Creating harmony Featured

8:00pm EDT September 25, 2008

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 rparent@gscpa.com.