Upcoming Webinar:
Top 10 Best Practices for More Successful M&A
Wed, Oct 16 – 6:00 PM CEST

Integration Strategies for Modern Business

How to Create M&A Integration Strategies Suited for Modern Day Business Environments

It goes without saying, the business landscape has changed greatly over the last two decades, but integration strategy, planning, and execution remain in the 1990s because they are all too linear in a world that is constantly changing. Further complicating this situation are the many contradicting shifts that have occurred.

Consider, for instance, how brick and mortar companies are buying into e-commerce and digital companies, while at the same time, you have a powerhouse such as Amazon entering the brick and mortar space with its Whole Foods acquisition. The takeaway here is value creation has shifted. Consequently, value creation must be malleable and generated even during times of uncertainty, thus affecting integration practices.

Current M&A Integration Challenges & Trends

With the above premise in mind, there are a couple of major challenges currently facing integration and a few trends practitioners must be cognizant of:

  1. Types of deals have changed - Types of deals and how we define these deals have changed. For instance, the definition of a serial acquirer has been adapted. Consequently, acquirers cannot have a single playbook or put too much value in one approach. Additionally, the term “serial acquirer” is no longer synonymous with a company that has strong integration practices and can extract maximum deal value.
  1. Functional Integration is outdated - On a related note, functional integration, once highly regarded, is no longer as powerful a tool because it cannot be scaled.

Additionally, three other industry trends are of note as companies work to improve integration practices in this ever-changing landscape:

  1. The importance of determining IMO by value drivers - This is a nonnegotiable practice; IMO needs to be established by value drivers.
  2. Increased emphasis and effort on diligence - This is a new trend most likely due to the ever-growing presence of technology in our world. With technology, stakeholders want to know up front if the technology is secure, stable, and scalable. Where is the value in the technology truly unlocked?
  3. The importance of customer diligence - The focus here is on the commercial market and how one quantifies the value synergies. It is critical to note that value does not equal synergy. Here stakeholders need to realize again that a playbook does not create value and that synergies do not automatically transform into stakeholder value.

integration strategies

Reasons Deals Go Awry in 2019:

While mature companies understand integration diligence needs to happen earlier and they need to operate in a more Agile way, deals can still fail. The following are four areas where modern businesses tend to make mistakes that hurt their deals:

  1. Lack of structure to the cross-functional model -There is a lack of definitive governance structures for cross-functional models. All governance models are built for the functional side, which creates problems.
  2. Misaligned incentives -There is often a grey area surrounding who is responsible for the deal’s success and the creation of shareholder value.  There does appear to be a growing acknowledgement of the important role team incentives can play in ensuring success, but the alignment of business units and their respective ownership and accountability are still a bit patchy in many integrations.  
  3. Key players do not know the business well enough - People often think they understand the business they are in, but commercial integration doesn’t always go into the nuts and bolts of the company. Business units’ maturity, or lack thereof, also comes into play here.
  4. Underestimated ability to execute on revenue synergy - There is a significant problem related to revenue synergies when product and sales teams are not in unison. Take for example the challenge a global Fortune 500 company faced when it acquired a company whose sales force was structured regionally and managed by regional executives. These salespeople had no added incentive to focus on selling the new company’s global products and services. Within this deal, there were underestimated levels of revenue synergy (i.e. pricing and customer experience). Overall, a critical takeaway here is that revenue synergy has to be more of a science and less of an art. Specifically, revenue synergies need to come in three waves - not all at once. First, you can begin integrating before actual integration through alignment; alignment gives you momentum as you then think about issues such as product bundling and pricing. Finally, you’ll want to consider new product innovation, which takes a bit more time. You simply cannot have all three waves taking place at once if you want a smooth integration.

Dream Integration Teams:

So with these challenges and trends in mind, who should be on your dream integration team? First we must acknowledge here that the skills of integration players have changed; we no longer look to process people for integration, but rather we look for people who understand value creation - from value protection, to value capture, to value creation.

Additionally, you need players who are knowledgeable of the business, operationally strong, and possess strong IMO and project management skills. Obviously, it is hard to get all of these skills in one player; therefore, you want to take a cohort of individuals with these skills and put them through integration training. Ultimately, you should end up with players who are product experts, specialized in pricing and branding, and sales and marketing.

Of course, you’ll also want to round out your team with Human Resources, although not necessarily the operation side of HR, rather the organizational development side of HR. It should be noted not all of these players will need to be full time members of the team.

Change Management - Beyond the “Touchy Feely Stuff:”

To say change management is paramount is beyond obvious. More and more companies are taking notice of the importance of change management, which is great, but change management needs to go beyond what we like to call the “touchy feely stuff” - change curves, HR presentations, etc.

First, you must size the change - get into the specifics of what exactly is changing - is it location, is it systems or processes, is it reporting relationships? Where is this change taking place? Is it in a business unit? Is it in a function? Is it in a geography? The magnitude of change needs to be measured with specificity so that you can design the right change interventions into your approach and plan for human capital, productivity, and deal value.

Change should be looked at not as an IMO lead process, but rather as an IMO governed process, which is facilitated by HR and led by the parties of the business unit; this is a shift from how change management has previously been run - usually it has been run by HR or the IMO unit.

One of the most pressing challenges related to change management is culture. While it takes years of gradual, well-planned changes to transform and create culture, the right first step can support long-term sustainable shifts. Best practices prove that you should not initially look at changing culture (culture is not inherently right or wrong), rather you should isolate the top three behaviors that need to change in both organizations, and both executives need to combine forces and align these behaviors.

