Basic Concepts Of Integration - What is the difference between a financial and a strategic approach when it comes to integration?

Financial acquirers have no intention of integrating the resources, operations, or technology of the acquired company into their own. These acquirers, which are typically (but not always) buyout funds, do not so much manage as monitor the resources they acquire.

Thus, a financial approach treats each acquired company as a separate entity. In such an approach, exemplified by the buyout firm of Kohlberg Kravis Roberts & Company (KKR), the buyer tries to add value through imposing superior, top-down management strategies in a short period of time. Financial acquisitions can be fairly diverse. Although these transactions may build on the acquirers’ expertise, they need not be integrated into the acquirers’ operations to yield good postmerger returns.

A strategic approach, by contrast, treats each acquired company as a new member of its corporate family—whether its industries are diverse (Berkshire Hathaway) or focused General Dynamics). Strategic acquisitions (commonly referred to as mergers) often involve combinations of companies in the same or related industries. Mergers within the same industry can reduce costs (usually by increasing purchasing scale or reducing payroll cost by laying off employees) and/or increase revenues (usually by selling more to a larger customer base).