trade radar audit M&A Integration

Do it quickly – and truthfullyEditions Financial M&A integration

How should we best integrate new and diverse parts of the business?

 

When you talk about integration, most people imagine two bubbles coming together to create one new bubble. But it’s not necessarily the case that you need to put everything together. You can review each part of the business and decide to integrate some and not others.

Essentially you look at a cost benefit analysis. Changing culture, processes and IT systems is going to cost money, and you need to assess how difficult it’s going to be and how much benefit you’re going to get. If you’re going to spend money to create synergies, that usually goes onto the purchase price.

Plan your detailed integration as quickly as you can – pre-deal, if possible – to minimise uncertainty. And don’t underestimate how much needs to be done. People are often caught out by this, until they have done a few acquisitions. Everything that’s going on in both companies still needs to happen; then there’s a whole lot of work on top of that which needs to be done together.

There is also a lot of politics. If you have two finance directors and you don’t instantly remove one, they will fight – and so will everyone below them. There are even companies that leave both sets of management in place for a year and let them all discuss how they’re going to integrate. You need to understand these things are going to happen and plan for them, rather than let them fester.

In large, complex mergers, you can have a drive towards cost-cutting and a drive to grow revenue at the same time, with mayhem all around. But most smaller mergers are purely about growth: you are setting out to bring more products to market, and the result should be that everyone will be safer and have a more secure job.

People are the crux of your integration. Whatever your plans, your internal communications need to be truthful. This will be a template for future mergers, if the company is going to grow: next year, everyone in the industry will know if you lied through your teeth!

Cultural integration is a much more difficult decision. Sometimes it’s straightforward: I’ve been part of a company where the dress code was informal, but the target company had a formal dress code. When we met, the number 3 person in the target company immediately took his tie off. You could see they were going to adopt our culture very readily.

In fact, quite seasoned veterans of acquisitions regularly just ignore cultural integration. Culture is often used as a scapegoat for failed integrations. If you paid too much for the company, or messed up the integration, you say ‘there were cultural differences which led to immense problems’. If someone brings up cultural differences during an acquisition, I try to dig deeper to discover what they really mean – which may be an issue that’s difficult for them to discuss.

Is it all worthwhile? There are studies which claim most deals fail to deliver value. But this is academic research, which may be based on comparing actual and expected share prices. If you talk to the business owners, they are often pleased with the value they’ve achieved.

The statistics on failures certainly don’t deter owners from acquiring more businesses. Many learn and repeat standard actions, such as buying technology – you find the same companies doing these things over and over again, because merger and acquisition strategies can be phenomenally successful.