Determining the Degree & Timing of Integration

Mark Herndon headshot
By Mark Herndon
Chairman, M&A Leadership Council
Feb 15, 2017

How do you tailor the integration strategy of each new deal to your specific strategic objectives and desired business outcomes? It’s a hard question, and unfortunately, one that very often gets only a superficial, top-level, buzz-word answer.

Historically, acquirers tend to answer that question with terms from one of three broad categories of characteristics. First, is from the viewpoint of the strategic intent of the deal, with terms such as "tuck-in," "absorb" or "transform." Second, is from the viewpoint of the anticipated post-closing governance model with terms such as "stand-alone," "managed subsidiary" or "fully consolidated." Third, is from the viewpoint of the level of integration actions required, with terms such as "minimal integration," "hybrid integration" or "full integration."

Granted, the strategic decision regarding the specific degree and timing of integration needed to maximize deal value is, in fact, a multi-faceted dilemma, with many different viewpoints required to get right. Each of these three viewpoint categories and their related terms are entirely valid and useful – they just don’t drill into enough specific detail to provide the level of strategic analysis and directional guidance you need to provide prior to launching the integration process. 

"Beware the 'one-size-fits-all' level of integration."

That brings me to one of our core integration advisory principles: Beware the "one-size-fits-all" level of integration. The truth is that even in fully consolidating transactions, you are likely to find unique and distinctive target company capabilities that should be preserved or leveraged rather than fully absorbed For an example, please see What Really Happened to Daimler Chrysler.

Likewise, in allegedly simple tuck-ins, how much deal value do you think has been destroyed over time by acquirers who fail to adequately understand the target company’s business model and thus rip apart the acquired product or service from the underlying processes and systems most responsible for creating true customer value? For an example, please see: Business Model vs. Culture.

Alumni of the M&A Leadership Council executive training sessions, The Art of M&A Integration, will remember our perspective summarized in Determining the Degree and Timing of Integration. In order to most effectively determine the appropriate integration strategy framework, we encourage executives to carefully consider at least four distinct viewpoints, including the buyer’s role and capabilities, transaction characteristics, the business model and capabilities of the target company and “deal-type DNA.” For a reminder on deal-type DNA, please see Avoiding Integration Disaster Through Deal-Type DNA and Making the Main Thing the Main Thing.

For now, we’ll refer you to several of the prior blog posts linked here that have addressed these elements in more detail. Let’s get to the “so what.” My friend and colleague Jack Prouty of the M&A Leadership Council, has broken the code on helping executives get the integration strategy framework right with his “Concept of Operations” methodology typically deployed in our Game Day Integration Strategy Summit events with clients, as well as training exercises presented in the Art of M&A Integration workshops.

This approach considers five potential strategic alternatives (preserve, consolidate, leverage, blend or transform) and drills into multi-dimensional levels of the target company including enterprise level, functional level, and key process or system level, then adds other deal-specific and mission critical “degree of integration” considerations such as product, brand, sales model, culture, etc., to ensure you don’t fall victim to the “one size fits all” level of integration trap. The next step for each aspect of the resulting integration strategy framework is to sort out the timing and priorities of each project or objective. Start first with near-term vs. longer term, then flesh out specific project timelines during the initial phases of integration planning.

Remember that at this stage your primary need is to provide strong directional guidance for the organization, not the detailed project-plan level data such as budgets, task-lists, etc.

If you are an active and repeat acquirer, you will eventually develop a default model of integration strategy framework based on your most typical deal-types and objectives. Using this methodology consistently as a part of your disciplined approach will help ensure your executive team is able to discern appropriate exceptions and will help provide the agility to adapt, or throw out, your standard playbook when the deal-type, objectives, business model or transaction characteristics warrant.

Likewise, as you use this disciplined approach, we believe your insights about specific target company integration strategy will improve as will your ability to make the tough calls to identify and preserve certain target company processes or capabilities; incubate or delay full integration until you have adequate understanding of a new or different product or business model; or counter-intuitively pursue a selective integration strategy allowing you to laser focus initially on just those integration objectives that will create the greatest value in the shortest possible time.

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