Abby Roberts, Merrill Corporation | April 25, 2018
In the M&A world, saying integration is critical to a successful deal outcome is a bit like saying the sky is blue. But when asked how to turn common wisdom into effective practice, many dealmakers draw a blank.
We asked a range of integration experts for concrete tips on how to embed integration best practices into the deal process. Here's some of of their top advice:
- Understand the buyer’s big picture. “I know that sounds very simple,” says Fried Frank Partner Amir Ghavi, but it’s a key first step that gets missed. Private equity buyers often have different success metrics and game plans than strategic buyers, for instance. Not only do they buy companies with the purpose of exiting in a couple years, but they are starting with a clean slate and tend to rely more heavily on outsourcers. All these factors result in qualitatively different integration strategies.
- Link specific acquisition objectives to integration strategy. Large corporates who bolt-on products to an existing franchise or delivery platform use a different deal logic than private equity, for example, and thus run a different integration program. And even with a seemingly simple “bolt-on,” one corporate integrator recommends asking, “Is this deal based on me driving more revenue than the seller? Or doing the same revenue at lower cost? Or me doing something completely new?” Based on the answer, the integration plan changes substantially.
- Address leakage concerns. “Deal guys stay on their side, operational guys stay on their side,” says Thomas Kessler, CEO of IntegrationSuccess. “That causes a lot of information to go missing.” Part of the issue is that dealmakers worry about information leakage, especially in public company deals. “Make people aware leakage is a topic, and control it by limiting the size of people involved in the transaction while ensuring that you have operational knowhow on board during the deal phase. Thus, it is best to incorporate the post-merger integration manager.”
- Embed integration perspective into the deal-making process. Dana Hughes, Head of Pfizer Business Development’s Integration Management team, runs both integration and administers the deal pipeline process. “By being the stage manager for parts of our deal ‘process,’ we’re able to inform the process with integration thoughts.” Another innovative structural change Pfizer has implemented is to formalize its internal network of integration experts, ensuring they are kept “deal aware” and current on new integration tools between acquisitions. That means all-day summits, monthly lunch-and-learns and other social events. “We keep them using the same vocabulary and, just as important, keep them familiar with each other, so they don’t lose the ability to execute quickly in a deal situation. This repetition actually makes our functions more flexible and astute as we customize different integration programs for different types of deals.”
- Break down corporate / operational silos. At Pfizer, the integration team sits within Business Development, and works with the deal team to clarify deal assumptions based on past deal experience. “For our industry, every month of revenue in a deal model matters, so we need to make sure we are set up for a launch or for international expansions – with the right field team hired, trained and in place,” says Hughes. “Of course, this works both ways, with our proven experience playing back into the creation of the deal assumptions. Working with the right assumptions, on start-up or on cost take-out, we can be confident on the right price for the right risk / return profile.”
- Work out separation planning in advance. Drilling down on Temporary Service Agreements (TSA) to guide post-sale handovers can feel like the M&A equivalent of going to the dentist. But if you delay, you'll still be deal-making into the integration process - and value erodes every day you are slow, late or inefficient with integration, Ghavi says. Operations and business people don’t want to see a 40-page TSA a week before close, and lawyers and clients can save a lot of time on the backend by getting the right people invested early on.
- Culture counts. Be honest about the kind of company you are, and work to maximize that - as opposed to imposing something deeply counter-cultural, Hughes says. “When we work with small companies, we don’t pretend we are a small company. We are clear about the strengths of our model and the different opportunities we open to our partners - and new acquired colleagues. If an individual is dedicated to getting medicines to patients, they will have a home. We are a great platform for that type of success.”