Everyone is super excited about the “acquisition” part of “M&A”. Who doesn’t like buying things? But the key to value creation lies in the integration phase or the “M” bit. And this is where even experienced firms can get it wrong.

In 30 seconds - When asked about early barriers to value creation in past operations1:

  • 83% of buyers stated they needed to improve value creation.

  • 65% of them said cultural issues hampered value creation and should have been communicated more effectively during and after the deal.

  • 33% of acquired companies whose deal lost value (relative to purchase price) did not have an efficient technology/synergy plan in place at signing.

Organizations thus often fail to invest sufficient time and resources for their integration project.

3 common mistakes encountered in integration projects

1. Lack of initial alignment on deal objectives

A successful acquisition starts with a clear vision on deal priorities to guide the integration. Prior to signing, buy-side and sell-side leaders should reach a first level of alignment on the goals the operation should pursue. The deal vision should then be shared with the Integration Leader who will use them as a compass when planning for the integration.

Setting strategic objectives for the integration is also key to building an earn-out policy that will cope with integration goals. Sellers compensation should be consistent with the acquisition’s term goals to create the right incentives for the sell-side. In too many integration processes, vendors would seek to achieve short-term financial goals unrelated to business objectives, whereas buyers would be keen on investing time and resources to generate long-term revenue/cost synergies.

2. Rupture between M&A and Integration phases

The closing moment of a deal also entails major risks for the integration. Once the follow-up of actions listed in the SPA is completed after closing, the M&A team will often withdraw and leave the organization with scarce resources to prepare Day 1 and follow integration milestones. In worst-case scenarios, the transition between M&A and integrations teams is disregarded: integration teams are not set up before the closing, or when they are inducted, they would be informed too late in the process for their ability to contribute to be properly assessed.

3. Non-collaborative preparation

Buyers might face 2 biases that could endanger implementation activities. Sometimes, the acquiring part would design the integration plan without their sell-side counterparts. In other instances, top executives would build the integration plan with limited or no participation from the functional leaders responsible for the implementation.

The results of these mistakes

These mistakes will have consequences throughout the integration process and delay (or even reduce) the potential value generated by the deal.

  • Flimsy integration planning - Integration flaws would typically result in ill-conceived integration plans and roadmaps, with limited views of dependencies. Lack of vision on deal priorities would leave the integration leader and the teams with no clear direction for the integration.
  • Tensions at the top level - Tensions will arise at different levels of the organization due to poor integration preparation. Unresolved conflicts on deal vision pre-deal between buy-side and sell-side would materialize post-deal during preparation and execution phases.
  • Lack of “field” support - Hurdles can also stem from functional leaders and teams that would question the integration roadmap and priorities if they have not been engaged previously..

To help prepare for a better future, Integration leaders should seek to secure a wide participation from both organizations (buyer and to-be-acquired company) before and during the integration project.

  • The integration leader should receive a joint mandate signed by the executives of both organizations, stating the ambitions and key strategic goals pursued by the deal.

  • A joint governance should be set up for the integration preparation that should include key representatives from both sides.

  • Stream Leaders should be appointed on sell-side and buy-side and entrusted with the preparation and implementation of the integration plan, based on the objectives shared by the CEO of both companies and under the supervision of the Integration Leader.

Companies that plan to rely heavily on external growth and complete multiple acquisitions in the future should consider creating an Integration Management Office (IMO) to help nurture best practices and become a center of excellence for future integrations.

Reach out to Jean-Charles Chevalier, Adrien Bundgaard, or Sébastien Prouvost for any question you may have about our Synergies evaluation, Integration preparation and Post-merger Integration offer, our references or other further information.

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BearingPoint Capital Team

[1] Source - Creating value beyond the deal report – Mergermarket

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