It might not be immediately obvious, but post-deal integration is the most vital step in any M&A deal, with ultimate success depending more upon the integration stage than on any other single step within the process.
Post-deal integration is widely misunderstood and is often ignored by M&A brokers and advisers who will typically focus more on ensuring that clients have the right profile of acquisition target, select the right targets and structure deals well financially. The assumption being that getting these things right will mean that the deal will be successful.
However, the integration phase is the making or breaking of any deal. A deal can be conducted with a perfect strategic rationale and be structured well, in a way that suits both parties, but still fail if the integration stage is conducted poorly.
Obversely, a deal can follow a completely flawed strategic rationale – maybe the price was too high, or the businesses may not even be particularly complementary – but still be successful providing that there is competent, creative management and a solid post-deal integration plan in place.
In brief, all of the steps leading up to the completion of an M&A deal – the strategic planning, financial analysis, negotiations and structuring of the deal – will have been in vain if a strong post-deal integration plan is not implemented successfully in the aftermath.
The basic (and well-documented) truth is that the majority of mergers fail. Post-deal integration may be a quiet phase of the M&A process, but it is the crucial phase and the best way for buyers to ensure that they make a success of their deals.
The best and most successful acquirers are those that recognise the importance of post-deal integration and are experienced, dedicated and efficient in onboarding their new acquisitions. In large firms, this will necessitate closely communicating and co-ordinating with managers, department heads and human resources departments to make sure they are prepared and familiar with their respective roles in the plan.
For smaller businesses it is vital that owners and other managers are invested in the post-deal integration phase and take a hands-on role in ensuring that a new acquisition is successfully bedded into the company’s operations.
Mattioli Woods is one of the leading consolidators in the UK’s highly active wealth management M&A market, taking advantage of the widespread consolidation that has swept the sector over recent years to drive an acquisitive growth strategy.
Announcing the double acquisition of Maven and Ludlow Wealth Management in May 2021, Mattioli’s Managing Director Michael Wright explained how post-deal integration was at the heart of the company’s M&A-led growth strategy.
“We have always focused on integration over acquisition”, he said, “so a strong cultural fit was crucial. We have known both companies for many years now, and are excited about what we can achieve together.”
“When a business is integrated well it flows through into even greater future organic growth and we intend that these deals will enable us to accrete real shareholder value within even the first full year of acquisition.”
Clearly, this strategy and an approach that puts integration front and centre is bearing fruit, with the group recently reporting that acquisitions had helped drive its revenue up 72.8 per cent in the latest financial year.
Ian Mattioli MBE, CEO of Mattioli Woods, said: “We plan to maintain this positive momentum, advancing our strategic initiatives: new business generation, growth through the integration of acquisitions, developing new products and services, reviewing our processes and investing in technology to deliver an improved client experience and further operational efficiencies.”
Change management
Managing post-deal integration is similar to managing any strategic change process. It requires continual assessment of the speed and nature of changes - whether they are fast or slow, incremental or disruptive - along with clear leadership, effective communication, customer focus, and the ability to deal with internal and external resistance. Tough decisions cannot be deferred, and initiatives must be taken with the end result in mind. It's crucial to be dynamic and adaptable to ever-changing circumstances.
However, post-deal planning should be tailored to reflect the desired changes from the deal, which can vary based on the reasons for the acquisition. While many deals involve a larger company completely absorbing a smaller one (top left of the diagram), not all deals follow this pattern. If the strategy behind the deal is unclear, it's unrealistic to expect successful post-deal integration.
Different types of acquisitions pose unique post-deal challenges. For example, a company dealing with overcapacity in a mature market will likely need to quickly reduce costs and impose its own systems on the target, although they may incorporate the target's superior systems if necessary. In contrast, a technology or pharmaceutical company that uses acquisitions as a substitute for in-house R&D will typically keep the research functions separate but rapidly integrate other areas.
Asset acquisitions may require little consideration for human resource elements needed in a full integration. Each situation is distinct, and different workstreams will have varying completion times.
The key steps to successful integration
There are several key steps to integrating a small company acquisition, although of course many of the specifics of the process will depend upon the businesses involved, the terms of the deal, the industry or industries the businesses operate in and many other variables.
Fundamentally, however, any successful integration process will begin with planning. Buyers should develop a detailed integration plan that sets out the goals, timelines, milestones and key metrics of success that need to be met during the integration. For highly acquisitive companies, it may be worthwhile to develop a general integration plan framework, although this will, naturally, need to be tailored to each specific acquisition and adjusted as lessons are learned from different integration processes.
Figuring out what will be required during the post-deal integration should be among the key early aims of the due diligence process, as buyers gain knowledge of acquisition targets and discover what will need to be done in order for the two operations to merge successfully and with as little disruption as possible.
With this done and a plan in place, the next crucial step will be to communicate the acquisition plan to all the relevant stakeholders, such as the management, employees, customers and suppliers at both parties. One of the main things that can scupper a post-deal integration process is uncertainty. Communication and transparency with those involved in the deal can help to reduce uncertainty and make the integration a smoother and, ultimately, more successful process.
