When bringing two businesses together, how can a merged organisation maximise the potential for successful integration?
Mergers and acquisitions are a part of corporate life, where two organisations recognise the potential value proposition of leveraging each other’s strengths in the marketplace.
However, all too often, post M&A, there are some critical failings in ensuring that the right people and processes are in place to lead the newly merged business through the process of integration and transformation.
When bringing two businesses together, how can the merged organisation maximise the potential for success?
The Influence of Key Drivers
Let’s consider an example.
Typically, the acquiring company or the one driving the merger will have identified the potential assets it can bring into its operations from the target company to strengthen its overall market offerings and strategic standing. Equally, the business being acquired can see the benefits of being part of a much bigger player (access to new markets, economies of scale etc.).
The simple value proposition being that by combining the businesses the value of both will increase. But to achieve success and unlock this value, both businesses will need to be integrated into a single entity.
To understand how the value might increase, it’s important to consider some key value drivers for the businesses that can influence that integration. For example, key drivers might include:
- The client base;
- Contracts;
- Staff;
- Systems and processes;
- Products and services;
- Channels;
- Brand; and
- Scale.
Assuming the acquiring business has a solid representation across these drivers, while the target business has only some, successful integration of the businesses means the target business picks up these additional value drivers and, in principle, is now worth more than before it was acquired.
It seems like simple maths, right? A business with solid drivers can increase the value its business by increasing scale as well as increasing the value of another business with less developed drivers simply by plugging them in. But is it really this simple to achieve?
8 Principles for Successful Integration
The guiding principles of mergers and acquisitions are straightforward, but while it may look that way on paper, merging two businesses means blending cultures, practices, people and systems. And that’s where the challenges arise.
For the integration of two businesses to be successful, the integration must be effective. To be effective, it needs a plan and the right skills to ensure that change occurs at both the executive level as well as among the delivery team driving transformation.
When driving the integration, our experience has shown that treating integration as a project with appropriate governance, resourcing, scope, benefits and outcomes, a business sets up the best opportunity for success.
1. Identification and quantification of the benefits and synergies to be realised during integration. This is critical to manage alignment and the pressures of scope creep that is inevitable from such an undertaking, such that decisions taken are always played against the overarching benefits for integration.
2. Understand the new business architecture.This involves setting agreed target business architecture, such as business capabilities, high-level processes, key information assets and reporting information. It will also include high-level ‘people’ aspects of the integration including an organisation chart, roles and responsibilities, resource numbers, resource risks and skill gaps. All financial and commercial considerations should be documented including OpEx and CapEx budgets and project portfolios.
3. Define the target operating platform for an integrated business operating model. Architecture is critical to effective integration and supporting the new business operating model. This includes major applications, information management, business intelligence and technology infrastructure.
4. Agreement on an integrated Business operating model for the combined businesses, including the high-level transition plan and timetable and the people impacts.
5. Identify and document risks. Merging businesses is not without risks. All major implementation risks should be defined and documented with potential mitigation strategies and options for execution. This could include risks to costs, benefits, schedules, the business itself and service levels.
6. Identify the constraints. Any constraints on the business that might impact the execution of the implementation strategy should be identified and documented, for example, are there any constraints that will impact resourcing or scheduling?
7. Develop a high-level implementation strategy. A high-level implementation strategy should define major activities, sequencing, the resources required and a schedule for delivery.
8. Set a realistic, high-level budget for the implementation of the program.
It is not difficult to see where many business integrations fail. In most cases, the executive team has been put in place but little energy has been spent on ensuring that the A-team was on board for the actual execution of the integration and as such, the fundamentals for setting up the integration for success is underdone.
If your organisation is planning for or in the process of an acquisition, looking at it as a project with stated objectives, defined benefits and using a professional team can and will help deliver a successful integration.
As project specialists, we develop fit-for-purpose strategy. Contact us here to find out more about how we work with your teams or call 02 9098 6300.
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