There is a widely quoted statistic from the Harvard Business Review that 70-90% of acquisitions fail. There are many reasons for this but neglecting to plan for the integration of the target is key amongst them. Glenn Mills of EMC Corporate Finance gives some guidance on how to ensure a smooth transition
The question of how to integrate a newly acquired business can easily be lost while company leaders and advisers focus on the terms and getting the deal done. Large companies have teams dedicated to the acquisition process and are likely to have learned from their experience of previous transactions. But it’s a challenge for an SME seeking to acquire a business and to continue running it as a subsidiary or division.
The best time to make a plan is during the due diligence (DD) phase. Questions for the target company will include what systems they use for finance, ERP and other functions; key stakeholders (e.g. personnel, customers and suppliers); and what compliance procedures they have in place. These are all essential for assessing the extent of the work required and feed into the transaction costs and timescales.
The executive teams of both companies will have been involved from early in the process but once the deal is done and announced, the rest of the teams need to come to terms with it. It can be an unsettling time and everyone will be concerned about the implications for their roles. It’s essential that the leadership immediately address the organisations to explain the reasons for the transaction and plans for the future. A written statement with FAQs can help with the communication, but there is no substitute for personal interaction and allowing time to answer employees’ questions. Providing the opportunity for staff to visit each other’s sites can also be of benefit.
Customers and suppliers
During DD, your advisers will have asked questions about whether key customers might be “spooked” by the acquisition. Factors include the change in size and “power” of their supplier, concentration of orders, potential supply disruption, or simply concerns about a change to a long-standing relationship. Any fears can usually be allayed through timely contact. In fact, towards the end of DD, you may want to inform key customers (under non-disclosure agreements) to reassure yourselves of continuing sales.
Likewise, suppliers may be concerned about changes to payment terms, pre-qualification requirements or supplier consolidation. This is usually less critical to the success of the transition, as disruption to business is not in suppliers’ interests. Nevertheless, early communication will help avoid misunderstandings.
Realising the benefits
Every acquisition has a business plan behind it with the benefits quantified and hopefully with timescales for implementation. You and your team may have been stretched during the transaction and looking forward to a breather! But this post-deal period is just as important if the objectives of the deal are to be met. You need to make a start on these within the first couple of weeks, otherwise it is easy to lose momentum.
You will need to set up one or more teams to manage the integration programme. Your key executives will need to be involved, but you also need to keep your eye on the ball, ensuring that business is not disrupted. This is when advisers can be helpful, providing the experience and resource to support your team.
If restructuring or redundancies are needed, the earlier the processes are started the better. The business will suffer if staff are distracted for an extended period by worries about their future.
Processes and systems
In some cases, the acquisition will be run “at arm’s length”, but usually at least some processes and systems need to be integrated. The most obvious is the finance system. There is considerable work involved in merging charts of accounts, migrating data and perhaps setting up group accounts for the first time.
Other systems integration depends on how synergistically the sales and operations of the two businesses will be run. If they are managed entirely separately, it is not a priority to bring both systems together. However, standardisation will bring long term benefits in system costs, support and use of best practice.
Another element of integration which can prove surprisingly time-consuming is branding and marketing. If you are looking to replace or supplement your acquisition’s brand, the obvious starting point is your web presence. However, when you take account of marketing materials, trading documents, vehicle livery, building signage, workwear and product labelling, it can be quite a task.
Finally, there will be compliance issues to consider where the acquired business may not have the same standards as yours. These include health, safety, quality, environmental, employment, ethical, data privacy, contractual, and other legal requirements.
By thinking through the range of tasks needed during the post-acquisition integration phase, business managers can be realistic about costs and timescales and “hit the ground running” once the deal is done. Bringing in advisers to help manage the programme can be an effective way to allow the executive team to focus on the business as a whole and ensure the acquisition achieves its objectives.