One aspect that cannot be underestimated in terms of its importance to a successful merger is the cultural alignment between the two companies. Even companies that operate in the same industry (or even the exact same niche) can have dramatically different working cultures and failing to recognise this can have a major adverse effect on integration.
Buyers should use the due diligence process to identify areas in which the companies’ cultures differ – which might include things such as social values, workplace practices, recruitment, management style etc – and plan how these differences can best be addressed in the post-deal period.
Of course, it is important to remember that not all differences are a negative and buyers should not necessarily just seek to impose their working culture on a new acquisition. Rather, the focus should be on identifying areas in which cultural differences might be harmful and require addressing, as well as areas in which differences could prove beneficial. Often, buyers will even find elements of an acquisition’s culture that they might wish to instil in their own business.
Outlining the cultural alignment between the buyer and target business will also help with highlighting how the merged businesses will be structured organisationally. Depending on the business model that will be in place post-acquisition, an integration plan should delineate how the structure will work – particularly factors such as management roles and departmental responsibilities. Having these structures in place for when the acquisition closes will help to eliminate confusion over management and reporting lines and help to quickly provide clarity and confidence in the structure of the new venture.
An important part of integrating two separate businesses organisationally will be aligning the human resources operations. While it may be advantageous to maintain some organisational and structural differences between two businesses post-acquisition, HR is perhaps an area in which one model should be implemented, even if the two businesses continue to have separate HR departments once the deal concludes.
Aspects of HR that will need to be addressed as part of the post-deal integration process could include reviewing employee contracts and developing retention strategies for key employees (for example, new incentives), while potentially making some difficult decisions, such as workforce reductions (be familiar with TUPE legislation in the UK). Other key elements of HR integration could include reviewing compensation and benefits schemes and procedures such as how complaints are handled and, where necessary, harmonising these between the two businesses.
The Translation People is a language services group that, in January 2023, underwent a private equity-backed management buyout and immediately set out on a buy-and-build growth strategy.
The group plans to at least treble in size and build a range of services for its clients by 2028. With the language services industry being highly fragmented, an acquisitive growth model could enable the business to expand rapidly both in size and offering.
Of course, with such ambitious acquisition plans, integration will be one of the key considerations for the group, to ensure that its buy-and-build strategy deliver results and helps the firm to achieve its growth targets. This was demonstrated when the group announced the first acquisition under its new strategy, with a deal for Edinburgh-based translation services firm Sure Languages.
Announcing the acquisition, The Translation People said that Sure Languages’ trading name would be retained and that all existing sales and project management staff would remain with the business.
Translation People Managing Director Jasmin Schneider explained that retaining this expertise was a core part of the firm’s integration strategy, saying: “It’s been a busy few months at The Translation People and we are pleased to have completed the smooth integration of Sure Languages into the business as the next step in this journey.”
“All account managers will remain with the business, which will facilitate a smooth integration of Sure Languages’ existing customers into our organisation, and we’ll now be able to provide them with a wealth of technological solutions to enhance the service they receive.”
“As well as working in sectors we’re familiar with and know there is room to grow in, Sure Languages is a perfect cultural fit for us, and our teams have instantly connected.”
Of course, merging the two operations of the buyer and target will be the central part of the post-integration process and most likely the one that requires the most time and effort. Operations such as logistics and production will need to be merged and, in some instances, adjusted or streamlined, potentially by consolidating facilities or production lines.
IT systems integration will also be a crucial step in the process, as harmony between the core systems of the two parties will need to be attained. This will mean integrating systems, software and infrastructure such as cloud infrastructure, customer relationship management, content management and enterprise resource planning.
If a key part of the post-acquisition period is migrating one of the companies to a new system (for example, if an acquisition target needs to be migrated to the buyer’s CRM, or, in reverse, if one of the target company’s IT systems was a key component of the acquisition and needs to be implemented on the buyer’s side) then employees will need to be onboarded with the new system in order to ensure familiarity and to minimise operational disruption during the post-deal period.
Sales and marketing will be another aspect that will require alignment, this will include integrating the strategies of both firms, as well as branding, pricing and sales channels, among other things. Again, this may involve a significant degree of consolidation, which could include merging product lines or even consolidating the entire sales team into one department.
Crucially, financial systems will require some degree of integration, especially vital processes such as reporting, forecasting and budgeting, to ensure alignment between how the two companies report and manage their finances.
On a more practical level, buyers will also need to ensure that all the necessary regulatory and legal requirements are met. This could include making sure that the necessary approvals have been obtained, contracts updates and licenses transferred. Without getting these administrative requirements done properly, even if there is a solid integration strategy in place, the process could be severely disrupted by legal or regulatory scrutiny.
