You’ve spent many months and countless hours conducting due diligence, hammering out terms with the target and arranging financing. Finally, the big day has arrived: the signing! After the pens are put down and hands are shaken you can pat yourself on the back and enjoy a little celebration. However, now is not the time to rest on your laurels. Arguably one of the most important aspects of any transaction is the post-deal integration. This is where value will be created or destroyed.
When a buyer identifies a potential target for a merger or acquisition the hope is that synergies will be realized once the deal is closed. Simply put, the buyer wants 1 + 1 = 3. However, achieving these synergies is not as easy as many acquirers would like. Multiple obstacles abound, including:
Ignoring these and other critical factors prior to closing a transaction may result in missed opportunities and under-performance. In a 2015 report, Deloitte found that nearly 30% of respondents claimed their integration efforts fell short of success. No company wants to spend significant resource only to fall short of achieving their goal.
An important tool when preparing for Day 1 is the integration checklist. Prior to a deal closing, and possibly before it is even announced, the acquirer should begin preparing a list of items to review including, but not limited to:
Each item on the checklist should be assigned to a specific team member with a due date. Progress checks should be done regularly and increase in frequency as Day 1 approaches.
Buyers should expect post-deal integration to last a few months. For more complicated transactions the process could run into years. In the same study previously cited, 42.9% of respondents claimed they realized synergies in six months or less, while 30.8% claimed it took 7-12 months. In either case, the buyer’s management should be prepared for a long-term process that begins the moment the merger or acquisition is finalized.
The process of integrating two companies can be lengthy and complicated. In a survey by Deloitte of 803 executives at U.S. companies, 74% stated they had a formal integration strategy in place before entering into a merger or acquisition. Indeed, it is critical to have a how-to guide for your integration team that will assist them in creating and delivering value. The M&A integration playbook should be a published guide that includes best practices, tools, and processes learned from prior mergers and acquisitions. If you are undertaking your first integration, a seasoned adviser could be well worth any fees you pay to help guide you through the process.
It is worth taking a moment to distinguish between the integration checklist and the integration playbook. An easy example involves American football. The players and team have a checklist prior to each game that might include warm-up, equipment checks and physical checks. Once the game starts, the playbook provides the strategy the players need to win. Each play has been documented and practiced many times and each member of the team knows the exact role they are supposed to play. The checklist and the playbook are not the same and a savvy integration team will not try to forgo either.
The playbook should be distributed to each team involved in the integration. Setting deadlines for deliverables and managing stakeholder expectations will help ensure each team understands what is due and when.
It is important to treat the playbook as a living document. If your company will be conducting mergers and acquisitions in the future, be sure to update your playbook with lessons learned from each transaction. George Santayana may have never been a member of a deal team but his statement, “those who cannot remember the past are condemned to repeat it”, certainly applies to M&A integrations and is a saying all dealmakers should take to heart.
A word of caution: the playbook is not the be all end all for integration strategy. Each transaction will have its own nuances that you may not have experienced before. Flexibility and problem-solving skills are a must for anyone on the integration team, especially the integration manager, as new problems are likely to present themselves for each deal.
A well-managed post-acquisition integration can help increase the probability of success and realize the synergistic gains that justified the deal in the first place. A 2013 study by EY provides key insights dealmakers should consider prior to their next transaction:
A final point worth discussing is communication. A business acquisition and subsequent integration involves many moving parts and a high degree of uncertainty. Members of both teams will have questions about job security, transition timeline and process. Communication should be frequent and emphasize the vision for the deal. Post-acquisition communication should highlight early successes achieved in the integration process. In a high-stress scenario, over-communication is rarely an issue so long as the messages being conveyed are consistent and address the concerns of stakeholders.
When preparing for your next integration remember that experience is the best teacher. Surround yourself with skilled advisors who can help you avoid the many pitfalls and realize the synergies that led you to conduct the transaction in the first place. Send us a note and learn how our team of experienced investment bankers can help you plan for your next merger or acquisition.