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Mergers & Acquisition Integration: 3 Conversations Required For Success

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Mergers & Acquisition Integration: 3 Conversations Required For Success

“I have so much to accomplish today that I must meditate for two hours instead of one.”
                                                                                                                                            – Mahatma Ghandi

If you are in the middle of merger mania, you know it is a fast and furious game. At times it seems impossible to find the time to step back and just think. But setting aside time to reflect, discuss and crystalize the strategy for integrating two organizations post-deal is guaranteed to pay off big time. In our view there are three integration-related conversations in particular that are critical to spend time on early in the deal process. These conversations can be held among the executive team or, even better, in a joint session that includes key executives from both organizations coming together in a deal.

Conversation 1: What must happen in order for us to realize value from this transaction?

This conversation starter aims to get to the heart of the 3 to 5 value drivers for your merger or acquisition. Do we need to achieve some expense synergy target to make the deal deliver on the value creation theory? Protect the acquired customer base? Cross sell products or services to deliver incremental revenue synergies? Another way to frame this topic for discussion is to take the counter perspective. For instance, ask the executive group to fill in the blank on this statement: “If we don’t ______________, this deal will have been deemed a failure.” Having executives participate in an open and frank conversation can uncover the true sources of value in a deal and keep those items at the forefront of integration efforts.

Conversation 2: What guiding principles will we follow to ensure an effective integration?

The integration effort associated with a merger or acquisition is fraught with opportunities for disagreement and dissent. In our experience, disagreements often stem as much from “how” we are approaching things as they do from “what” we are doing. Establishing a solid, meaningful set of guiding principles for the integration can help. Are we going to focus on speed over flawless execution? Do we need to consider all processes, systems and practices from both companies or default to one or the other? Prioritize one area or function? Below is an example set of guiding principles from one recent merger. Upfront agreement on these touchstones helped the combined executive team make a multitude of decisions more quickly over the course of the 12-month integration effort.

  • Focus our energy outward. Don’t get internally focused. Focus on our members and customers by addressing their needs and engaging them along the way.
  • Take a “best of both capabilities” approach. Make decisions about capabilities, processes, systems and talent in a way that takes the best of both organizations to build something new.
  • Move with urgency. Seek “90% Solutions” recognizing that our success depends on clear direction, sound decisions and speed. We will value progress and clarity over the need for perfection.
  • Honor our people. Recognize that change has an impact on our employees and honor them by being upfront in our communications and removing uncertainty as quickly as possible.

Conversation 3: What has to happen in order for us to call the integration “done”?

Agreeing on a finish line for integration ensures there is an end in sight for the entire effort. An executive conversation on the conditions that must be met in order to reach an end point for integration establishes that finish line. We recommend the finish line be defined such that it is no more than 6 to 18 months post-close. This has several advantages. First, it creates a sense of urgency in an environment where it is oft too easy to avoid bigger decisions and let integration action become stuck in merger purgatory. Secondly, it defines the length of the sprint that your internal resources will have to endure, helping to avoid integration fatigue. Finally, forcing certain initiatives within the scope of integration prevents leadership from taking on too many “optimization” initiatives – essentially forcing an integrate first, optimize later approach. Granted, in every deal there are integration-related initiatives that will linger – sometimes for years. Rationalizing a complex real estate portfolio, consolidating data centers, or migrating to a single ERP solution are common examples. None-the-less, defining which piece of these often multi-year initiatives need to be complete in order to declare victory on integration is still critical. So what does “integration complete” mean for your deal? One brand? The organization defined and in place? Data center consolidation underway? Product portfolios rationalized? Whatever it is, define the finish and you will be off to the races.

 

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