M&A Integration strategy for integrating different deal types

M&A Integration strategy

In a M&A transaction, the M&A integration strategy, process and timing would vary when a buyer acquires a company that is substantially different to its core business.
Every deal has its own rationale and this rationale should dictate what, when and how to integrate a target business with the acquirer in order to maximize value creation and minimize potential value erosion.
Hence an organization cannot adopt an “One size fit all” mindset towards integration.

M&A Integration strategy in a Platform transaction

  • Many times acquirers buy a matured business and leverage the acquired platform as a springboard for its rapid growth.
  • Platform deals not only add revenues and customers to scale the acquirer’s existing core business, service lines and solutions.These deals are not tuck-in acquisitions where the target company fits into the existing product line of the acquirer as a gap fill or service line extension.Platform deals are where the target business is completely orthogonal to acquirer business and its operations.
  • A platform deal is a leap frog strategy where the target company’s brand and identify needs to be preserved, leveraged and developed along that new vector.
  • Hence a platform entails a deal where the buyer has acquired a business that is substantially new, different and where the buyer has never operated before – either on scale or in prominence.

Importance of Deal type DNA in M&A integration strategy

  • A Deal type DNA refers to the nature of target company, its capabilities and assets relative to the buyer company, capability and assets and to the underlying deal rationale.
  • A deal type DNA helps the deal makers and the integration executives define and address the key integration strategy questions – 1)What are we acquiring? and 2)Why are we acquiring?
  • Without addressing the above questions, many companies execute their standard funtional integration checklists.This will result in value destruction.

Different Deal Types in M&A integration strategy

Some of the common deal types include:

  • Scale Deals – The core rationale for pursuing such acquisitions is to expand core businesses which are common to both buyer and seller.The major objectives for pursuing such deals is Consolidation, Cost savings and reducing competition.
  • Scope Deals – The core rationale to pursue such deals is to broaden acquirer service offerings by adding capabilities, products/services, brands or expanding into different geographies.Such deals strengthen the buyer’s existing service offerings.The key objectives for Scope deals include Product innovation, cross selling and accelerating the seller’s products/services through the buyer’s customer base, channels and Go to Market capabilities.
  • Different DNA deals – In this case, the target company is a mature entity and division.The key objectives for pursuing such deals is to leverage the target business, investing in the target platform to further expand and adopting operating model elements of the target business where needed.The target company continues to operate independently and maintains its identity.

Integrating Platform acquisitions in M&A integration strategy

A platform acquisition cannot be integrated in a same way like that of tuck-in deals, scale/scope deals.The following approaches needs to be followed when integrating Platform acquisitions.

M&A Integration strategy 1 – Preserve and leverage Target Value drivers

  • The buyer must focus all its integration actions on preserving the target value drivers.For instance, Amazon acquisition of Whole Foods for $13.7 billion is a great example of preserving and leveraging the target value drivers.
  • Amazon acquisition rationale was to leverage Whole Foods customer base, local distribution network and physical stores location to drive its online business
  • Amazon was able to leverage the combined customer bases to launch cross sell and cross promotion opportunities.Amazon was able to use Whole foods physical stores to display its products.

M&A Integration strategy 2 – Retain the Target’s organization and Operating model for longer time

  • The buyer needs to delay the integration of target business especially when the target company is entrepreneurial and has talented technologists, user experience designers which the buyer does not have.
  • This is necessary because the buyer needs to retain the target culture which attracted the best talent else this would result in deterioration of deal value.

M&A Integration strategy 3 -Keep the Target sales team seperate but closely coordinated

  • As the buyer does not have expertise in target products and services, it is not prudent to integrate the GTM organization of buyer and seller.In some cases, the target may be operating in a different geography than the buyer.
  • Hence to attain revenue synergies, the target GTM team needs to operate independently.The buyer can also leverage the target brand to sell its products and services.
  • The buyer can provide additional sales support and training to target’s sales team to boost the revenues.

M&A Integration strategy 4 -Do not disrupt the target company product development, delivery and customer experience

  • The target company may have built it’s own proprietary processes in order to deliver a service to its customers with superior customer experience.
  • The buyer should perform a detailed study of the target processes and evaluate which of the processes can be integrated.
  • If the buyer feels that there is no similarity to its processes with target business, then the buyer should allow the target operating model to operate independently.
  • Any attempt to integrate the target processes with buyer organization will disrupt the target business resulting in deal destruction.

The degree of Integration should be aligned to the M&A Integration strategy

  • When the target company has a different operating model, customer base, systems/functional requirements then it is better to delay the integration till the buyer completely understands the target business and its operations.
  • A quicker and immediate integration will results in an integrated service offering which would not meet the stated customer requirements.

Position and validate the target business services within the buyer organization

  • The acquirer’s senior leadership should create awareness of target business offerings across the organization.
  • This would result in creation of new growth opportunities which can result in increased sales and revenues.

Conclusion

  • Integrating a platform deal where the buyer and seller business model, operating model and the process are orthogonal to each other requires a different M&A integration strategy compared to a tuck-in deal or a scale/scope deal.
  • Platform deals are complex and risky, but if integrated correctly can result in significant value creation and revenues addition for the buyer.


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