Timothy Britt, CEO/Founder, Synoptek, Irvine, CA.
Companies across sectors frequently resort to mergers and acquisitions (M&A) to strengthen market standing, complement existing capabilities and leverage existing customer base or operations, thus enabling better growth and profitability. However, this demands extensive due diligence, the absence of which can result in millions of additional integration costs, a potential failed integration and/or poor realization of the envisioned strategy and shareholder value creation.
Understanding The Different Types Of M&A
M&A has become integral to organizations’ growth strategy. However, different types of mergers require different approaches and frameworks for success.
Merger Of Equals
This helps reduce competition, create synergies, gain market share and increase shareholder value. To ensure a successful ‘to-be’ post-merger organization, both merging companies must be aware of the cultural clashes and power struggles that might arise and conduct a thorough assessment to ensure financial, technological and operational integration.
Platform Acquisitions
In the context of private equity, firms that acquire businesses to serve as their primary platform require the right foundational infrastructure, including robust IT systems, repeatable financial and operational models, and strong sales and distribution networks.
Carve-Outs
In carve-outs, where a parent company sells specific assets, a portfolio of assets or an entire business unit to outside investors through a Transitional Services Agreement (TSA), complexities include the implementation of new processes and systems from scratch.
Add-Ons
While add-on acquisitions offer the potential to scale operations, diversify portfolios rapidly and stimulate growth within larger, more established platform companies, understanding the long-term goals of the merger and identifying potential challenges that may arise from the integration of different corporate cultures and operational systems is vital to mitigate potential disruptions.
Post-Merger Integration Planning
Cultural conflicts, poor communication and unrealistic expectations tend to push M&A efforts off course. Additionally, IT issues, if unaddressed, minimize the chances of successfully capturing the expected return on investment. Embarking on the journey on the wrong foot can lead to several far-reaching consequences, including:
•Employee disengagement and attrition
•Unrealized synergy and operational inefficiency
•Siloed systems and fragmented data
•Leadership conflicts
•Communication failure
•Legal disputes
•Unplanned costs and unrealized value
A careful and well-planned pre-acquisition due diligence assessment and integration strategy can allow for successful value creation and risk reduction post-acquisition. Comprehensive post-merger integration planning can help:
•Identify and mitigate merger risks and issues
•Clarify post-merger integration costs and investment
•Ensure timely execution and value realization
•Understand cultural gaps/norms and their impact on the post-merger integration approach
•Ensure synergies between technology function and business objectives, ultimately achieving the desired post-merger integration results
•Optimize ROI before, during and after the merger while adding value and realizing synergies
Understanding The Steps Involved In M&A Integration Planning
Understanding the complete lifecycle of the transaction, from due diligence to plan close and post-merger integration, is critical. It’s important to focus on the vision, rationale and strategic objectives of the transaction to identify specific synergies that align with value realization and creation and drive subsequent phases of the process. Consider exploring partnership options with experienced M&A consulting providers to get further support.
Gather information on the target company’s processes, systems and organization.
Carrying out a complete review of the current IT infrastructure including applications, systems, networks, security, operational support and organization is a critical first step. Companies must also craft an IT checklist, develop an initial estimate of transition costs and run costs, and provide inputs for building the TSA.
Understand the buying firm’s process, systems and organization.
To avoid losing sight of the original objectives that drive the acquisition, it is important to spend time understanding the buying firm’s processes, systems and organization. This ensures that the right direction guides decisions during the due diligence and post-merger integration planning processes.
Identify potential risks and challenges.
M&A integration due diligence also includes mapping the analysis of the current state back to business objectives, acquisition rationale, workforce synergies and IT best practices. This helps identify process gaps, security risks, and other issues while addressing current and future needs in these areas.
Build a future-state vision of an integrated organization.
Once the risks and challenges have been documented, merging entities must plan for post-close activities and the remediation of any critical risks, issues and/or opportunities.
Develop an integration plan with costs and timelines.
Building a post-merger integration plan helps specify an IT strategic roadmap, an IT pro forma, a going-forward IT organization and a governance model. Focused efforts must be put toward consolidating or integrating overlapping processes and systems.
Implement change management strategies for a smooth transition.
To enable a smooth transition and fully exploit the potential of the M&A strategy, it is crucial to implement the right set of change management strategies across employee engagement, cultural integration, communication, leadership enablement, etc.
Provide recommendations to improve synergies.
Recommendations on how to leverage technology strategically going forward are key. Firms must identify and prioritize significant initiatives to further drive toward the vision of a conceptual future state.
Maximizing M&A Results
A successful merger or acquisition can bolster market presence, bridging gaps in an organization’s product or service portfolio and enhancing profitability. However, many transactions don’t ultimately perform as expected, causing damage in terms of revenue losses, lost employee and customer trust, poor reputation, and more.
Carrying out a business and operations-driven M&A due diligence and post-merger integration planning is key to ensuring the process is 100% aligned with the strategic rationale, goals and objectives of the acquisition. By following this advice, organizations can better prepare themselves for a successful growth strategy.
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