Common pitfalls and success factors of acquisition integration

Mergers and acquisitions can be an effective strategy to increase business value.

Unfortunately, many transactions do not deliver the benefits initially expected due to a variety of breakdowns in the integration process.

There is no one-size-fits-all solution to acquisition integration. It depends on the deal, the strategic intent, and many other factors.

Integration planning and execution is a critical component to realise operational and financial benefits. Planning should start with determining whether the acquirer has the right structure in place to effectively manage and execute the integration.  This then continues by identifying what systems, processes, staffing, and roles will support the integrated business model moving forward in an efficient, scalable way.

Common pitfalls:

• Many companies consider integration to be solely about data and technology systems. It is perceived that as long as a common system is in place, the businesses are sufficiently integrated. Good data, well-aligned processes, and clear roles and responsibilities—along with a common platform—are essential to operating optimally. If departments, locations, or business units are utilising different business processes and practices, common problems arise from disjointed operations and compromised communications that do not align with strategic goals.
• Some businesses attempt to initially undertake too much integration at once. Some executives are determined to integrate everything on day one. Snap decisions can be as damaging to the value of a transaction as delaying integration. After spending time operating separately, pulling infrastructure and people together is often a significant challenge and, in some cases, requires breaking through cultural barriers.
• Many companies simply do not possess the bandwidth to perform an effective integration with internal staff. Internal employees chosen to perform critical integration tasks are typically high performers with multiple roles within the company. It's not that they don't have the knowledge or skills to work through issues, rather, they find it difficult to manage these additional responsibilities while continuing to perform their daily jobs.
• The exercise of determining and quantifying transaction synergies can be tainted by the hubris of M&A advisors or management consultants and be devoid of practical and realistic measures to achieve. Several academic and professional studies that point to low levels of synergy realisation versus what was modelled and assumed before completion of the transaction.  

Success factors:

• Understanding the difference between integration and transition. There is often a focus on integration without recognition of the basic transition of control activities that will dominate the first 90 days of any acquisition. Transition involves simple, often overlooked activities such as obtaining day one control over treasury processes, establishing new delegated authorities, and ensuring that business operations in the acquired entity continue safely and in a “business as usual manner”. Transitional activities are sometimes not well planned as it is either overlooked or expected to occur naturally. It is unlikely and unrealistic to think that any meaningful structural integration or synergy realisation can occur in the first days after completion of an acquisition.
• Do not underestimate change management.  Change management is sometimes seen by senior management as some sort of opaque or fluffy concept that is of lesser importance in M&A.   Experience shows that it can be one of the most critical factors and can be planned and approached in a structured manner.  Ensuring that a large-scale workforce has a settled and positive experience in the first few days of acquisition requires thoughtful planning and communication.  Mitigating fears regarding large-scale system changes and providing reassurances regarding employment can mean the difference between an engaged versus disenfranchised workforce in the acquisition target entity.   Engage senior management in the acquisition target to help achieve this.
• Being realistic on synergies.   Ensure operational staff who have a real and practical understanding of operations are involved in the preparation of any plans to achieve transaction synergies.  Do not treat it as a desktop academic exercise.
• What is measured and reported is often achieved.   Merger or acquisition integration should be treated as a project with best practice project management principles employed.   The structure of the project should be documented and objectives well defined.  Workplans should be practical, with clear accountabilities, timeframes, and milestones established.  Progress should be tracked and reported to the transaction sponsors regularly to ensure objectives are being achieved.
• Focussing on front-end operations as opposed to back-office support activities.   Integration can at times be viewed as a back-office operation to harmonise or streamline administrative functions in finance, IT, or other administrative areas. The key objective in any transition should be ensuring the core operations continue safely and productively from day one, that reporting lines and authorities are clear and that staff feel safe and engaged in the transaction and their work.  
• Failing to plan, is planning to fail.  It is an old saying, but very true.  Transition and integration lends itself well to a diligent and thorough planning process.  A good transition does not have to be a serendipitous outcome.   Planning should commence during the diligence process and ramp up during the pre-completion phase of the acquisition. The approach and plan should be established and communicated well before day one.

Conclusion

There is a reason that companies agree to a merger or major acquisition in the first place. However, for the integration to be successful, executives must work together to redefine the new company.

When a merger or acquisition's potential is not fully realised, assumed operational and financial benefits may evaporate.

At best, a failed integration results in financial losses and decreased employee morale, while a worst-case scenario could see the company's future at risk.

It is never too late to work towards realising the benefits of a merger or acquisition and the best companies continue to identify tactics to further integrate and realise more value from a transaction. An experienced advisor can help objectively evaluate approach, processes, and technology to discover integration opportunities that will drive increased financial returns and support plans for future growth.

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For further information on mergers and acquisitions, please reach out to your local RSM adviser.