Today’s post will provide a quick analysis of specific integration best practices statistically proven to drive a substantial increase in achieving the optimal pace of M&A integration, gleaned from our State of M&A Integration Effectiveness™ Survey.
For those of you who are familiar with our survey, you’ll recall that this element is one of the 12 or so key business result outcomes that we used to evaluate approximately 40 different integration best practices. Our primary goal was to help identify and validate which specific integration best practices can really “move the needle” on the most important business results.
Let me set the table quickly with these two key points before we begin. First, the importance of speed of integration ranks right up there with culture, communications and leadership as being among the most frequently cited principles for success in almost every list, study, presentation or article. We believe this emphasis is correct and necessary and have previously spoken about these issues in various blog posts including The S-3 Integration Model (e.g. “speed, synergies and stabilize the business"), and Getting Operational Cut-Over Right.
But every time we talk about speed of integration, we have to be very careful to emphasize that we are NOT advocating speed at all costs. Instead, we suggest striving for “accountable speed,” meaning, how fast can we implement well, and on the most important things that drive value or mitigate risks?
"Estimates for integration costs are often still swagged, ballparked, determined through a rough-order of magnitude placeholder based on 'what we spent last time,' or not considered at all."
Second, the use of specific integration best practices is correlated to better business results. Highlights of the regression analysis for this week’s discussion are provided in Achieving the Optimal Pace of Integration. This slide lists the top ten integration best practices in our study that were shown to produce the greatest percentage increase in successful outcomes, as reported by survey participants who typically achieve an optimal pace of integration.
It will come as no surprise to experienced M&A executives and integrators that there are a few essential integration best practices that universally have a disproportionate impact on MANY business results. In fact, we believe mastering the entire range of our 40 some-odd best practices codified in the M&A Partners’ Integration Effectiveness Index™ (and the basis of this survey) is essential in order to be consistently successful. At the same time, you have to focus on and prioritize specific aspects in order to continuously improve your internal M&A integration capabilities.
For example, in our regression analysis of how to achieve the optimal pace of integration, we found five common themes that were widely shared as top ten impact items across the spectrum of revenue, synergy capture and minimizing value erosion. These are discussed in more detail in two recent posts, Integration Practices That Drive Maximum Synergies and Minimizing Value Erosion During M&A Integration, and specifically include the following items:
- Developing a comprehensive integration strategy framework;
- Managing the effectiveness of the overall integration process;
- Focusing on essential “integration complete” objectives;
- Conducting a timely, efficient, well-coordinated integration process; and
- Having timely and effective decisions by executives.
So what other integration best practices stood out as hugely important for helping you drive toward the optimal speed of integration? You may be surprised by these key findings.
1. Our company understands the costs of integration (both direct and indirect) and provides an adequate integration budget which allows us to achieve what is required.
As a general rule, we concur that this is an area of weakness for most acquirers. Even where there is a tremendous depth of expertise with deal-making, valuation, post-close forecasting and modeling, etc., we often find a surprising lack of awareness of the true costs of integration. Estimates for integration costs are often still swagged, ballparked, determined through a rough-order of magnitude placeholder based on “what we spent last time,” or not considered at all. I’m convinced this is one reason there is such little understanding of the staff resourcing requirements required to accelerate, or in some cases, merely complete the integration effectively and with the anticipated results. (Note: For a discussion on the staff resources required to optimize integration results, please refer to Business Impact of Integration Project Staffing.) This is an essential professional discipline, and we look forward to partnering with you and the M&A Leadership Council to make this happen.
2. Our company uses hosted or network-based software solutions to accelerate and improve integration processes including browser-based project plans, task tracking, dashboards and automated reporting of integration and business metrics.
We asked a series of five related questions to get at both the type of software solutions used to accelerate and improve integration processes, and to determine the overall prevalence of use. Two specific sub-questions appeared as “top ten result drivers” on this analysis, and we have combined them here for convenience. We have reported the basic frequency data responses, (e.g. how many organizations use each type of software) in a prior blog post linked here, Software Tools Drive Increased M&A Success.
Our regression analysis produced several key linkages to the role of software solutions for streamlining, automating and accelerating integration processes and the superior results on a variety of business outcome measures, so the major surprise here is less about the finding, and more about the fact that so few organizations overall have adopted what should now be a given in the internal M&A capabilities of most active acquirers.
3. A member of Corporate Development (or the deal team) stays involved in each deal through the accomplishment of key post-closing integration or business result milestones.
In many organizations, the M&A process itself has historically been very siloed and transaction-focused. As we have advocated many times in this blog and in our workshops, our view is that M&A must be viewed as an end-to-end business process and as an enterprise competency to be built and sustained. We think this finding is an encouraging insight that more and more organizations are putting this into practice by extending the viewpoint, role and accountability of corporate development and deal teams (e.g. the “Deal Lead”) beyond the transaction to the effective integration, value preservation and operation of the acquired businesses. Clearly, their primary focus must still be primarily about strategy, target identification, valuation, due diligence and transaction completion.
But consider this: at the point of integration launch, who has the best context knowledge of the target company, their core business and the deepest “relationship capital” with the target company’s executive team? The Deal Lead! That degree of target company insight is too mission critical to hand off post announcement or even post-close. Instead, we see a number of best-practice acquirers extending the Deal Lead role for a period of time that makes sense into the integration steering team, the integration management office (IMO), the executive committee and, on occasion, assigned as an adjunct advisor to the target company.