Integrating the Acquisition: Getting It Right
Bruce E. Jacobs
War stories abound about failed integrations of acquired companies and the inability of the merger to produce the expected results. Often, after an acquisition, the acquired company creates such a burden on the company that purchased it that the buyer’s financial performance deteriorates. Or, just as often, the executives of each company are distracted by their efforts to make the integration work and lose focus on maintaining effective day-to-day management operations for each business. Key executives frequently lose their jobs when the acquired company fails to merge successfully. Employees of both companies may become uneasy, and political maneuvering sets in as standard practice—because when the music stops playing after the two companies are integrated, only a limited number of employee seats will remain.
Successful integration of an acquired company is not a trivial undertaking, and the level of intellectual capital and employee effort should not be underestimated, unless the acquisition is purely an investment and no integration with the buying company is required. However, if the acquired company is to be integrated with the buying company, then it’s safe to say that the larger the size of the acquired company, the greater the integration effort and resource requirements will be needed.
Unlike Fortune 500 companies, most firms have not made enough acquisitions to have been able to develop expertise with the integration process. This certainly has been the case for many medical device companies, whose sector has seen a flurry of acquisitions lately. That’s no excuse, though—management teams of both companies owe it to their stakeholders to get the acquisition, merger and integration right. The stakes are too high to allow the integration to happen on its own.
Corporations that rely on acquisitions as an everyday contribution to their growth and use these purchases as part of their business strategy have the integration process distilled down to its essence. Before the acquisition deal is closed, the integration requirements already have been defined, the integration team identified and the integration process begun.
Successful merger integrations are characterized by three fundamental factors:
• The vision is established that identifies what the two merged companies will look like after the integration is completed.
• An integration team (with members from both companies) and full-time commitments are identified and put in place.
• The execution of the integration does not waiver and stays on course until completed as defined in the vision.
Too many integrations fail or are suboptimized because there is no clearly defined vision of what the two companies should look like after the integration is completed. The ultimate outcome is the slamming of two companies together without freeing up the encumbered economies, efficiency and synergy the merged companies now can provide. In addition, many integration teams consist of only part-time members and lack an executive-level leader who is held responsible (with the team members) for the success of the integration. In too many cases, the execution of an integration meanders as team members are pulled away to work on other projects, and true integration falls short but is considered complete because there no longer are devoted resources to ensure further success.
The objective of the acquisition determines the integration strategy and methodology. Therefore, success with integration is measured by achieving the objectives established for the acquisition. For example:
• Investment objective—the acquisition is for the purpose of investment and later will be sold as the value of the investment appreciates. The integration may not require anything beyond monthly financial performance reporting.
• Market challenge objective—the acquisition provides the two companies greater economies, efficiency, synergy and market penetration than could be achieved from each company alone. The integration will require defining the vision and integration points across both entities.
• Growth objective—the acquisition offers greater market share, a larger customer base and revenue growth that would not be possible without the acquisition. The integration will require defining the vision and integration points to optimize the economic value and growth requirements.
For an integration to be successful—whether it is a merger or acquisition—three questions need to be answered:
• When the integration is completed, how will the integrated company appear to the public and customers?
• What are the business and economic benefits to be achieved from the acquisition and the integration?
• What integration strategy and work plan need to be executed?
Defining what the integrated company will look like when the integration is completed requires end-to-end thinking across both the acquired company and the firm doing the acquisition. The points of integration are defined in terms of consolidation or leveraging business functions, including sales and marketing, product development and engineering, manufacturing operations, distribution operations, customer service, procurement, administration and executive management. The integration process may require several phases. With great caution, the customer base and service level must be maintained to keep competitors from using the acquisition to their advantage by taking away customers while the integration is in process.
The acquisition was made with a specific business and economic justification. The benefits to be achieved from the acquisition and integration must be defined and communicated to the integration team, which will be chartered with executing the plan and achieving the defined business and economic benefits (ie, major cost improvements, consolidation and/or organization realignment, asset utilization and revenue enhancement).
Developing an integration strategy and detailed work plan to execute the integration requires a few days of dedicated focus from the executives of both companies and from the integration team. The strategy and work plan will provide a road map for the integration and keep disruption to a minimum. The strategy defines what will take place for the integration to be achieved, along with the sequence and timing. The work plan defines all the tasks that must be executed to complete the integration. The intent is to start the integration process as soon as the acquisition is completed.
The importance of the right leader for the integration cannot be underestimated, and a senior executive or senior manager should be assigned the responsibility. The leader can be selected from either the acquired company or the firm that made the acquisition. This individual should be the person who selects the integration team members. These employees should have good reputations within the company and be proven responsible in terms of completing assignments. Team members will require a safe rite of passage while executing the integration and must have a guaranteed position with the company after the integration is completed.
Acquisitions generally create a level of uncertainty for some time, until the chaos settles. Defining the vision, putting the team in place, as well as defining and executing the integration strategy and work plan are critical components to ensuring an integration’s success and minimizing uncertainty. However, employees, customers and suppliers may become nervous with the announcement of the acquisition. Settling any nerves can be accomplished very quickly with customers and suppliers by preparing a separate message to them announcing the acquisition and integration, and articulating the benefits. For employees, the task is more complicated. Therefore, a consistent and concise message to employees should be communicated, highlighting the benefits and outlining any changes that may be forthcoming. The intent is to be proactive with employees to avoid creating any surprise changes and to circumvent unnecessary turnover by employees.
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Integrating an acquisition successfully is not trivial and requires a rigorous effort to do it right. An integration that fails is like a tar baby that keeps coming back like a bad dream: It siphons resources, creates unnecessary distractions for management and hinders operating and financial performance. Even the best integration strategy and plan can be derailed by something unforeseen that arises during the execution of the integration but still will fare better than an integration effort that was not properly prepared.