Final Thoughts:

Integration will continue to evolve; going forward we expect the following three things to happen:

  1. Agile principles will become more prominent in the world of M&A
  2. Artificial intelligence will automate certain parts of integration
  3. Staffing and configuration will shift from a functional approach to a cross- functional/value driven approach

The question, then, becomes how do you develop the capability to execute under uncertainty and preserve and create value for deals? Companies must take a step back and see where their integration processes are with respect to what they’re buying; they must also truly understand what type of acquirer they are and what their goals are.

What Causes Deal Fever? What Raises the Risk?

There are several symptoms that can lead to the disease of deal fever. 

One such symptom of deal fever is getting carried away in the heat of the deal. There is a lot of time and effort spent just exploring a potential deal, let along the negotiations involved. Sometimes people spend so much time and effort on exploring and negotiating the deal that they feel is must get done at all costs, while failing to take a birds-eye view in determining if the deal is really the best thing for the company.

Another symptom indicating the presence of deal fever and one that raises the risk of catching it is when certain executives become more excited about the deal and emotionally involved in the outcome than other members of the group. This can lead to inflating the deal’s potential strengths instead of also focusing on potential pitfalls. In a competitive situation, sometimes certain people want to do the deal much more than others for a variety of reasons. 

Many M&A teams also use M&A software to help them source new deals. Just because a software is telling you a deal is a good idea, that doesn't mean you don't have to do the proper research.

How to Prevent Deal Fever

Great news! There are a number of proven ways to prevent deal fever and keep your company disease-free. Here are some tips to stay deal fever-free:

  • Perform More Research Than You Need To. You can never perform too much research on a potential deal, so we recommend doing even more than you think you need to.  
  • Seek The Opinion Of Experienced Deal Makers. Get another opinion from someone you trust that has embarked on similar deals. What do they think of the deal? Seeking another opinion that can evaluate your potential deal without the emotional involvement will help you ensure the deal is truly one you want to pursue!
  • Know All Of The Potential Risks. Thoroughly evaluating the deal’s potential risks, and involving your team in the process, will help you avoid deal fever. Don’t lose sight of your basic financial calculations! Involving others in the process is essential, as you want to make sure nothing is overlooked and you can remain deal fever-free. 

Resist deal fever by not overlooking the negatives that you may not want to see! If you have been the primary person working on the deal, make sure you involve others so they can help assure that you are seeing everything clearly. There should never be one person working on deal flow tracking. Likewise, don’t let personal pressures to get the deal done get in the way of looking at everything objectively. Sometimes, not doing the deal may be in the best interests of the company.

How to Tell When You Have Deal Fever

Do you have a high degree of risk tolerance? Do you have a burning desire to get the deal done, yet something just doesn’t feel right about it but you’re not sure what? If so, you may be catching a slight bout of deal fever.

Having the above feelings isn’t just exclusive to individuals, either. Many companies surveyed believe that their M&A function of getting the deal done is more important than what follows. If you’re in the M&A department, and you’re not performing M&A’s, something must be wrong, right? No, not necessarily. Inherently good deals are difficult to come by and you may have to pass on many of them before you find the right fit.

If deals contain personal agendas or emotions, or your company provides more incentives and encouragement to do the deals rather than not, than these are signs that your company may have deal fever. Recognize the signs so you can avoid deal fever and ensure you are making deals that have the highest chances of future success for your company.

Deal Fever

Treatment, Care & Medications For Deal Fever

Below are some treatment, care and medications for this contagious disease known as deal fever:

  • Treatment Option 1. Ensure your deal team is incentivized for long term success, and not just for completion of the deal.
  • Treatment Option 2. Have objective, experienced observers review the deal specs, including all of the potential negatives of doing the deal.  This way you can help ensure you’re not overlooking potential pitfalls.
  • Treatment Option 3. Let post-close executives have direct input into whether or not the deal goes through
  • Medications For Deal Fever. Create clear action steps that are to be taken when considering all potential deals. Create a set of red flags, or things to be looked at more closely when they occur. Finally, a healthy dose of objective observation by people not directly involved in the process will both help prevent and cure this debilitating disease!

A very important aspect in our guide on deal fever is to cultivate a business culture in which you have both risk tolerant and risk averse individuals on the team, with both groups having equal say. When both groups sign off on a potential deal, and it is also reviewed by an objective observer, you know you might have a winner!

sign up for deal management software

Don’t Underestimate the Power of Diet, Exercise & Rest

One of the most important ways to prevent deal fever that is often overlooked is to ensure you have a good diet, and are getting enough exercise and rest. Doing so will keep your mind and body in tip top shape, and will help alleviate some of the pressures incurred from pursuing and evaluating a potential deal. 

M&A deals are complex transactions that often go at a very fast pace and can also be emotionally charged, so ensuring you’re eating well, exercising and getting enough rest can help counteract the pressures of working on the deal.

The Takeaway

Many M&A management can sometimes lack a truly accountable leader to oversee the process. Having a great leader, coupled with the goal of long term success instead of short term, are the highlights of the best things to do to not get infected with this crippling disease. Set the criteria for success and focus on that more than focusing on doing the deal just to get it over with. Make sure your team is incentivized on long term goals and are not acting out of the fear of “what if we don’t get this deal done.”

If you and your team are currently managing M&A transactions, check out DealRoom's M&A virtual data room and project management software. DealRoom's platform also includes pipeline and integration management, which helps teams organize deals for their entire lifecycle.

REcommended articles