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M&A Integration Planning: How to Get It Right

Kison Patel
CEO and Founder of DealRoom
Kison Patel

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

CEO and Founder of DealRoom

‘Fail to prepare, prepare to fail’ is a mantra that every PMI practitioner would do well to remember before beginning the PMI process.

As DealRoom often acknowledges, beginning the PMI phase as early as possible is always a positive. What this actually means is that the planning of the PMI phase should begin as early as possible.

The PMI process cannot begin without exhaustive planning first.

In this article, DealRoom looks at what planning for integration means, highlighting where the PMI team can add value to the process before it even begins.

The Motive of the Deal Should Drive the Integration

There should always be a good motive for an M&A transaction. Whether it’s extending the product or service line, increased market share, or entering a new geographic market, the reason why should underpin everything during the transaction, including the integration phase.

Understanding the why in an integration process also helps with its planning.

Whatever the motive, questions that should be asked include:

  • What are the risks that could stop our company from achieving the aim of this transaction, and where are they likely to arise during PMI?
  • What are the KPIs that we need to address to achieve our aim?
  • What’s our timeline?

Answering these questions early should help to identify synergies and integration challenges, ensuring a smoother transition and preserving deal value. Which leads us to…

Post-Merger Integration is the Second Stage of Due Diligence

Post-merger integration is a misnomer.

The ‘post’ prefix leads practitioners to believe that it is both separate to due diligence and after the transaction has closed. Neither is the case.

Post-Merger Integration builds on due diligence, extracting value from the analysis conducted.

Examples of how these risks manifest include:

Inefficient use of resources

Due diligence should highlight areas where resources are required in the target company. These resources (for example, extra staff, investment, etc.) can be allocated during PMI, bringing forward the synergies to be realized from the transaction.

Overlooking critical risks

The risks identified during due diligence, including legal liabilities, regulatory issues, and potential cultural conflicts, should be addressed in the PMI plan. Without addressing this risks early on in the process, the acquiring company risks them escalating down the line.

Cultural conflict and employee turnover

Understanding the target company’s culture is one of the main motives of due diligence. It is the job of PMI to take up due diligence findings and begin the process of cultural integration. Failure to do so will lead to employee dissatisfaction and high turnover rates, destroying deal value.

Read also: How to successfully combine cultures in M&A (by HR @Microsoft)

Overlooking customer and market

Commercial due diligence provides insights into the target company’s market position and customer base. By failing to make this part of the PMI process, the acquirer risks poor (or no) market strategies, loss of customer trust, and diminished brand value.

Planning for Value Creation

Research conducted by consulting firm McKinsey in 2016 suggests that even of those companies that felt adequately prepared for acquiring a company, around 1 in 6 dealmakers felt they were insufficiently prepared for integration.

The business environment over the last two decades has significantly changed, but the M&A integration process has been stuck since the 1990s.

Each deal is unique and requires careful planning, from diligence to post-merger integration, so that value is created and realized for the acquirer. In integration, more than any other phase of the M&A process, planning means being specific.

integration planning

Turning to textbook examples can be helpful in, say, the process of creating a target shortlist.

That is not the case with integration, where the specifics of the relationship between the buyer and the target reflect how the integration process should play out.

In the broadest terms possible, the team which is responsible for the integration process should focus on the value drivers of the deal, and ensure that these shape the sequence and pace of the integration.

In general terms, solid integration planning needs to pay particular attention to:

Capitalize on Low-Hanging Fruit

Make the core value proposition of the deal your immediate focus. Whether it’s cross-selling, upselling, the sale of redundant capital assets or anything else, do the easy things first.

Value Creating Processes

Which processes made the company acquire an attractive one? Was it the company’s product lines, its R&D, its sales and marketing, or something else?

Value Creating People

Establish early on how important the team that you’re acquiring is to value creation. This is particularly important when acquiring professional services firms, but less important (not unimportant) when acquiring manufacturing firms.

