14 Key Elements of Functional M&A Capability and Readiness
What Workstream Leads Need to Develop to Improve Deal Success
By Stephanie Snyder, Senior Partner, M&A Partners
M&A is a team sport. Just like other team sports, it takes people with a variety of strengths, skills and knowledge to put a winning M&A team together.
M&A success is heavily dependent upon top-down leadership to provide the strategy, guidance, governance and decision-making required to ensure each deal meets its intended objectives. But successful M&A integration is equally dependent upon having strong bottom-up planning and execution; and that is where functional M&A capability and readiness comes into play.
While a lot has been written about the importance of leadership’s role in M&A success, much less is available regarding the role and responsibilities of functional workstream leads. Many companies fail to recognize the critical role that functional workstream leads play in ensuring deal success.
In fact, many companies still expect functional workstream leads to perform their M&A role as a part-time “additional duty” working off the side of their desk in addition to their already demanding day job. To complicate things further, few companies provide adequate M&A training for their functional workstream leads, expecting them to rely on their raw intelligence and subject matter expertise to “figure things out” during active integration projects.
While relying on “functional heroes” gets some companies by in the short-term, it is not sustainable in the long-term and risks frustrating and burning out some of a company’s best functional subject matter experts and future leaders in the process.
A far better approach is to define the basic elements of M&A capability and readiness each functional workstream should develop and then further refine these elements using deal specifics once a live deal hits. These basic M&A capability and readiness elements apply to all workstreams and provide a “level playing field” so the Integration Management Office (IMO) can lead the project at an enterprise level with all workstreams contributing effectively and efficiently.
Let’s take a look at seven of these basic M&A capability and readiness elements that we believe all workstreams should be accountable for developing, at least at a baseline level, before a live deal is announced:
1. Team Charter: In M&A projects, the Team Charter is a critical document that explains exactly how the workstream is structured with a team lead and specific sub-teams, what each sub-team is responsible for doing during an M&A project, how the function will resource the project and what deliverables the workstream is responsible for producing. Collectively, the Team Charters provide the Integration Management Office with a blueprint for who is going to do what during integration planning and execution. Team Charters also serve as the critical foundation for developing the baseline Integration Plan of Record (Baseline IPOR), or milestone workplan that will be used to launch detailed integration planning once a live deal hits. And, equally important, the Team Charters help define when integration victory can be declared and valuable integration resources can be released back to their day jobs or to manage additional integration projects.
2. Due Diligence Request List: Each workstream should develop a baseline Due Diligence Request List to ensure readiness to begin the due diligence process with little notice. This baseline Due Diligence Request list should be prioritized to distinguish between High Priority items required to make an effective go/no-go decision and the Medium and Low Priority items that can wait until later in the Discovery and Integration Planning phases of the deal. Knowing what to ask for and prioritizing those requests appropriately can significantly streamline and expedite the due diligence process.
3. Functional Organization Chart: When comparing how your company is organized to how the Target company is organized, up-to-date and easily accessible functional organization charts become critically important. Current organization charts may be accessible through a corporate system of record or they may be maintained by a functional administrator. Regardless of the source, the workstream lead should know where to find them, how to access them and how to conduct a side-by-side comparison of how the function is organized in the target. For example, in some companies, Payroll may reside in Finance while in other companies Payroll may reside in HR. Functional organization charts can help clarify these important similarities and differences quickly.
4. Functional Resources / Functional RACI: Each functional workstream lead should identify, with input from their Functional Executive, what functional resources are needed for M&A, and who is available and ready to assist on M&A projects. This may include sub-team leads, subject matter experts and backfill staffing. Identifying how many resources will be required, what they will be doing and who will help backfill their day jobs, especially during periods of peak integration demand, may require some tough resource allocation discussions, and perhaps even some project rationalization discussions, which are better conducted well in advance of a live deal.
5. Functional Business Process Maps and Supporting System Maps: Having your function’s business processes and systems mapped in advance of a live deal can significantly improve the speed and quality of comparing your function’s “As Is” state to the Target’s “As Is” state during Due Diligence, Discovery and Integration Planning. We see far too many companies who do not know or cannot explain their current state functional business processes and supporting systems to their Target counterparts. This lack of business process and system documentation can easily lead to false assumptions when developing the “To Be” roadmap and making key integration decisions.
6. Typical M&A Cross-Functional Dependencies: Not only is M&A a team sport; it’s also very cross-functional in nature. By identifying the functions they are typically dependent upon your function for what, each workstream lead helps the Integration Management Office manage this risky white space more effectively. Some critical areas that require significant cross-functional coordination include Announcement, Talent Retention, Day 1, Organization Design and Staffing, Customer Experience, Employee Onboarding and Enablement, Business Process and System Cutovers, etc.
7. Third-Party Support: It is not unusual, even for experienced acquirers, to need external support during M&A. External support may come in the form of legal advisors, finance advisors, compensation and benefits advisors, integration advisors, cybersecurity specialists, branding experts, etc. Identifying the types of external resources needed, pre-vetting your options and developing a ramp for onboarding them quickly as necessary can save precious time once a deal hits.
