Mergers & Acquisitions (“M&A”) are a key driver of strategic execution and value creation for private equity owners. However, growth through M&A is not without risk and therefore careful planning is required to ensure successful delivery of the investment case.
An acquisition will typically hinge on a handful of core assumptions that drive revenue and cost synergies to improve shareholder value. Achieving these target outcomes is the result of careful planning to ensure that Management has a clear path forward from Day 1.
In preparing an integration plan, the first step is to establish a clear set of objectives and target outcomes within an agreed time horizon. This is typically focused on the first 100 days however this can be tailored to meet the needs of the respective businesses.
The next step is to develop a detailed integration plan that actively works towards delivering on these objectives. In doing so, the integration plan will typically consider the following nine areas of focus:
- Corporate structure and Board composition: In addition to any changes in corporate structure, a new acquisition is an opportunity to revisit the composition of the Board to ensure the right cross-section of expertise for the future needs of the business. Key considerations may be a major shift in products, geographic mix or new regulatory and risk exposure that did not exist prior to the acquisition.
- Customers are a key driver of value across any business. As part of post-merger integration, it is important to have a clear engagement plan to communicate changes with customers and establish new relationships where required. This may involve identifying any customers that are at risk, reviewing in-flight commitments and gathering customer feedback early in the integration process to help shape the future business.
- Operating model and organisation structure: The future operating model can vary from a standalone business through to a fully integrated business with shared capabilities at all levels. Irrespective of the chosen model, it is important to be explicit about the operating model during the transition and providing a clear roadmap for how the business will achieve this over time.
- Culture is often overlooked during integration planning and yet is one of the more challenging areas to get right. Strong organisational leadership combined with a thoughtful approach to cultural integration are key to success. It is important to take the time to consider the target state, common values and engagement plans to create a positive transition.
- Communications: A clear communication strategy that considers the needs of all stakeholders internally and externally will be a key pillar of the integration plan. The communications stream starts with a clear set of messages on the future vision and direction of the company that will flow through to all stakeholder groups. The communications stream is also integral to any cultural change to help take people on the journey and create an open dialogue across the business as well as communicating practical information that may impact day to day workings of the organisation.
- IT Infrastructure is often key to maintaining the core operations of the business. The shift to digital ways of working means that the ability to work as ‘one team’ is critical for any business to be successful with common shared drives, virtual meeting spaces, and workflow management tools. Migrating all employees to one common set of infrastructure will be a key step in the transition.
- Product: An acquisition can result in a change of product priorities to reflect the new strategic vision for the business. The result may be a revised product roadmap and prioritisation of products across the portfolio. This is often supported with aligning architectural principles across the two businesses to create a common product development approach going forward.
- Risk and compliance: It is important to address any known risks from due diligence in the integration plan as well as considering any new risks that have been created. This may give rise to revised organisational governance and control framework as well as updated business continuity and disaster recovery plans. When working in a regulated environment, this stream becomes critical to ensure compliance requirements are adequately managed throughout integration.
- Finance: The finance integration stream takes into consideration the day-to-day financial management including the transition of bank accounts and working capital management right through to establishing new Board reporting and Management team KPIs.
By considering these nine areas the integration team will identify a range of activities, risks and deliverables that will need to be achieved over time and provide a useful starting point for a detailed integration plan.