[Finn Staal]

From experience I have seen that integration strategies defined and approved during Due Diligence and Sign-to-Close often de-rail once the integration and transformation phases start. When reality hits the acquisition both PMO and Steering Committee seems to agree on changing course and goals without redefining the integration strategy.

How do you handle this dilemma of reality hitting the acquisition project versus pursuing an approved integration strategy which in some cases may prove that the acquisition turns out to be little successful or even value destroying for the acquiring company?

[Ross Van Allen]

In the instance where you described “the acquisition turns out to be…value destroying for the acquiring company”, what I am hearing is that PMI groups within your company (and indeed, many if not most other acquiring firms) are not properly included during the due diligence phase. Indeed, the foundational scholarly text to PMI, The Complete Guide to Mergers & Acquisitions, which was first published nearly 20 years ago, has the cornerstone belief that integration begins during due diligence. Corp Dev leaders and pipeline acquisition team members will only look at deals from the numbers. Spreadsheets, financial waterfalls, and the so-called “dog and pony” roadshow of all the great things that will happen if their firm buys such-and-such target company. But it’s the functional leads who can help identify what is real and what is smoke and mirrors. To have a good functional integration, the functional leads need to be involved during the DD phase, as early as possible, ideally right around the time of LOI if not sooner. Corp Dev should bring the opportunity forward, but a dedicated IMO team needs to help define the integration strategy that is then executed by the functional leads, both of whom are overseen by an appropriate steering committee. This helps to ensure that the tail isn’t wagging the dog, so to speak, because Corp Dev doesn’t always know functionally what it takes to succeed. I believe that integration plans should be known from the start. Integration archetypes should be agreed as part of the deal thesis in initial discussions between Corp Dev/Business Development and IMO. Yes, this means that there are two (and sometimes three) separate and distinct groups, Corp Dev and/or BD and IMO, who have similar yet different goals within the inorganic growth strategy. This helps to ensure that functional integration risks (and the plans to mitigate or otherwise address those risks) are identified and brought forward early on and actually inform the deal rather than becoming a necessary item to address following deal close.

Sales / GTM –

helps to shape strategy early on (probably pre-LOI) and identify how the revenue targets will be reached. Following Day 1, this focuses heavily on execution to achieve the initial plan using risks and considerations noted previously.

Finance –

helps to identify issues in financial reporting and revenue impairment caused by inaccurate consolidations, differences in accounting practices, or outright “funny math” used to hide bad numbers (i.e., gross vs net statement of revenues or differences in calculating EV/EBITDA).

IT –

helps to shape considerations surrounding functionally merging or migrating (or not merging or migrating but commonly reporting) businesses using different and often competing tech stacks (i.e., Slack vs Teams, Outlook vs GMail, Canva vs Figma, Mac vs PC).

Legal –

helps to identify ways in which the acquired entity may not follow all of the rules, laws, or regulations they should be following due to their startup nature, and helps to advise on the cost and revenue impairment that will come about tied to operational change.

HR –

helps to address operational, cultural, systematic, and base-level comp&ben considerations for bringing together two operating models, addressing everything from what HRIS is used to what dress code is acceptable.

I have personally seen many integration strategies shift due to poor alignment with functional integration workstreams, and my company struggled with this fact until we went back to the drawing board to determine what sort of governance structure helps take the deal from target to “BAU”, rather than focusing on target to deal close.

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