Trust Your Functional Teams

If you have good management in place, integration usually works best on a function-by-function or cross-functional basis. Delegate responsibility to these teams, following up regularly to check progress.

Establish Milestones

Whatever the plan you draw up, it’s important to establish milestones early on in the integration process. Know which changes are required and when. As an oft-repeated M&A mantra goes: ‘what drags gets dirty.’

Integration Planning Team

Good PMI teams are cross-functional (i.e., from different departments), ideally from both of the companies merging, and liberated to make executive decisions.

This team will be at the heart of planning and executive integration.

Among the benefits that derive from creating this team:

Centralized coordination and decision making

Integration planning teams provide a focal point for all of the activities in PMI. By giving the team executive decision making powers, the company can ensure that decisions are made efficiently and aligned with the overall objectives of the transaction.

Expertise and knowledge sharing

By their cross-funcional nature, these teams generate discussions that can lead to a more comprehensive understanding of the entities being merged. This also facilitates effective knowledge sharing, which is a crucial component of any successful integration.

Consistent communication

Communication underpins the entire integration process, so creating a team maximizes its planning and execution. One of the roles of the team is to establish at the planning stage how the integration phase should be communicated to all stakeholders.

Learn more:

Leveraging Technology

What has been outlined till now makes an irrefutable case for the use of technology in the integration planning process.

Technology should play a central role at the integration planning phase.

With the DealRoom PMI platform, which is specially designed for the entire M&A life cycle, teams can easily plan for complexities such as integrating disparate systems and processes, streamlining integration, improving communication, and enhancing data-driving decision making.

DealRoom's PMI platform

Concluding Remarks

For companies about to close M&A transactions, PMI should be at the top of the ‘to do’ list.

That urgency doesn’t mean that it should be rushed into. Planning for PMI, using specialized teams and technology, is the best way to maximize value from the process.

Bringing structure is the best way to conduct PMI efficiently and effectively.

‘Fail to prepare, prepare to fail’ is a mantra that every PMI practitioner would do well to remember before beginning the PMI process.

As DealRoom often acknowledges, beginning the PMI phase as early as possible is always a positive. What this actually means is that the planning of the PMI phase should begin as early as possible.

The PMI process cannot begin without exhaustive planning first.

In this article, DealRoom looks at what planning for integration means, highlighting where the PMI team can add value to the process before it even begins.

The Motive of the Deal Should Drive the Integration

There should always be a good motive for an M&A transaction. Whether it’s extending the product or service line, increased market share, or entering a new geographic market, the reason why should underpin everything during the transaction, including the integration phase.

Understanding the why in an integration process also helps with its planning.

Whatever the motive, questions that should be asked include:

  • What are the risks that could stop our company from achieving the aim of this transaction, and where are they likely to arise during PMI?
  • What are the KPIs that we need to address to achieve our aim?
  • What’s our timeline?

Answering these questions early should help to identify synergies and integration challenges, ensuring a smoother transition and preserving deal value. Which leads us to…

Post-Merger Integration is the Second Stage of Due Diligence

Post-merger integration is a misnomer.

The ‘post’ prefix leads practitioners to believe that it is both separate to due diligence and after the transaction has closed. Neither is the case.

Post-Merger Integration builds on due diligence, extracting value from the analysis conducted.

Examples of how these risks manifest include:

Inefficient use of resources

Due diligence should highlight areas where resources are required in the target company. These resources (for example, extra staff, investment, etc.) can be allocated during PMI, bringing forward the synergies to be realized from the transaction.

Overlooking critical risks

The risks identified during due diligence, including legal liabilities, regulatory issues, and potential cultural conflicts, should be addressed in the PMI plan. Without addressing this risks early on in the process, the acquiring company risks them escalating down the line.