Monitoring integration
Aside from the practical and strategic considerations required to complete an integration, one of the key elements of a post-deal integration will be monitoring how it is proceeding. This is something that should occur at every stage of the integration process and will require a considerable degree of planning in order to ensure that the right metrics are being monitored and providing an accurate picture of how well the integration is going.
Ahead of the integration, a buyer should develop a framework establishing the milestones and metrics against which the progress of the integration can be measured. To come up with the most relevant metrics, buyers should consider the goals of the acquisition and integration and establish a few key performance indicators (KPIs) that reflect these.
Of course, the most common KPI is financial performance, simply for the reason that growing revenue and profitability is the ultimate driver behind most acquisitions. The key aim of an integration, therefore, is to help facilitate this growth as quickly and efficiently as possible.
Financial performance can be measured by setting goals regarding revenue growth and profitability in the post-acquisition period, either for the acquired business or the merged operation. For example, aiming for revenue growth of 10 per cent at the acquired business within the first year post-acquisition. Other financial KPIs that can measure the success of an integration include cost savings and the buyer’s return on investment (ROI).
Gaining market share is another core strategic aim of many acquisitions and, as such, a useful KPI for measuring the success of an integration process. Market share can be measured by looking at a company’s sales in comparison to the sales generated by other companies in the market, the number of units of products/services sold in comparison to the wider market and the size of the business’s customer base.
Aside from measuring the success of the integration against the overall strategic aims of the acquisition, there are a number of other factors that can be considered when gauging the success or failure of an integration process.
Internal aspects, such as employee retention and the cultural alignment of the two merged operations, can provide a useful measure of how well the two workforces and operational structures are integrating. Factors such as employee turnover rates, productivity and lead time can provide an insight into how well this is going, while conducting employee engagement surveys can help garner valuable feedback.
Finally, a vital element of measuring the success of a merger is customer satisfaction. Improving customer satisfaction (and, by extension, retaining existing customers and gaining new ones) is often a core aim of an acquisition, but the disruption caused by post-deal integration can sometimes have a negative impact.
Even if the integration goes relatively smoothly, things such as the learning curve when onboarding new employees or issues that can occur in integrating IT systems, can mean that customer satisfaction takes an initial hit. Ultimately, however, the aim of an integration should be to, at the very least, maintain a high level of customer satisfaction, if not increase it, as this will demonstrate operational improvement and successful integration.
Therefore, striving to gauge customer satisfaction will be important when assessing the success of the post-deal integration. Customer satisfaction can, to some extent, be gauged by looking at sales, customer retention and customer base growth figures, but more in-depth and specific feedback can be gathered by using surveys and reviews.
A key factor in measuring the success of an integration will be a timeline against which the KPIs can be monitored. For example, revenue growth within the first year, growth of customer base within 3 years, cost savings gained within the first six months. Plotting the KPIs in this manner can also enable the integration plan to be adjusted more easily in order to target new areas for improvement and address potential challenges.
A timeline is also vital because different areas of integration will proceed at different rates and have unique situations. Client coverage and senior management changes may occur as quickly as within 100 days of the acquisition, while more labour intensive processes and those requiring a high degree of onboarding – such as IT systems integration – could take as much as a year or two. Using a timeline can enable the buyer to tick off aspects of the integration as they are completed and identify which other areas require greater attention moving forward.
Monitoring relevant KPIs in the wake of an acquisition can not only enable a buyer to gauge the success of the post-deal integration, but can also provide valuable lessons that can be applied to future acquisitions and their respective integration phases.
Conclusion
Without strong post-deal integration, all the hard work that has gone into sourcing, negotiating and closing an acquisition will have been for nothing. Time and again, M&A has demonstrated that the most vital component of a successful acquisition is integration.
Whether that’s Mattioli Woods, which explicitly places integration at the heart of its M&A strategy, or another wealth management consolidator, Fairstone Financial Management, which values integration so highly that it integrates targets before fully acquiring them through its highly successful downstream buyout acquisition model.
Good integration helps not only eliminate disruption, but also enables the buyer and the acquired firm to more quickly target the revenue and profitability growth that formed the rationale behind the deal. What’s more, for companies hoping to grow acquisitively, being meticulous about post-deal integration means that a huge array of lessons will be learned that can then be applied to future acquisitions.
The company is an automatic and industrial door supplier, installing a variety of systems, including but not limited to, automatic doors, fire resistant shutters, entrance barriers, roller shutters and garage doors.
Well-established company operating for over 23 years. Offers a range of driving positions, which include day runs, local runs, local shunting, nights out and tramping.
The company is a business-to-business wholesaler of cask ales, continental lagers, and craft cider. Since its establishment, the business has cultivated strong relationships with high-profile and local breweries, gaining exclusive access to their pro...
Please choose your settings for this site below. For more information please read our Cookie Policy
These cookies are necessary for our website to function properly and provide you with access to all features.
These are analytics cookies that help us to improve the way our website works.
These are used to improve the functional performance of the website and make it easier for you to use.