Plan to solve the integration equation early in M&A process

In the current environment, with the increasing price of debt and inflation impacting on earnings of potential targets, successful integration is critical to the success of any M&A activity. Integration can be a complicated process, demanding a fast pace to keep momentum and garner maximum value in the wake of a deal. A clear vision of the end goal is important to guide the strategy and processes, as well as a capable all-rounder in the lead and solid communications to keep all stakeholders on side.

Integration begins with preparation

From the start, due diligence should be scoped with integration in mind, or companies are in danger of not identifying the full breadth of potential risks and benefits the deal could ultimately end up delivering on.

“Even before a target has been identified, businesses that know they’re on an acquisition footing can have a think about how they would see an integration working and what their optimal integration strategy might be,” says Ian Whitefoot, partner in audit and assurance, Deloitte.

“It’s really important when you’re scoping diligence, for example, to think quite carefully, about what the risks and the opportunities that you want to unpick and pull out are, because ultimately integration is the means by which you manage those risks and take advantage of the opportunities in the real world.”

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Edel O’Kelly, partner at DLA Piper, says: “At the pre-acquisition planning stage, the assumptions supporting the deal thesis and anticipated synergies need to be challenged and tested from the perspective of the buyer, sellers and the management teams who will ultimately be tasked with making the combination a success.”

O’Kelly says that the sooner those involved in any M&A begin to think about the integration stage, the better.

“Early investment in understanding and planning for the integration before closing the deal enables integration readiness and can be used to better inform the deal valuation,” she explains.

Success requires a raft of specialist knowledge, skills and large integration teams. It is critical that the integration lead has strong leadership and influencing skills

—  Edel O’Kelly, DLA Piper

Particularly when it comes to SMEs undergoing an acquisition, Deborah Kelly, head of the corporate team at Addleshaw Goddard, underlines the usefulness of hiring outside consultants, for three reasons: confidentiality within the company; to allow managers to get on with the day-to-day running of the business; and to reassure investors with their experience.

Keeping momentum is crucial

Running out of steam post deal and losing momentum is a common pitfall that can rapidly deplete the value of a given transaction.

“Sequencing from deal straight through into integration is critical for that reason,” Whitefoot advises. “There is this temptation once the deal is done to sit back and relax, but actually a lot of the hard work really does happen once the advisers have gone home. We would recommend a company aims to deliver materially all of the integration activities within 12 to 18 months. It’s important to avoid dilution of the synergy upside and, on the people side, it’s disruptive for employees and potentially for customers.”

Soft skills and tough decisions

Deborah Kelly advises that the “softer” skills are crucial, in particular when it comes to communicating the rationale behind the deal in a seller’s market.

“You really get to know your buyer. You get to understand their ethos, you look to their values and what they can bring to your business,” she says.

Good communication around adjusting expectations is also important. Kelly gives the example of Irish companies operating under generally accepted accounting principles moving to reporting under international financial reporting standards after a merger or acquisition.

“That often leads to friction because it can impact on the bottom-line performance of the business. Ultimately, not appreciating the implications of those changes is hugely detrimental to a seller going forward,” she adds.

When the deal closes, communicating all of the pieces around the value system and the culture of the buyer to the management and employees of the acquired asset is vital to ensure smooth integration.

“Culture transformation starts with islands of excellence at the top of the organisation and as this ripples out naturally, it becomes self-sustaining,” says O’Kelly.

Where sizeable restructuring is needed, and messages need to be delivered around tough decisions, “the advice we give our clients is to be straightforward, be transparent and try to minimise ambiguity”, says Whitefoot.

Integration lead: a challenging role

“The integration lead is one of the most difficult roles out there because it’s cross-functional and is dealing with the most senior stakeholders in organisations, at times in a really high-pressure environment,” he adds.

In O’Kelly’s estimation, significant transformation following an acquisition “is always more complex and time consuming than the parties expect”.

“Success requires a raft of specialist knowledge, skills and large integration teams,” she says. “It is critical that the integration lead has strong leadership and influencing skills to bring a team together, and motivate, challenge and inspire them to work together towards a shared goal.”

While the role of the integration lead, and indeed the entire process, is challenging, bringing on board the right team of advisers and consultants, who have a deep understanding of the goals and challenges, can help to drive long-term M&A success.