Cultural conflict and employee turnover

Understanding the target company’s culture is one of the main motives of due diligence. It is the job of PMI to take up due diligence findings and begin the process of cultural integration. Failure to do so will lead to employee dissatisfaction and high turnover rates, destroying deal value.

Read also: How to successfully combine cultures in M&A (by HR @Microsoft)

Overlooking customer and market

Commercial due diligence provides insights into the target company’s market position and customer base. By failing to make this part of the PMI process, the acquirer risks poor (or no) market strategies, loss of customer trust, and diminished brand value.

Planning for Value Creation

Research conducted by consulting firm McKinsey in 2016 suggests that even of those companies that felt adequately prepared for acquiring a company, around 1 in 6 dealmakers felt they were insufficiently prepared for integration.

The business environment over the last two decades has significantly changed, but the M&A integration process has been stuck since the 1990s.

Each deal is unique and requires careful planning, from diligence to post-merger integration, so that value is created and realized for the acquirer. In integration, more than any other phase of the M&A process, planning means being specific.

integration planning

Turning to textbook examples can be helpful in, say, the process of creating a target shortlist.

That is not the case with integration, where the specifics of the relationship between the buyer and the target reflect how the integration process should play out.

In the broadest terms possible, the team which is responsible for the integration process should focus on the value drivers of the deal, and ensure that these shape the sequence and pace of the integration.

In general terms, solid integration planning needs to pay particular attention to:

Capitalize on Low-Hanging Fruit

Make the core value proposition of the deal your immediate focus. Whether it’s cross-selling, upselling, the sale of redundant capital assets or anything else, do the easy things first.

Value Creating Processes

Which processes made the company acquire an attractive one? Was it the company’s product lines, its R&D, its sales and marketing, or something else?

Value Creating People

Establish early on how important the team that you’re acquiring is to value creation. This is particularly important when acquiring professional services firms, but less important (not unimportant) when acquiring manufacturing firms.

Trust Your Functional Teams

If you have good management in place, integration usually works best on a function-by-function or cross-functional basis. Delegate responsibility to these teams, following up regularly to check progress.

Establish Milestones

Whatever the plan you draw up, it’s important to establish milestones early on in the integration process. Know which changes are required and when. As an oft-repeated M&A mantra goes: ‘what drags gets dirty.’

Integration Planning Team

Good PMI teams are cross-functional (i.e., from different departments), ideally from both of the companies merging, and liberated to make executive decisions.

This team will be at the heart of planning and executive integration.

Among the benefits that derive from creating this team:

Centralized coordination and decision making

Integration planning teams provide a focal point for all of the activities in PMI. By giving the team executive decision making powers, the company can ensure that decisions are made efficiently and aligned with the overall objectives of the transaction.

Expertise and knowledge sharing

By their cross-funcional nature, these teams generate discussions that can lead to a more comprehensive understanding of the entities being merged. This also facilitates effective knowledge sharing, which is a crucial component of any successful integration.

Consistent communication

Communication underpins the entire integration process, so creating a team maximizes its planning and execution. One of the roles of the team is to establish at the planning stage how the integration phase should be communicated to all stakeholders.

Learn more:

Leveraging Technology

What has been outlined till now makes an irrefutable case for the use of technology in the integration planning process.

Technology should play a central role at the integration planning phase.

With the DealRoom PMI platform, which is specially designed for the entire M&A life cycle, teams can easily plan for complexities such as integrating disparate systems and processes, streamlining integration, improving communication, and enhancing data-driving decision making.

DealRoom's PMI platform

Concluding Remarks

For companies about to close M&A transactions, PMI should be at the top of the ‘to do’ list.

That urgency doesn’t mean that it should be rushed into. Planning for PMI, using specialized teams and technology, is the best way to maximize value from the process.

Bringing structure is the best way to conduct PMI efficiently and effectively.

Contact M&A Science to learn more

12 Biggest Mistakes in M&A Integration

Understand and mitigate common integration issues before they arise

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