Six Questions the CEO Should Ask Before an Acquisition.
The less M&A integration you need to do the better you are. This is a general rule for M&A. If the deal value can be delivered with little or no integration of the acquired firm, then there’s less chance of something going wrong. While many transactions can achieve deal success by virtue of doing the deal itself, it’s not usually as simple as this. Generally, some form of integration is required to deliver deal value.
Choosing the right integration team is therefore critical for M&A success. Countless surveys and papers in the past have highlighted the mistakes organisations have made by not giving the focus M&A integration deserves.
As a CEO on the path to acquiring a new business asset, selecting the right integration team will be key for delivering success post-deal. Here are six key questions that will help guide you to make the best choice.
- Is there a clear and compelling deal thesis?
As a prerequisite, the integration team requires a clear strategic narrative and an understanding of the business drivers that will deliver growth. This provides empowerment, direction, and purpose for the team. Without this only anarchy will ensue.
A clear and compelling deal thesis is not just a financial spreadsheet or chart. Rather, it tells a story that wins hearts and minds with clear messages that motivate, guide decisions and drive behaviours.
- Do the internal management and integration team have the skills and capabilities to create value beyond what the previous owners could do?
The integration manager and team are the ones who ‘make the deal real’. M&A is an experience-driven skill set. Quite simply, if the team hasn’t had repeated M&A experience then success in delivering deal value is much harder to come by.
The integration manager role is the most critical. He/she needs to have the business and leadership savvy to shepherd the team and stakeholders through the difficult and challenging terrain between deal completion and deal success.
As CEO you will need to decide if internal management and the team have these skills and capabilities or whether outside help should be sought to supplement the gaps.
- Is the team following the money?
The integration team needs structured around the key sources of value so that people have clear focus and accountability. There will be multiple sources that either deliver tangible financial results in their own right or act as key enablers as part of the value chain. Whatever these maybe it’s necessary to define the team and allocate responsibility around those primary sources of value. Avoid structuring the team based on current divisional structures like IT, Marketing and Finance. Rather the team needs organised around the direct or indirect delivery of money, whether it’s savings in operations, productivity, customer experience and so on.
- Does the team understand what must be done right during integration?
The team needs to be able to seriously nail those aspects of the integration that must go right if everything else is to succeed. This means choosing the best talent for the job (not whoever is currently on the bench). It also means understanding the risks with a proactive approach towards risk management. There’s an old adage that goes like this: “If you don’t actively attack the risks, the risks will actively attack you!” For large deals, a dedicated proactive risk management role with direct line reporting to the governance committee will help ensure the integration is always on top of the risks.
- Does the team know if there are on track to delivering upon the deal?
It’s frequently the case that the deal thesis gets put away in a draw either because circumstances have changed making it no longer relevant, or the team didn’t have the professional nous to pick it up and breathe life into it in the first place. The deal thesis is not just a document or set of pretty PowerPoint slides. It represents the very essence for the teams being and purpose. Keeping score is, therefore, key to knowing if the team is winning or not. Typically, in any large integration, there is a Project Management Office (PMO) or an Integration Management Office (IMO). Call it what you will but the primary purpose of this function should be on tracking and measuring deal value. Perhaps a better name is ‘Value Management Office’ or VMO. This places emphasis on deal success and not necessarily project success. By doing so it shifts attitudes and behaviours back to what really matters – delivering deal value.
- Is there sufficient customer focus?
Customers determine whether companies thrive and profit or struggle and fade. Unlike business assets, customers cannot be bought or sold in the same way. The hope is that when an acquisition is made, customers come along too. It just can’t be taken for granted. Far from it. With barriers to entry collapsing in so many industries, allowing new entrants to the market, customers have become a keen and hotly contested focus of attention.
As part of the team, there needs to be a consumer advocate to ensure customers are not alienated during integration with value killed off as a result.
Conclusion
Choosing an Integration Team is a critical exercise. While the six questions posed here for the CEO to ask are a start, hopefully, they provide earnest thought and sober recognition of the type of skills and capabilities required. Surveys conducted over the years have been consistent on highlighting poor team selection as one of the top reasons why M&A post-deal performance doesn’t always meet expectations. As CEO make sure you have the right team for the job. In summary:
- DO make sure the team has a deal thesis capable of providing empowerment, direction, and purpose.
- DO undertake skills and capability analysis of your internal team and supplement the gaps with external support.
- DO ensure the team is structured around key sources of deal value and not divisional boundaries.
- DO ensure there is a risk management role in the team so that what must be done right is done right.
- DO track and measure deal performance, not just project performance. Make sure someone in keeping score as go.
- DO focus on the customer during integration. Have a consumer advocate on board providing a counterbalance to shareholder and staff concerns.