April 18, 2017

Considerations You Need to Make During M&A Diligence and Integration

Greg DellaFranco is currently a Senior Manager of Corporate Development at Deloitte Consulting. Prior to joining Deloitte, he served as Director of Corporate Development at KPMG. When combined with 16 years in corporate development, corporate strategy, new venture creation, and alliance roles at Accenture, Greg has valuable M&A insight to share.

In the private equity realm, Greg says they look at things from a longer ROI cycle, when compared to a strategic buyer. “At the beginning of a process, when we’re looking at what options there are in the marketplace, we begin to develop hypotheses through three lenses.”

  • Strategic: The firm establishes its short-term and long-term priorities and compares the properties in the marketplace to their ideal acquisition candidate.
  • Cultural: The firm analyzes the compatibility of each respective company culture to determine what needs to be preserved and what has to evolve or change.
  • Financial: The firm looks at the business case and seeks to understand the metrics and how they align with their guidelines. Other considerations include transaction feasibility and the likelihood of actually doing the transaction.

They answer these questions during the IOI or LOI stage and record them as key due diligence considerations. These guide the key activities, questions asked, and focus items. “Yes, we have project plans, but we keep the stakeholders focused and the team focused on these key objectives and expected outcomes.” Greg describes this as an evolved diligence process, moving away from a Microsoft project-based lists of assigned tasks and instead, prioritizing key questions by what they need to understand first, second, and third.

Greg’s team uses these lenses to identify key areas of risk and value drivers. It is useful in determining a strategy for synergies and successful integration. The key questions appear on weekly status reports to evaluate learning and prove or disprove a hypothesis.

At times, they creatively disseminate this information. For one deal, Greg’s team created a daily blog to highlight findings and activities, along with a weekly timeline. The distribution list grew quickly when parties realized it was an effective, yet efficient, way to check-in.

Greg believes the first step to diligence is always the same, “We first have to acknowledge and appreciate that due diligence is going to be a disruption to their business, that the target will underestimate this disruption, or they will over-promise on what they can deliver and under-promise on the speed to which they can deliver the data.”

Another important step is creating a Strategy Triggers Assessment. Through due diligence and the integration process, the team identifies factors – competitive, client-related, technological, or regulatory – and lists them as triggers that pause and reevaluate the strategic plan. If any of these triggers happens in the market, the deal is reviewed by the leadership team to discuss necessary pivots.

“We first have to acknowledge and appreciate that due diligence is going to be a disruption to their business, that the target will underestimate this disruption, or they will over-promise on what they can deliver and under-promise on the speed to which they can deliver the data.”

When it comes to integration, Greg has evolved from a functional integration approach to a “sources-of-value” integration approach. Instead of integrating by functional area--for example, HR, IT, then legal--Greg puts the sources of value at the forefront. The focus shifts to the things that have the largest impact on the business case. As they merge the two teams, they pair leadership from the target with someone from Deloitte, a strategy he also used at KPMG. “We like to say we do integration with you, not to you.”

This mantra is reflected in his value proposition at Deloitte. “You would be the foundation for growth.” Greg continues, “We’re a good home for your people, we have a well-recognized brand, and we have capital. We will build a team around you to help you achieve your vision.”

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