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Home > Mergers and Acquisitions Best Practice > Acquisition Integration: How to Do It Successfully

Mergers and Acquisitions Best Practice

Acquisition Integration: How to Do It Successfully

by David Sadtler

The Four Key Tasks of Successful Integration

1. Assume financial control

Serious acquirers know that it is essential to assume immediate control over financial performance and cash management. In some cases, the target may have been left vulnerable to acquisition by poor financial management. Such businesses will need special attention in this area.

This phase involves steps such as installing corporate financial reporting procedures and clarifying expenditure-level authority. In some cases it may also involve more frequent reporting of critical cash flow components, until the required systems are bedded in and the management team of the acquired business becomes familiar with what is expected of it. For example, weekly sales figures may temporarily require early scrutiny to ensure that commercial performance has not deteriorated owing to the demands of the acquisition experience. This phase lends itself to detailed checklists and procedures, constructed with expert help and developed and honed through corporate experience.

2. Integrate processes and systems

If the newly acquired business is to play its part in the larger organization, its principal managerial processes—business planning, budgeting, capital expenditure approval, and human resource management—must be integrated with those of the acquirer, so that the target can begin to function as part of the larger whole as quickly as possible. The sooner operational managers can become familiar and comfortable with the new process requirements, the better able they will be to concentrate their efforts on securing competitive advantage and on realizing the benefits expected from the combination of the two organizations.

A major and sometimes seemingly overwhelming aspect of this phase of integration is that of bringing together IT systems. In recent years the IT structures of large organizations have become more all-embracing and, in the case of so-called enterprise systems, may even constitute the digital backbone of the entire business. In such circumstances the criticality of ensuring that the target’s systems are quickly and effectively integrated with those of the acquirer is obvious. But sometimes the process is simply too difficult. A number of mergers and acquisitions in the so-called bancassurance sector have floundered because of IT integration problems. The prime rationale for such mergers is usually that of cross-selling—selling the products of the acquirer to the customers of the acquired company and vice versa. This is a difficult goal to achieve at the best of times, and one that is critically dependent on the effective interfacing of the merging organizations’ IT systems. When this does not happen, the merger is bound to be a financial disappointment.

3. Make key appointments

The aim here is to do the best possible job in the shortest possible time by putting the right people in charge of the newly acquired business and moving aside those who have not made the cut. Some will say it is not possible for corporate overseers to know which managers are best for the key jobs until they have been observed in action for some time. The existing management team—the same people who perhaps failed to perform well enough to keep their business independent—may thus be left in place.

Typically, the most demanding step in this phase is the decision about who is to run the new business. Who is to be the boss? All possible sources of information about prospective candidates must be pressed into service. Managers who have experienced prior dealings with the candidate should be interviewed, the directors of the acquired business surveyed, and even individual performance reviews scrutinized. Getting this right is perhaps the most important task of all. If the right candidate is appointed, delays and failures in other areas are more likely to be remedied to everyone’s satisfaction. But the wrong appointment can result in long-lasting problems and disappointment.

The object must be to find the right trade-off between speed and the effectiveness of the managerial appointment process. This may mean acting with less certainty, as opposed to delaying the decision until everyone is completely satisfied with the selection.

4. Ensure the primacy of value creation

Most of all, acquirers must be crystal clear about the value creation rationale for the acquisition, and they must ensure that this thinking drives the entire acquisition process, including that of integration. All involved in the acquisition—analysts, negotiators, professional advisers, the top management of the acquiring company, and those who will be responsible for integration—must be clear about how the acquisition is to make money for the stockholders of the acquirer, and must be constantly reminded of this throughout the process.

The value creation rationale is first proposed, clarified, agreed, and approved when acquisition criteria are developed and target candidates are identified. The thinking behind how the combination with the prospective target is to enhance competitive advantage and thus generate superior returns must be clear. That rationale should drive the contract-negotiating process and the due diligence work which backs it up, so that the important drivers of value creation continue to be reflected along the way.

Finally, the small number (perhaps only two or three) of initiatives that will create the value must be given the highest priority when it comes to integrating the new business. The sooner these initiatives are successfully completed, the greater the payoff, owing to the greater present value of the cash flows achieved.

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Further reading

Books:

  • Galpin, Timothy J., and Mark Herndon. The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level. San Francisco, CA: Jossey-Bass, 2007.
  • Sadtler, David, David Smith, and Andrew Campbell. Smarter Acquisitions: Ten Steps to Successful Deals. Harlow, UK: Pearson Education, 2008.

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