Beating the Odds: The Keys to Successful Acquisition Integration

By Frank Tait

 

Mergers and acquisitions have contributed significantly to business growth for many years, having gained popularity in the 1980s.  For growth-minded companies, acquisitions can be a quick way to gain market share.  As appealing as this may be, the reality is that the majority of acquisitions fail to achieve their integration goals.  Recently, I had the opportunity to speak at an Association for Corporate Growth (ACG) breakfast along with Heather Trombley, President and COO of DentalEZ on  the topic of Accelerating Acquisition Integration and how to beat the odds.

While the work involved in diligence and post-close integration remain essentially the same, what successful acquirers know is that synergy is required for success.  What allows them to accelerate integration is their attention to the “people” issues that arise, the robustness of planning, and the timing and sequence of integration activities.

Focus on Synergy

Synergy, and therefore value, is created only when the two companies are successfully working together.  How well the acquiring company does to retain vital employees and ensure both companies are working well together will largely determine success. At the same time, customer retention, sales velocity, incoming deals, customer issue resolution, and product development all must be kept on track. These are vital to the ongoing operation of the business and the cornerstone of customer relationships. The optimal way to do this is by being transparent and actively engaging the management of the target company in integration planning BEFORE the deal is closed.

Culture Trumps All

One aspect of human nature is to ask the question, “What’s in it for me?” (WIIFM) when presented with change.  Retention, compensation, titles, equity participation, career growth, span of control and authority should be openly discussed so that expectations are set appropriately.  Transparency, clarity and honesty are key to avoiding issues that can arise when cultures collide.

This approach is also needed for customers. People buy from people, and the acquired company’s employees have established relationships with their customers. Therefore, a communication strategy with a clear message as to why this integration creates value for employees and customers builds trust.

Don’t Skimp on Planning

An integration playbook and robust Stage-Gate Process can make or break the integration of a new acquisition.  Start early so there’s time to identify what needs to be done and who’s going to do it.  Breaking down the work by stage: Strategy; Pursuit; Letter of Intent (LOI); GO/NO GO; Sign; Close; and Post close activities; is an effective approach to acquisition planning.

Strategy   Many diligence and integration planning tasks can be moved into the strategy phase.  Once strategic fit and key thresholds for contributing to earnings per share are established, it is time to collect all of the publicly available information on the target company.  Tools like SourceScrub show headcount trends but more importantly can provide competitive data such as where the company exhibits at conferences and trade shows. The target company’s website can provide insight in to how the company operates, particularly their customer success stories. This stage is where you identify the key metrics that you will use to evaluate the target company and how you will measure success once the deal closes. It is also where you build the initial version of the diligence and operational integration plan.  Leveraging a tool like Wrike  to manage the project ensures nothing gets missed.

Pursuit During this stage you’ll have more access to the target company’s management. You need to be prepared with open ended questions to get management talking not just about how they do things but why.  Management is proud of what they have accomplished and when given a chance to talk about it, they tend to be expansive. Listen hard and stick with the open ended questions.  The earlier you get into the why and how of their operation, the better prepared you will be for integration. You should use this stage to identify and address critical issues such as working capital needed by the seller for operations or long-term contracts.  The earlier this is resolved, the more amenable the sellers are to bring others into the process who have the critical information needed for operational diligence and planning. Finally, this stage is where you identify your goals and objectives and any walk away criteria.

Letter of Intent (LOI) The first half of LOI is all about looking for a reason NOT to complete the deal.  Aggressively perform financial and operational diligence to validate the financials, processes and key people needed to operate the business and meet or exceed your goals. Start drafting the purchase agreements immediately upon signing the LOI – this will surface any walk away items.

The second half of the LOI stage is focused on jointly refining the integration plan.  Transparency is critical here as the target company needs to continue to run their business. Mutual planning and buy-in are the foundations for a successful integration.  Waiting to start joint planning until after closing makes it extremely difficult to play catch up without something else suffering, and it’s usually the target’s business.

Close is the kick off of multiple threads of the integration plan.  Addressing the WIIFM for the employees and then equipping them to address it for their customers is paramount.  Hold daily standup meetings with the integration team. This provides quick visibility to what was accomplished, what is planned, and what obstacles need to be addressed. As the plan progresses, the frequency of the meetings can decrease. This phase is typically 90 to 180 days depending on the complexity of the integration.  Progress to goals should be reported to senior management on a weekly basis for at least the first three months.

Post Close is where there are standard reporting cycles between operations and senior management, and senior management to the Board of Directors.  This includes how the acquisition is progressing to the established targets in the integration and operational plans.

Now the tough part: Executing the plan

Financial, legal and tax due diligence are well understood disciplines with many qualified advisors to help companies plan and execute acquisitions. However, integrating two businesses requires detailed planning for every operational discipline:  Sales; Marketing; Customer Support; Product Development; Manufacturing; Information Technology; Human Resources; and Finance.  Depending on industry, there may be more. As you develop your integration plan, ensure that you have the resources you’ll need to develop and execute the integration plan.  The earlier you get into the why and how of the target company’s operations, the better prepared you are for operational due diligence and integration.

A curve ball:  COVID-19

Assistive Technology The global pandemic has added complexity to the tough tasks of due diligence and integration. Travel restrictions such as border closings and work from home mandates create challenges for diligence and planning.  Digital Twins technology, which is a virtual representation of a process can help.  Think of this as Zillow, but for business locations.  One of my clients used Visual Plan to build a digital twin of a facility in Canada when they could not travel to the site.  An onsite staff member used a 360⁰ camera to photograph the building’s interior and exterior.  The video was loaded into the Visual Plan system along with blueprints and building data to build a digital twin of the facility.

When to bring in help… and where to find it

Successful integration of a strategic acquisition requires good people, good processes, good tools, a persistent focus on details, and transparent collaboration between buyer and seller teams at all phases of business integration. While an effective plan does not guarantee success, engaging great advisors like the ELAB team significantly improves the probability of a successful merger of the two companies.