise between the target company and acquirer post acquisition.This would primarily be the cultural fit issues which can impact the value realization.The Integration team needs to have a Change Management plan in place along with a communication strategy to address the cultural risks.
  9. In case of deals where Synergies play an important role in final valuation, Clean teams can be appointed to come up with an objective Synergies target.Clean teams have access to the data of both the target and acquirer.This synergies target would be shared with the acquirer who further revises the final valuation of the target company.
  10. The Integration team then finalizes the integration governance structure to resolve issues, address escalations and monitor deal progress.An Integration manager is identified who will manage the Integration Management Office and report to the Steering committee on the deal progress.
  11. An Integration scorecard needs to be finalized that tracks the KPIs of the deal.

Benefits of integration planning during due diligence in M&A deal

  1. Involving an Integration team during pre-deal due diligence stage helps in jump starting the integration planning and increases the probability of the deal success.
  2. By getting involved much earlier, the Integration team has precious time to gain insights on the operational process of the target, determining integration costs, finalize the synergies targets and in determining the integration timelines.
  3. This can accelerate the Integration execution of achieving synergy targets and mitigate any uncertainty and risks that is encountered post announcement of the deal.


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