In addition to the seven baseline elements above, there are seven more elements that we believe are best developed in conjunction with a live deal. These elements may require deal-specific information in order to be practical and useful.
8. Discovery Questions: Discovery is a phase in the deal lifecycle between Due Diligence and detailed Integration Planning during which joint teams conduct a detailed analysis of the current state similarities and differences between the acquiring company and the Target company. Developing a specific set of Discovery questions for each specific deal can help workstream leads drill down on the critical similarities and differences they suspect from Due Diligence and develop a comprehensive understanding of how alike and different the company’s business models, operating styles, organization structures, business processes and supporting systems and cultures actually are.
9. Risks, Actions, Issues and Decisions (RAID): Each workstream should document the specific risks, actions, issues and decisions related to each specific deal. Workstream leads should begin documenting these critical items during due diligence and continue to track and report them to the Integration Management Office throughout Discovery, Integration Planning and Integration Execution phases.
10. Baseline Integration Budget Items: It’s sometimes difficult to plan an integration budget until you have some details on a specific deal. The number of employees, locations, geography, nature and type of deal may all impact your budget assumptions. However, once you’ve been through a few integration cycles, a pattern should start to emerge regarding the types of budget items that require lots of money or long lead times. These patterns can then inform future integration budgets and serve as a baseline for M&A budget development.
11. Integration Plan of Record: Most companies are able to develop a baseline Plan of Record (baseline milestone workplan) before a deal ever hits that provides them with 80% or more of the milestones that functional teams will need to execute. These baseline IPORs are typically developed at the milestone level only. Tasks level detail is filled in later, once deal-specific information becomes available. Likewise, due dates, responsibilities and dependencies are typically added once a live deal hits. But having a baseline roadmap that outlines the majority of high-level milestones that teams know they must accomplish provides a significant time advantage during an integration planning crunch.
12. Functional M&A Lifecycle Framework: This may sound like consultant-speak, but all we really mean is all workstreams need to understand and communicate with the Integration Management Office regarding what their workstream will deliver during each phase of the deal lifecycle. This has more to do with function-specific deliverables and may include things, such as when HR will distribute offer letters or when IT will switch out laptops. The Integration Management Office will serve as air traffic control to ensure the Target organization is not overwhelmed by all these functional activities and that customers, partners, vendors and suppliers understand how to do business with the combined company once the deal is legally closed. Understanding which functions plan to do what by phase helps the Integration Management Office develop a project timeline and critical path that the Executive Steering Committee can monitor to evaluate progress.
13. Function-Specific M&A Tools: M&A may require functional workstream leads to develop some function-specific tools. For example, an acquisition may require HR to develop specific tools to assess talent across both organizations and determine who is best qualified to fill go-forward positions in the combined company. Marketing may be required to develop tools to assess the brand equity of the Target so as not unintentionally erode value in the deal. Some of these function-specific tools can be anticipated and developed in advance based on the types of deals your company is pursuing. Others may be unique to a specific deal and developed on the fly or with the assistance of external third-party support.
14. Functional M&A Playbooks: Last, but not least, functional playbooks serve to codify all this otherwise tacit knowledge and make it possible to transfer this knowledge to other team members and functions. And while we don’t believe M&A Playbooks are the be-all/end-all determinant of integration success, we do believe they can help institutionalize a scalable, repeatable process that can make the company less dependent upon the heroics of a few limited resources. While it is possible to develop functional M&A Playbooks prior to an acquisition, the truth is your playbook will benefit from some live deal experience first. Therefore, we recommend you develop your functional playbooks either during a live deal or shortly after you’ve collated your lessons learned from a previous deal.
If these 14 key elements of functional M&A capability and readiness sound like a lot of work, you’re right. The only thing that takes more work, and more time, is trying to perform M&A integration without them.
When expert bottom-up functional capability and readiness is partnered with superb top-down M&A leadership, the odds of deal success go up exponentially. One without the other is like playing a sport with only an offensive or a defensive team. Both are critical to deal success and each require significant development if consistent deal success is your company’s goal.
Learn more details about M&A integration and the entire M&A lifecycle from professional M&A consultants at our upcoming virtual training session, February 13-15, 2024: The Art of M&A® Integration Fundamentals / Virtual / FEB 2024
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Stephanie Snyder, Senior Partner of M&A Partners, has consulted on some of the world’s largest and most complex mergers, including the $80-billion ExxonMobil merger. She has advised clients across all industries and around the globe, including Chicago Mercantile Exchange/Chicago Board of Trade, ABN AMRO/Royal Bank of Scotland, Fortis, Santander, AG Edwards/Wachovia, Maritime Life/ManuLife, Pfizer/Pharmacia and Pfizer/Warner Lambert.
Stephanie led the Global M&A Team at Nortel Networks and has designed and developed custom M&A solutions for numerous clients, including an online Methodology and Playbook for John Deere to help their independent dealers grow through mergers and acquisitions. Her strengths include merger integration training and planning, communications, culture fit analysis, organizational design, talent retention, post-merger strategy and business optimization.
