Integration plays a crucial role in mergers and acquisitions transactions. In
order to blend operations into one harmonious company, it is important to create
an acquisition integration strategy in
advance of a deal’s closing.
A well-executed integration strategy is
designed to quickly align the management
and employees of both companies around
the transaction’s fundamental goals.
Without a solid integration plan in place,
momentum within both organizations may
suffer.
“A successful integration requires a disciplined and well-structured integration plan
with clear objectives and timetables,” says
Rick Parent, vice president of Gumbiner
Savett Inc.
Smart Business spoke with Parent about
how to integrate acquisitions, who should
be involved with the process and the
importance of blending the cultures and
employees of two different companies.
Why is integration such an important aspect
of an M&A transaction?
Mergers and acquisitions are designed to
build market leadership and create long-term shareholder value by fast-tracking
the capabilities of an entity. Only a successful integration of a business combination will allow the newly combined entity
to achieve its objectives. A successful
M&A transaction requires a structured and
disciplined integration of people, processes and systems. It is important to identify
as many integration issues as possible during the preplanning and due diligence
phase of an M&A transaction in order to
mitigate risk and increase likelihood of
integration success.
How should a company go about building an
acquisition integration strategy?
In order to build a successful acquisition
integration strategy, executives of the
merging entities need to understand and
properly address risk areas of the integration process such as culture, communication and growth targets. A sound integration strategy includes building a good
operational partnership between the two company’s cultures and developing clear
and timely communication strategies. It is
also important to budget and prepare for
the additional costs that will be required
during integration. A common myth is that
a result of a business combination is an
eventual reduction of ‘back-office’ costs.
Oftentimes, the opposite occurs, and management is perplexed as to why the administration costs of the combined entities
are greater than the sum of the administrative costs of the entities prior to the
combination.
Who should be involved with the integration
process?
The integration process should be managed by a transition team. On top of that
team should be an operational executive
with excellent strategic and interpersonal
skills. It is important that the operational
executive devote full attention to the integration process and be relieved, to the
extent necessary, of daily responsibilities
during the transition period. The new entity should dedicate adequate resources to
the transition team and should even consider hiring outside consultants.
What are the keys to a successful integration?
One key part of the integration plan is
managing organizational and cultural
changes. The inability to effectively integrate work cultures is largely considered
the No. 1 reason for M&A failure. Other key
parts of the integration plan include communicating the vision and business logic of
the deal to employees and investors, separating the post-merger integration process
from the core business, monitoring core
business performance and establishing
early warning systems to alert management to any decrease in revenue. Lastly, it
is important to constantly challenge decisions and assess progress after the integration is deemed complete.
What steps can be taken to blend the cultures
and employees of two different companies?
The first step is having a clear understanding of the level of disparity between
the organizational cultures of the two
companies. Once that understanding is
achieved, the executives need to focus on
the way decisions are made in their companies and come up with a way of combining the different decision-making
approaches. At the core of corporate culture is the company’s mission and values.
It is important to understand the extent
to which the most talented people from
each company adopt the new mission and
values.
How long should the acquisition and integration process last?
The timing and duration of the integration process is of crucial importance for
the pay off that can be realized. Otherwise,
delays in the process can lead to operational inefficiencies and unplanned cost
overruns. The integration process should
start at the earliest when the structure, jobs
and roles in the new organization are
known.
RICK PARENT is vice president of Gumbiner Savett Inc. Reach him at (310) 828-9798 or [email protected].
