Acquisition Integration Best Practices
Introduction
Most acquisitive organizations do an exhaustive job of financial due diligence and legal documentation when evaluating and executing acquisitions, or closing Corporate Development transactions.
All too often Corporate Development departments, investment bankers, accounting firms, and legal experts simply underestimate the significance and importance of operational, cultural, and people issues in ensuring post-close transaction success.
Numerous studies have shown that only 3 in 10 acquisitions create meaningful value, or reflect the desired results of the transaction thesis. What is alarming is that this low percentage of successful transaction results has not improved over the past 20 years.
It is well known that over 70 percent of all Corporate Development transactions actually decrease stakeholder value. The current regulatory and compliance complexities, combined with exponentially increasing market dynamics, are making this Acquisition Integration challenge more difficult.
Acquisition Integration best practices provide effective risk mitigation processes to respond to post-Corporate Development transaction integration challenges, including:
How do we achieve the pro-forma budgeted and forecasted results from the closed transaction?
What people, processes, systems, and functions must be integrated efficiently and effectively?
How do we focus on realizing all the potential synergies?
How do we best integrate and align multiple constituencies, mediate the conflicts, and align the cultures?
How do we maintain employee performance and ensure customer satisfaction during the integration process?
How do we complete the integration process within a desired timeline, and also get the job done right?
With its 17+ years of experience in Corporate Development transaction and Integration activities, the Ephor Group has identified a proven set of standard best practices that ensure the acquisition will be among the 30 percent of acquisitions that add shareholder value and not one of the 70 percent that erodes stakeholder value.
How to Manage Acquisition Integration Risks
At the highest level, successful Acquisition Integration is not all about winning the negotiation around valuation or price. Acquisition Integration is about aligning and executing effective integration practices timely in order to achieve the desired business objectives.
Successful Corporate Development professionals realize that successful acquisitions require effective management of the acquisition process as well as post transaction operations to achieve the desired results. Therefore, embedding a strong operational perspective, and operational professionals in the transaction process is critical to achieving desired results.
Our experience has taught us that, irrespective of having operational professionals on the deal team, both organizations must come to an agreement on a “Shared Vision” before embarking down the time-consuming, difficult, resource-intensive, and complex integration process. Our experience has taught us that without a shared vision that is accepted, publicized, and supported by the C-suite Executives and Board, the probability of achieving the desired Corporate Development results is severely lowered.
This “Shared Vision” should, at a minimum, include the following;
An answer to: What is the desired transformational effect on the sector or industry from the “Combined Company”?
A holistic future view and description of the “Combined Company” after three years.
Pro-forma Organization Chart of the “Combined Company” after three years.
The financial objectives to be achieved over a three-year period.
The Corporate Brand equities that the “Combined Company” wants to be known for in the marketplace.
The cultural attributes of the “Combined Company” after three years.
After the “Shared Vision” is agreed upon by all stakeholders, the following Acquisition Integration best practices presented below are proven to provide near- and long-term results.
Acquisition Integration Best Practices
1. Develop a high-level “Yellow Brick Road” that accomplishes the following:
Defines Key Success Factors.
Defines Values & Principles.
Defines MAT (milestones, assumptions, and tasks).
What are the measurements and metrics that define integration activity success?
What are the Brand Equities that need to preserved?
What are the key People, Processes, and Systems that need to be consolidated?
2. Alignment: Constituency alignment ensures that all constituents are engaged, incented and working together in pursuit of a common set of outcomes. This can be achieved by both creating a broad sense of purpose and also showing team members how the transaction benefits them individually.
3. Perform-Orientation: Performance immediately following the transaction often declines quickly, even before changes brought by the integration process are prevalent. It is therefore key to instill a perform culture geared for the near-term, and to plan and incent the key individuals on their success of the critical integration activities.
4. Prepare for contingencies: Know what you can and cannot do and prepare a contingency plan for when things go wrong. In a recent study, the Wharton School of Business of the University of Pennsylvania found that acquirers who had a contingency plan and effectively risk-managed achieved the desired results 80% of the time whereas those that did not have contingency plans failed 40% of the time.
5. Holistic vs Functional View: The most successful transactions are treated holistically and not on a functional basis.
6. Must have an Empowered Champion or Sponsor: Having a C-suite or Board-level champion or sponsor who is engaged with the integration executives, integration team, and key employees is critical in ensuring that the transaction's desired results are achieved. Any integration will face hurdles and obstacles and lose momentum over time; therefore, this champion/sponsor role ensures priorities and objectives are properly communicated, achieved, and that, throughout the process, the team has the right quality and quantity of resources needed to deliver the transaction's stated objectives.
7. Develop Multiple Functional Advocates: Involve operations and be sure to create advocates at all levels. Allowing or encouraging functional leaders’ absence from acquisitions is a most common mistake. Advocates by nature are respectful and identify with the need for effective integration planning and execution.
Conclusion
For most small- and medium-sized businesses, Corporate Development transactions and their Integration activities are generally the most risk-centric initiatives that a company will ever embark on. Certainly, these initiatives are more risk-intensive than a majority of a company's organic growth venues.
The management and the mitigation of these risks is not unlike the general success factors of any service business and its leadership. It requires a proven methodology implemented via a process-driven approach, effective leadership, and Executive skill.
The above Acquisition Integration high-level guidance by Ephor Group is simply a starting point. Tactical execution must be lead and managed by knowledgeable, experienced, and proven professionals.