Building the Business Case for M&A Integration

Building the Business Case for M&A Integration

Closing an M&A transaction can take time as the process itself can be very consuming, which tests the endurance of management teams and the financial advisors committed. It can also be costly as it M&A process includes the acquisition costs and the time and effort spent to close the deal, along with the legal and financial due diligence costs. However, the most challenging of all is the integration of executive-level leadership. This integration can be difficult for many causes: egos, leadership styles, and operating cultures, among others, thus until these get settled, it is difficult to gain traction with integration and transition to the new. In this post, i give my insights on building the business case for M&A integration.

Measurement of M&A success

From a real business viewpoint, the following benchmarks are typically applied to measure a deal success:

1. Cash flow
2. Quality of new products and services
3. Extension into new markets
4. Revenue of the merged entity
5. The share price of the merged business

So when mergers go wrong, what’s the cause? Every integration is different, but in my view, the deal fails because of the following reasons:

1. The principal problem that businesses fail to recognize they have conflicting strategies till the integration process has started.
2. Poor communication is a problem in almost every M&A, and the principal reason is always that information and decisions can be late to develop, so people get worried as a result. Integration managers must push communication planning because senior executives tend to under-communicate.
3. When new management teams can’t get forward, fix issues, or plan well collectively, many things will suffer. Conflict is inevitable, and a little conflict usually gives better results. When the conflict ends in paralysis and execution dysfunction, however, it can significantly delay integration success.
4. Cultural assessment risks and clashes can become so distracting that they can crush integrations to a standstill. Culture conflicts also make most employees concerned and, in many cases, utterly miserable. 

I’m giving all of this data on the complexity of integration during M&A because it’s difficult, and if you don’t discern going in, your odds of a successful integration reduce significantly. Securing post-merger or post-acquisition resources will typically need someone to make a case for employing additional outside or dedicated internal resources to close the integration. In my experience, the post-acquisition integration support gets often ignored, underfunded, or an unfortunate combination of both.

To get ahead of it, we should do the following things:

1. The majority of integration management should start quickly after day one, or you will be falling behind and repairing problems rather than anticipating them. 
2. A wait-and-watch attitude sets you and your businesses at an extreme disadvantage. You’ll finish up being reactive instead of proactive. 
3. Customers typically expect merging businesses to have the bulk of their customer problems solved within 100 days after the closing.
4. Customers will be relatively tolerant of errors, glitches, and bumps up to that time, but after about 100 days, they require things to be business as usual.

Making a Business Case for M&A Integration

You must ensure that your company’s senior leaders understand integration challenges to build the business justification for integration support. Only a few firms are continuing acquirers who deal with post-merger or post-acquisition integrations year after year. For most, integrations are occasional transactions for which there is limited understanding.

Any good M&A strategist will describe the risks of a strategic recommendation and the risks of doing nothing. The potential traps of poor integration planning include the following:

1. Too much focus on making the deal closed instead of making the deal work.
2. Too little focus on operational, cultural, strategic, and organizational evaluation.
3. Overreliance on process and tools and retreat of challenging issues such as culture and politics.
4. No pre-close planning, which puts integration in catch-up mode right from the inception.
5. Process-driven by activity rather than apprised by value preservation, synergy realization, and value creation.
6. There is no strategy for assigning accountability and tracking for synergy.

Remember the bottom line: An acquisition provides you the potential for generating value in the organization, but the business benefits are achieved only in the actual integration. It usually serves to model the possible outcomes of poor integration versus the expected results. Synergy projections usually get stretched and overly optimistic. Thus, your most suitable case for enhanced integration support may need painting a more dismal picture of the future should sound integration management be wanting.

Some of the worst integration-planning scenarios are the following:

1. Failure to accomplish all of the strategic benefits that inspired the sponsors for executing the deal in the first place, thus wasting the resources devoted to the entire acquisition process.
2. Burnout of the most qualified talent in the newly merged company from being woefully burdened by the integration distress

Integrations can produce the classic storm of business disruption because there is so much going on at once. During integration, you are working frantically to achieve the synergies that justified the deal in the first place, whether they be personnel reduction, sourcing consolidation, or facilities rationalization. M&As have business goals assigned to them, as well as a deadline. M&As also integrate two organizations—every function, process, technology, and structure—all at once. As if those two situations were not challenging enough, you are also working to maintain a business-as-usual environment for the interested customers, suppliers, and employees. Trying to do just one of these things is difficult enough. Having to do them concurrently is what makes integration work so challenging to handle.

M&A Integration Success Factors

When the following success factors get achieved, integration success invariably follows:

1. Communications should be frequent, positive, and frank at all integration and employees’ levels.
2. One should be getting the management team in place ahead and getting the next-level managers soon after.
3. It would be best to build strategies to communicate with the customers before the merger exercise is in the news because your competitors will be visiting your customers as soon as they hear your merger’s announcement.
4. Explain the vision to each group and business so that all the employees understand what they need to do.
5. Don’t allow your top salespeople to walk away with your most significant accounts. You don’t want to undergo brain drain because employees are an organization’s most valuable assets.

Final Thoughts

Most integration managers will discover themselves, at some point, justifying the level of effort needed to manage an integration. Sometimes it is essential to communicate the challenges and risks of poor integration planning. Be ready for the challenges, risks, and possible outcomes of poor integration planning so you can educate those around you who may need to get convinced that this is so critical.