What Does Your Approach to M&A Integration Strategy Look Like?

Before Launching Your Next Integration Take a Good Look
by Mark Herndon, Chairman Emeritus, M&A Leadership Council 

It’s not a trick question: “How do you know you’re ready to launch integration planning?” Our answer? Not until you’ve done THIS – created a comprehensive Integration Strategy Framework (ISF). 

We’ve studied, consulted, and written extensively about the importance of conducting a thorough ISF. Noted in a recent blog article and based on extensive M&A Leadership Council research with approximately 150 skilled acquirers, this one integration best practice is proven to be the #1 correlated best practice with MANY essential business result outcomes.  Those include hitting revenue synergy targets, minimizing value erosion, and accelerating the pace of integration. So, let’s take a quick look at what an ISF consists of, how it is developed, and how this ONE best practice can put you and your organization WAY ahead of other acquirers. 

What is an Integration Strategy Framework? Call it what you will, a strategic integration blueprint – a hypothesis for integration – a skeletal outline of your vision of what integration should look like based on what you bought and what you must get from each acquisition – these are all workable definitions. 

The key is that this is an executive-level and deal-team-level deliverable, developed in concert with the Integration Executive Sponsor and Integration Lead or Integration Management Office to ensure executive alignment and promote consistent messaging at the Announcement. More importantly, though, your organization is NOT ready for the launch of integration until you have developed the necessary directional guidance for the Integration Management Office (IMO). In advance of joint integration planning, the deal-strategy implications for integration should be scoped out to determine integration work-stream requirements

What components should be included? Here is an entirely transparent answer. Just as each deal is different, each ISF is typically different based on the unique needs of that specific deal and organization. We suggest you identify a list of potential outcomes/deliverables. When due diligence is at a point where you can comfortably anticipate your ability to get to closing, flesh out which specific ISF components will be needed for this deal. 

The most critical elements of an ISF are intended to provide meaningful “directional guidance” from the deal-team and executive team on critical pending decisions for the IMO and work-streams. Let’s briefly discuss these representatives, but not exhaustive, ways your organization can more effectively align the deal-strategy implications for integration:

1. Integration Working Assumptions, Non-Negotiables, and “Decisions Made.” Each of these three types of decision guidance is essential for your integration team, and when effectively reasoned and well communicated, will help prevent delay, ambiguity, and loss of momentum. Every acquirer should develop a shortlist of each of the following, then implement them well with solid logic, empathy, and support.

• Non-Negotiables: Agreed deal-point provisions may be categorized best in this bucket. If, for example, the deal stipulates that the TargetCo 401-k plan will be terminated, chances are, it will be terminated immediately. Let’s state that, and immediately set all expectations and strategies around that. 
• Subsequent Confirmed Business Decisions: Many important, early integration decisions can and should be reached by the Buyer before the launch of integration. For example, we sincerely believe that one of the best ways to stabilize the businesses, employees, and customers is to announce the go-forward executive leadership roles as soon as possible, either pre-close or on Day 1. Specific brand, systems, or policy decisions may also quickly become “givens” once the Buyer’s leadership team turns its attention from deal to integration. Our counsel is to use these confirmed business decisions as opportunities to reduce ambiguity further and establish as much focus and clarity as possible.
• Working Assumptions: This category may be somewhat trickier, but it may be the most helpful for your integration leaders and work-streams. I equate working assumptions with a hypothesis or a reasonable, but rebuttable position, given the level of data currently known. In our experience, integration leaders and work-streams perform much better with this type of executive direction – and clear mandate to “go do integration discovery, analysis and validation” sufficient to recommend a fully informed and vetted decision on that issue. 

2. Value-Drivers and Key Priorities. The importance of this ISF requirement was effectively articulated a few years ago by a client and survey respondent in an M&A Leadership Council research project. This global technology company had completely approximately 50-60 deals at this point, including some very complex global transactions as well as several development-stage new technologies. The global integration lead put it this way. “The turning point for us, when our acquisitions began delivering on their promise, was when we shifted away from a functional integration process to a disciplined value-driver approach.” 

That’s not to say you can just put functional integration on the shelf – you can’t. But what many organizations still miss is the all-important integration strategy work of taking the deal thesis, the announcement press release, the Board approval deck, economic model and key due to diligence findings, and translating and interpreting perhaps 5-7 key priority initiatives for the enterprise that will directly drive the most critical business results and integration outcomes of the deal. This is heavily dependent on the deal-team, the executive team, and the integration leader. Each initiative should have an accountable key leader, a high-level timeline, target objective, and KPIs or OKRs that can be effectively tracked and reported. Then, in concert with the functional integration milestone status and KPIs, the value driver priority initiatives inject a business result focus over the enterprise integration to help maintain a “first-things-first” focus. 

