Blog
Confirming your Post-close Operating Mode: Due Diligence
Designing an operating model and defining the benefits & objectives of M&A
Planning your M&A Post-close Activities
How to develop an M&A integration plan to deliver your original acquisition goals
Navima
May 25, 2022
Congratulations! You’ve avoided the temptation of jumping straight to a plan but instead took the time first to ensure a clear view – agreed by all around you – of the objectives of your integration, how they combine to deliver the original acquisition goals and a clear view of your post-close Operating Model: how the combined business will look, feel and operate once the deal is done. You’ve also included leadership teams from both sides of the deal in developing these, helping them become invested in what is to come. Now, and only now, are you truly ready to plan your integration.
Conventional approaches to project and programme planning will take you most of the way: While the devil of this stage is indeed in the detail, the high-level steps are as follows, and will be familiar to any seasoned programme management specialist:
- Use the objectives, and the ‘gaps’ between your future and current operating models to brainstorm and agree on initiatives to achieve both.
- Prioritise and roadmap these initiatives based on priority, difficulty, and dependencies between them.
- Organise these initiatives into logical groups based on common sponsors for each – this is where a goal-based view of integration and improvement will begin to more closely resemble a functionally-oriented plan as initiative sponsors typically tend to be functional or business unit heads.
- Work with functional teams to plan each initiative in detail; identify dependencies within and between each initiative and use these dependencies to drive activity and milestone dates.
- Create and approve resource and financial budgets for each initiative.
- Assign detailed accountabilities for each initiative: who will manage each initiative, who will conduct and support every activity within it, and who needs to be available to advise on specific areas of each.
- A cross-initiative workshop at the end will help ensure everyone is aware of their responsibilities to each other and help flush out any misalignments of dates or activities.
While there are many similarities with other transformation programmes, differences lie in the context and environment in which integration takes place. Here are some thoughts on some of those differences and how to address them:
CONDUCT PLANNING PRE-CLOSE
If you’ve followed the guidance from the previous posts, you should be in a position to conduct integration planning alongside the latter stages of due diligence and deal negotiations. This timing will ensure that you’re ready to prepare a strong, informed deal announcement and Day 1 communications (see our white paper What Goes Up… on the impact of poorly-designed deal announcements). It will also flush out any final considerations on deal price and terms before negotiations are complete (see below).MAKE EACH INITIATIVE GOAL-DIRECTED:
Ensure each initiative is formally ‘tagged’ with one or more acquisition and integration objectives, and that planning is focused on these initiatives. This will help ensure a benefits-focus throughout as initiatives will be designed to, e.g., increase product sales by x% rather than simply designed to ’consolidate policies’ or ‘integrate the finance system’. These activities may very well be contained within larger initiatives, but only if they directly contribute to a specific, measurable benefit. This action will also ensure that initiatives incorporate all types of post-close activity required: integration, process alignment, operational improvements, organisational restructurings and more. It will also help you conduct one of the most important tasks in integration planning: integration triage. If an initiative arises that doesn’t have an obvious role in delivering or directly supporting one or more objectives, it should be discounted, or at least de-prioritised. Integrations fail in our experience due to over-complexity and lack of support, so make sure your programme only contains initiatives that are clearly required.BE REALISTIC IN YOUR POST-CLOSE INITIATIVE TIMINGS:
Even when dependencies between initiatives result in some of them being ‘pushed’ to a later start, there is a natural temptation to try and kick off as many things as soon as possible after Day 1. This is understandable: the sooner an integration initiative starts, the sooner its benefit is delivered. It’s also utterly unrealistic. The most important ‘soft’ dependency in any integration programme is the management bandwidth needed to lead the dozens – in some cases hundreds – of initiatives that emerge from the planning process, all alongside business as usual.
Furthermore, no complex integration goes entirely smoothly, and the only certainty is that the unexpected will arise, usually many times. So, whether it’s through a more formal resource levelling exercise or through a simple gut feel, give your integration initiatives breathing space so that they can be delivered according to a ‘comfortably ambitious’ schedule that can accommodate the unexpected. If the plan already looks aggressive at the start, it will soon become undeliverable. Remember the old maxim: under-promise to over-deliver.
USE YOUR PLAN TO CONFIRM DEAL TERMS AND VALUE:
Another benefit of conducting your planning pre-close is the ability to take the detailed cost and benefit information from the plan – and more importantly the delivery timing of both – to refine your synergy assumptions and deal valuation. Many people think that integration costs and timing of benefits have little impact on the return or valuation of the deal itself; and they’d be wrong, especially in cases where a large discount rate or WACC exists. In many cases, a 10% shift in the cost of integration, or a 6-month delay in achieving a particular benefit can have a significant impact on the overall acquisition business case. Understanding the ROIC implications of your project plan at an initiative or milestone level will help you optimise your plan, negotiate better terms, and in some cases even outbid a competing suitor in a competitive bid situation.
ENSURE THE BUSINESS REMAINS ACCOUNTABLE FOR INITIATIVES AND BENEFITS:
Like any complex restructuring or transformation, integrations deliver a new organisation, the performance of which will be the responsibility of the future leadership team. This team will have to ‘own’ the results of the integration programme, and so therefore must also take responsibility for delivering the initiatives themselves.
Add benefits targets to their personal objectives, ask them to report on progress at Steering Committee meetings, and reward them accordingly once achieved. While an integration management team (internal or 3rd party) can make a huge difference in facilitating and coordinating the overall effort, integration ultimately is only successful if it is delivered by the business, not to it or on its behalf by someone else.
UNDERSTAND THE KEY LEVERS OF YOUR INTEGRATION:
Too often, integration managers get mastery of the detail while losing sight of the big picture. Integration programmes need to demonstrate momentum, remain dynamic and be able to evolve as circumstances and priorities change. Part of achieving this is to always be clear on that big picture – priorities, risks, sensitivities. Be even clearer than usual on which initiatives represent your quick wins, which are the big movers on cost and benefits, and where the critical path to success lies.
BE SENSITIVE TO THE IMPACT ON MIDDLE MANAGERS
Integration programmes take place in an environment of fear and uncertainty, and this applies as much to its leaders as it does to employees. Middle managers are typically put under the greatest pressure – pressure to deliver new targets, work in an unfamiliar environment for a new boss, and perform at the highest level to protect their own job and career. They are also often the very same people tasked with delivering integration initiatives and benefits alongside their day job. Overwork and emotional burnout are common, and frequently not recognised or alleviated by senior executives. Be sensitive to this pressure, look out for signs of managers nearing their breaking point, and offer them additional support, coaching and downtime when they need it, even – in fact especially – when your integration is at its busiest.
GO LARGE ON CHANGE MANAGEMENT
In integrations, change management – the activities designed to generate engagement and support for the changes your business is going through – is not a ‘fringe’ activity; it is critical to ultimate success and needs to be a central part of your programme. Put in the extra effort and resources to understand all the stakeholders, their concerns, and sensitivities, and establish a strong programme to ensure all of these groups – employees, customers, critical business partners and others – are actively supported through the journey. This is not ‘soft’ stuff: study after study, and our own experience, demonstrate the clear impact this has on staff performance, retention and business stability.
You now have almost everything you need to kick off your post-close initiatives and deliver deal benefits. You don’t merely have a plan, you have a plan that is realistic, focused on benefits, supported by your leadership, and comprehensive in its view of the organisational changes required to support them. In my next post in the series, I’ll discuss the fifth step: Ensuring your integration has the right programme and project governance mechanisms in place to track benefits, spot and resolve issues early, manage risks, retain strong sponsorship, and keep your programme costs under control.