September 2, 2021
5 Moves to Ensure a Successful M&A Integration
Many companies across the globe are looking to grow their businesses through mergers and acquisitions (M&A). Worldwide, the combined value of pending and completed M&A deals announced in 2021 has reached $3.6 trillion – already a 24% jump from 2020, according to research by Refinitiv. Whether through purchasing an entire business or simply a client list, it’s imperative to understand the benefits and challenges of integrating that new acquisition into your existing people, processes, and systems. A failed integration is one of the main contributors to deals not achieving their projected value.
To help facilitate a successful M&A integration for your organization, below are some insights we’ve gleaned while assisting our clients with M&A integration activities.
“Defer no time, delays have dangerous ends.” – William Shakespeare
A common trend for organizations is to delay the integration of M&A transactions. There’s a tendency to just let the business continue to run as it always has and manually incorporate that data into the overall company reporting. There are many reasons for this, but the primary one seems to be a lack of resources that have the time or skill set needed to tackle this large and complicated task. A major downside is, the longer you wait, the more challenging this process can become.
By moving forward with the integration sooner, organizations can realize the benefit of more synergies — such as eliminating multiple/redundant systems, aligning policies and procedures, consolidating vendors and merging vendor services under a single agreement, and combining employee benefit plans. Attaining these synergies decreases costs and helps to gain value from the acquisition faster.
Timely integration helps reduce the level of organizational uncertainty that often occurs when a company has been acquired. Employees feel more comfortable knowing they are officially a part of the team, instead of being left out on their own with little attention from the new owner.
A delay incorporating M&A activity can cause more challenges because knowledgeable employees may leave prior to completing the integration. Attrition is not uncommon with the uncertainty of an acquisition — the longer the delay, the more likely this is to occur. As key team members leave, critical knowledge, which may be needed to successfully complete the integration, goes with them.
Implement Transition Services Agreements (TSA’s) and Retention Agreements
To avoid losing critical team members during an integration, consider implementing agreements to retain those employees for a period of time that will allow for a successful integration. In scenarios where you have a carve-out, have purchased a segment of an organization that will remain intact, or if a third party is performing key functions, effecting an agreement known as a TSA, can be very advantageous. TSA’s keep existing employees and processes in place for a specified period and define training procedures and transition steps required to fully integrate a new line of business. IT, finance, and accounting are essential areas of focus when creating TSAs.
In other situations, retention agreements for those team members that perform crucial tasks can also be effective. When determining payment amounts and timeframe, it’s important to think about what would incentivize employees to remain with the company through the retention period. There will always be situations where employees decide to leave and forego the retention payout, but it’s worth offering to minimize the potential risk of losing key individuals too soon.
Designate a Dedicated Project Manager
Consistently, integrations tend to be significantly more successful when a dedicated project manager is assigned. This function can be performed either by an internal team member or by an external consultant if no team member has the bandwidth or experience needed to lead this effort.
The project manager will oversee the overall project plan, coordinate schedules, conduct regular status meetings, assign roles and responsibilities, and assist with prioritization of tasks where needed. Their guidance will help identify areas of risk to budget and timeline and appropriately address those to keep the project on track. It is also their responsibility to maintain constant communication with all stakeholders to ensure that issues are addressed timely and adequately to complete the project on time and on budget.
Develop a Playbook for Future Acquisitions
Merriam-Webster defines a Playbook as “a stock of usual tactics and methods.” In relation to a M&A integration, a playbook consists of compiling a list of standard and replicable decisions, tasks, and participants that can be applied to every future transaction. Each M&A transaction will have its differences, of course, but it’s still beneficial to put together a plan that will include basic steps that can be tweaked for each individual scenario as needed.
An effective playbook should include the following:
- A defined integration strategy that spells out how the company will approach these acquisitions such as: leaving them as separate legal entities or merging them into existing legal entities, planning for integration of activities into existing systems, and alignment on all the key priorities and objectives.
- A list of processes and estimated timing to complete each broken out into the different phases in the lifecycle of the acquisition: evaluation, due diligence, negotiation/closing, post-closing.
- Fundamental standardization procedures for specific areas such as systems, policies, benefits, etc.
- Designation of roles and responsibilities required to complete all defined tasks.
Keep Communication at the Forefront
“The single biggest problem in communication is the illusion that it has taken place.” – George Bernard Shaw
Communication is imperative to achieving a successful integration. Your project manager should set up a regular cadence for meeting with the various project stakeholders: project team members, executives, steering committee, and any other parties involved. Outside of scheduled meetings, an open channel of communication should be maintained between all parties to address any issues or concerns as they arise rather than waiting for established meeting times.
Additionally, setting reasonable expectations with buy-in of all parties will go a long way to meeting or exceeding project goals. Finally, make sure that all investor and/or debt covenant requirements have been built into the plan and effectively communicated to all parties. Maintain constant dialogue with these parties, to confirm they are aware of project status and communicate any potential delays early and often.
Bridgepoint Consulting Can Help
The integration of acquired entities can be stressful and fraught with many challenges. Keeping these recommendations in mind as you traverse the complicated task of incorporating your M&A activity into existing company operations will allow you to realize the value of acquired entities more quickly.
Following these steps will help you to identify and mitigate potential issues more quickly and effectively, ultimately leading to a successful integration.
If your organization is contemplating or already in the process of M&A integration, Bridgepoint Consulting can assist you. With a strong team of consultants who have leading industry expertise and vast experience in all aspects of the process, our consulting services are unmatched. Reach out today.
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