3. Initial Concept of Integration. One of the most important, yet most often underutilized ISF requirements is what we like to call the Concept of Integration. Think of it as an outline of the contemplated integration. Yes, still at a preliminary and high-level, but at a level of direction that helps translate the deal strategy into guidance for the work-stream leads who will subsequently be completing the integration discovery, detailed planning, and ultimately, the integration plan of record. 

There are four essential components in the Concept of Integration, including:

• Key Decisions Pending: Going function-by-function, we typically start by identifying the 5-10 primary system, process, or operating model questions that need to be resolved to align with the overall deal thesis objectives and maximize overall value. Remember, we are looking for the “toughies,” outliers, and significant risk/opportunity factors, not the everyday items.
• Overall Type or Direction of Integration: You’ve probably seen portions of these models plenty of times. In our view, every integrator has 3-4 core options on each decision point. Do we absorb/assimilate that (system, process, operating model component, etc., collectively referred to here only as “approach” for clarity) …into our approach? Do we leave the Seller’s method “as-is;” do a blend of both? Or perhaps neither buyer’s nor Seller’s plan is scalable, efficient, or desirable as-is, and should be transformed altogether. 
• Timing/Priority: We typically suggest limiting the timeframe to when we need the interim state complete (for example: on or before Day 1, or perhaps by calendar quarter), and when we envision the “end-state” should be finished. 
• Potential Strategic “Plus/Minus”: For this final analysis, we suggest evaluating each of the critical decisions pending to determine the degree to which it potentially impacts your key value driver priorities or target company “secret sauce.” This is often a risk assessment such as a simple “H-M-L” rating for high, medium, low potential value impact to enable appropriate accountability, visibility, resourcing, and careful coordination of dependencies. 

Let’s illustrate this process at work with a recent acquisition by a global financial services organization. The target company was a strategic acquisition in a new product/service area outside the buyer’s core expertise. While the target company was much smaller than the buyer, it had a dominant brand and leading market position in its relatively narrow service line. During the ISF process, approximately 50 critical decisions pending were identified across all functional work-streams that needed to be addressed through the Concept of Integration. For illustration purposes only, here are three of the roughly 50 tough ISF decisions the leadership team debated before launching integration and how the Concept of Integration analysis ultimately clarified them. 

• Brand: Whose brand will be used by the target company post-close. 
  • Concept of Integration. Preserve TargetCo Brand – in interim ~24 months. End-state requires the Buyer brand for full global market reach. Potential value-driver impact, but not “secret sauce” impact – other than careful change management among employees and customers.
• Sales Process and Roles: The buyer was much more product-oriented, with a more transactional sales model using an account management infrastructure. The target was much more services-oriented, with an engagement lead model that stayed actively involved in service delivery.
  • Concept of Integration. Preserve TargetCo sales process in interim, but “blend” approach by attaching BuyerCo account rep throughout the process to build relationship-based expansion opportunities. Given the impact of heavy value-driver and secret sauce, full account ownership and control were maintained by the TargetCo for all legacy accounts.
• Thought Leadership and Social Media: While the target company’s thought leadership collateral in its domain was unparalleled in its expertise and unique insights. It was quite immature in terms of reach via sophisticated main-stream media and social media. 
  • Concept of Integration. Export the Buyer’s research, media, and content publishing resources/methodology under the Target’s editorial control within the immediate time frame. Given the significant value-driver and secret sauce impact of this item, invest additional working capital, resources, and accountability in enabling this “hidden gem” to propel substantial synergies.

In practice, decisions are typically represented graphically or on a matrix to more efficiently and visually communicate the critical strategic and directional insights from these discussions. Skilled acquirers also incorporate critical integration governance, process mechanics, and other essential communications strategies, messaging employee experience, and customer experience guidance in their ISF. (See below example)

So, when should you launch integration planning? Not until key leaders have clarified essential directional guidance for work-streams with insights and quality thinking; this ensures the organization’s ability to align critical functional, process, and operating model decisions with the core deal thesis objectives. In other words, when your ISF is complete!

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Need to learn more on integration strategy? Join us for “The Art of M&A® for Integration Leaders: Mastering the Fundamentals / Live-Online” June 13-15, 2023. 

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