7 Critical Success Factors in Effective M&A Integration
Focusing on Key Elements in the Lifecycle of the M&A Deal
By Jack Prouty, Past President, M&A Leadership Council
My direct experiences, research, and learning from others have led me to boil down what I believe are the “7 Critical Success Factors” for effective M&A integration.
Those companies that have focused and executed on the following key elements across the lifecycle of an M&A are the ones that most often achieve successful M&A integration (something only about one in three can claim).
What are these keys to success?
#1. Set the strategic context before tactical execution. The result is a bunch of teams running around in silos trying to integrate functional areas without understanding the basics of what they are trying to achieve and how the pieces should fit together.Successful M&As focus first on articulating the acquisition rationale and objectives and then managing the tactical and functional activities to achieve those.
#2. VALUE:
At the end of the day the real success or failure of an M&A is going to be determined by whether shareholder value was increased or not!
The first focus of the management of the companies in the pre-close needs to be on preserving the value
of the existing assets of the two companies; upon close it needs to then be on
realizing the value of the deal; and then as they move into the steady state of one company it needs to be on creating greater value.Value preservation: The day the deal is announced internally and externally is typically what we refer to as the “riskiest day in the life of an M&A.” This is the first time that key stakeholders hear an acquisition/merger is in the works. If activities are not planned and launched immediately to stabilize the organizations, then value will start to erode: lost sales, reduced productivity, delayed decisions, etc. Value realization:
- Once the transaction closes the focus should shift to realizing value by implementing plans to achieve the value and synergies. This is done while transitioning from the current state of operations to the future steady state (common platforms and systems, integrated operations or whatever vision the end-state is). The “best practice” companies are focused on both managing the businesses effectively during this transition (from two separate businesses into one integrated business) and ensuring that the deal’s benefits are captured. Once the two companies are under a common management, infrastructure and operations (however, the organization defines the end-state vision), it is time to reassess the assets and combine them to create greater business value. The “best-of-breed” companies follow a two-step approach: first, they focus on integration, and then they transform the combined company into a much larger operation than either could be as if it were operating alone.#3. LEADERSHIP:
- In my experience, the #1 factor for determining ultimate success or failure of an M&A is LEADERSHIP.If the senior executive, who ultimately owns this business (the CEO, divisional President, General Manager, etc. The likelihood of M&A success increases exponentially if the senior executive, who ultimately owns the business (the CEO, divisional President, General Manager, etc.) is driving this effort and is committed to achieving M&A Excellence. Leadership is not just about the “business owner” but also the alignment and commitment of the senior management teams of both organizations towards the strategy and goals of the deal.
#4. GOVERNANCES - It may seem simple, but it is often not done correctly. It is important to communicate clearly how the two companies will work together in the interim between the announcement date and the date of closing. It is also important to explain the legal do’s & don’ts for both organizations. By defining the rules of engagement for the senior management, the integration teams, and the rank and file, problems can be avoided and issues quickly escalated. The focus is on working in a spirit that promotes trust and openness. BALANCE:
–While M&A planning is underway, it’s important to continue focusing on running existing operations (of both companies) better than ever.
The M&A Leadership Council believes that while a dedicated team should be driving integration activities, most of the organization should focus on the day-today business. One of our workshop alumni made a great build on our comment of the 90/10 rule: “90%+ of the organization should spend 90% of their time running the day-to-day business and only 10% on integration, while 10% should spend 90% of their time on integration and 10% on the daily business.”
#6. RIGOR:
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As Jim Jeffries says, Chairman of the M&A Leadership Council: “M&As are project management on steroids.”If your company is going to do M&As, you will need M&A Program Management Excellence: a focus of discipline and rigor, a sense urgency in completing tasks, quick decision-making, empowerment of teams, and avoidance of “analysis paralysis” and “committee Gridlock”. It is important to have project management expertise on hand for every M&A project. However, most companies lack this expertise. It also requires a change in how we run our business day-to-day. People and Culture:
M&A involves change, which can be scary. However, refusing to adapt to the new environment is not an option. Two key points are to be kept in mind:
POINT B) You must address the people issues before you can attempt to address integration issues. POINT B) You must address the people issues before you can attempt to address the integration issues.
Cultural differences always exist. Understanding cultural differences is key. …. It is when these cultural differences impact business operations and destroy values that the issue becomes most serious. These “soft” issues are the most difficult and important to resolve. It is important to address the emotional and people-related issues in an M&A as well as the rational ones (e.g. What functions are we going consolidate, integrate etc.? ).
At each stage in the life cycle of an M&A (qualifying targets, conducting due diligence, planning and executing the integration, moving to the integrated end-state, and transforming to the new organization), I encourage you to focus on these 7 Critical Elements, as the “best of breed” companies do, for achieving M&A excellence.
______________________________About the Author:
Jack Prouty is the managing partner of Prouty, Montgomery and Partners (PM+P) and a subject matter expert in the field of mergers and integrations. He has over thirty years of line management and consulting experience working with Fortune 1000 companies on effectively integrating acquired companies, repositioning/transforming their business for improved market success and conducting large scale change programs for bottom-line benefits. Jack’s experience spans the entire lifecycle of transactions, including acquisitions, mergers and consolidations, joint-ventures, divestitures and roll-ups. Jack was also the Past President of M&A Leadership Council, and he has been a valuable contributor to our M&A programs for many years.
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