Getting Good at M&A Integration

Mark Herndon headshot
By Mark Herndon
Jan 23, 2019

Adapted from The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level, Third Edition (Jossey Bass / John Wiley) by Tim Galpin and Mark Herndon

Years ago, a mentor of mine who was an accomplished big-game trophy hunter commented, “When trophy hunting, the fun is pretty much over once you pull the trigger.” To many executives, the same could be said of M&A deals, in that it is typically easier to close a deal than to integration one.

No matter how you slice it, integration is tough. Tougher still is getting really good at M&A integration. And in spite of lots of talk about integration strategy, playbooks and disciplined program management, there are still lots of organizations being disrupted, lots of employees being displaced and lots of shareholders being disappointed.

The overwhelming lesson learned from both real-world experience and volumes of research data is this: to be consistently effective at integration, acquirers need to purposefully build internal M&A capabilities and ensure organization readiness prior to deployment on the next live deal.  

Consider these data points:

  • Our most recent survey of 153 executives from approximately thirty different industry sectors (Galpin and Herndon) found that over two-thirds (68 percent) of respondents see their firm's overall M&A capability and readiness level as very poor, poor or average. Over two-thirds (68 percent) of respondents believe their firm's overall M&A capability level has only “improved somewhat,” has “made no substantial improvement” or has even “declined or gotten worse.”
     
  • Further, this same study indicated that 71 percent of respondents rated the effectiveness of their integration process as very poor, poor or average.
     
  • The findings get even worse for deals that cross national borders: 46 percent of respondents believed their firm's integration results for global deals are “much worse,” “somewhat worse” or “about the same” as domestic deals.
     
  • Take also, what these same leaders told us about even the most fundamental skill set for integration – namely, communication and change management.  This study found that between 52 percent and 77 percent rate their firms as “very poor,” “poor” or only “average” with regard to seventeen key integration effectiveness measures, including M&A communications; timely and effective decision making by executives; integration planning; Day 1 operations; employee onboarding; tracking deal or integration metrics; making structure and staffing decisions; successfully leading their organizations through change; and cultural assessment and integration.

In our work helping acquirers “get good at M&A,” we’ve repeatedly seen the value of these 7 essential building blocks for developing internal M&A capabilities:

  1. Start with a framework. Document the process that best represents how your organization should ideally view the business process of M&A. Keep it at a “flexible framework” level, rather than a rote and rigid process. Consider your two to three most typical deal types and strategic investment thesis, then adapt versions of the framework for variations on a theme. Embed this framework in each of the subsequent steps.
     
  2. Reinvent your playbook. Frankly, we know a lot of organizations that spend a great deal of time and effort creating a huge narrative manual describing all the steps, expectations and desired approach. In our viewpoint, however, there’s a big difference between having a huge PDF document or binder that nobody uses vs. a truly executable methodology. You’ll absolutely need something like this, but we’ve had much greater success with incorporating succinct overviews, “how-to” guides and actual tools or templates to be used directly to each phase and step of the overall M&A Lifecycle. This way, it’s more just-in-time, and much more accessible based on role, resource and specific task being worked.
     
  3. Consider a software solution to automate workflow and dashboards. While the majority of organizations are still managing Excel based work-plans and dashboards, purpose-built M&A software deserves a look. The market can be confusing in that each vendor’s solution does things differently and may have or lack specific features you’re looking for. M&A Partners is solution agnostic and has worked directly with all the major M&A software solutions and we highly recommend you take a “practitioner’s viewpoint” (vs. vendor’s viewpoint) when assessing vendors and test each solution based on how YOU want it to work in a live deal environment.
     
  4. Prioritize training and skill building. The same study referenced earlier in this post had more than a few unpleasant surprises for the M&A community, including the fact that less than 30 percent of respondents reported training their integration or due diligence team members. Really? And we wonder why there are still so many underperforming deals and integrations. This is a quick win for many acquirers.
     
  5. Appropriate resourcing and budget. As the Exclusive Partner for Integration Services and Capability Development with the M&A Leadership Council, I routine ask executives, “How much does integration cost?” One particularly sharp executive recently answered, “As much as it takes.” I just wish more executives would take that view. While there’s limited public data on this, our own internal data tends to demonstrate that integration typically runs eight to twelve percent of the total target company enterprise valuation. Granted, that can vary widely, both substantially below and above that high-level benchmark depending on how your organization measures cost, deal type, deal size, number of countries/regions involved and, of course, your integration requirements.  
     
  6. Ensure prompt, effective decision making. It should come as no surprise that, in our research, one of the top-ten success factors for ensuring you hit your integration revenue growth objectives is “timely, effective decision making by executives.” According to our data, those organizations demonstrating this best practice are 66% more likely to accomplish their integration revenue synergy targets than those organizations not demonstrating this best practice.
     
  7. Live deal support to embed the new skills and processes. Once your organization has assessed, upgraded or reinvented its M&A process framework, playbook, resourcing, decision effectiveness, etc., and provided training on the new skills and processes, please be careful on the next deal. In the heat of battle, it’s easy to let things revert back to “the way we’ve always done it” and sacrifice the capability investment you’ve made. Instead, consider a small, senior team of no more than 2-3 senior level experts to help guide, coach and, in general, work in the trenches together with your front-line teams to ensure they are able to execute the best practices, processes and key events proven to deliver maximum business results.

 

 

In addition to being president of M&A Partners, Mark is the featured presenter at the M&A Leadership Council’s The Art of M&A Integration in San Diego. The workshop-style program includes case studies, breakout sessions and panel discussions, along with ample time for networking with presenters and colleagues.

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