Integration costs quantification
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Hi,
In your experience, when are your teams coming up with integration costs and how is that impacting the integration strategy and its pace?
Hi Miguel,
In our case we have developed some standard modelling based on experience to develop an average Integration Cost per $ of annual revenue of the company being acquired and with some tweaking that is used as a baseline cost in the business case for the acquisition which is needs to go to the board for approval.
We know from experience why some integrations may be relatively more or less expensive (relative cost in location of acquired company, whether we already have a strong presence in that region and economies of scale.)
We then take the baseline and get the integration team to develop an integration budget for approval in parallel to coming up with the integration plan. No budget no plan, no plan no budget. The workstream leads are given some previous examples and some templates for this and within the first 100 days we aim to have a baselined plan and an approved budget. In reality integration is happening in parallel to the planning and budgeting with an expectation of what would normally be spent during this phase.
I am sure the literature says to have an integration plan and budget pre-close but for us having the workstream leads (acquirer and acquired) responsible for developing the plan and budget is more important to get buy-in and this typically cant happen till after the deal is closed.
The budget does impact integration strategy in that it determines how much can be done in person and in some cases how quickly it can be done, for example if external consultants can be used , whether we will have in person events that require more time to plan.
Daniel, the “cost per $ of revenue” baseline approach is really practical — especially for serial acquirers who can calibrate it over multiple deals. The point about having workstream leads develop the budget post-close for buy-in resonates. Literature says do it pre-close, but if the people accountable for delivery did not build the plan, they will not own it.
One thing I would add from the finance side: integration costs should be tracked separately from BaU operating costs from Day 1 — dedicated cost codes, not buried in functional budgets. Without this, you cannot answer “what did this integration actually cost?” at the one-year review, and you lose the data that makes your baseline model smarter for the next deal.
The budget shapes the pace, but the pace also shapes the synergies. Worth modelling both together.
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