The importance of an M&A integration framework
Mergers and acquisitions are a hot topic in many sectors again, certainly in insurance, with the news that Axa is to buy XL Group.
The allure of growing at a speed that is impossible to achieve through organic growth is often the objective combined with the opportunity to reduce consolidation costs of systems, people and processes.
The challenge is that many organisations approach M&A with a plan for making the deal without having a good plan for the integration of the organisations, or their people, processes and systems.
What are the downsides of “winging it”?
I’m sure there will be people reading this who will say, we completed our biggest integration only last month and we never had a plan, we just winged it. That’s certainly possible, but the ability to ensure that every integration is as successful and that the full value of integrating people, processes and systems is achieved isn’t something that can be done by winging it! It requires an approach and framework to ensure that everyone is on the right page and acting in unison rather than running in different directions.
The other downsides of winging it centre on the ability to assess and understand the risks that are contained within the newly acquired organisation; risks such as cybersecurity and information security risks with the impending implementation of GDPR (the EU’s General Data Protection Regulation), NYCRR500 (New York’s cybersecurity regulations), and the like means that there is, of course, the risk of acquiring an organisation that is on the brink of a data breach.
Why have a framework?
Aside from the upsides of not winging it, there is the additional strength and benefits that come from bringing the various parts of the organisation together. All too often the due diligence stage is conducted with far too much secrecy. Don’t misunderstand me, these details need to be kept confidential, however the right people need to be involved at the right time and they need to be briefed and understand the sensitivity of the information that they have access to.
The power of bringing different departments (deal team, finance, operations, IT, sales, etc) together with their different experience and expertise can really improve the work that is done both as part of due diligence and the early stages of integration.
What should a framework include?
Any framework needs, in my opinion, to have the following characteristics:
Scalable: any framework should work for both small acquisitions — including those where the assets being acquired are only data or intellectual property — as well as the large ones that include people, building, physical and digital assets, etc.
The framework should be able to be adapted to the situation without placing bureaucracy on smaller acquisitions or leave larger acquisitions under supported.
Extensible: any framework should be able to grow and adapt to lessons learnt or to new situations or scenarios that occur.
Appropriate: a good acquisitions framework should be able to be used to help an organisation prepare for sale, as well as allow an acquirer to assess the organisation for purchase.
Recognise key stages: the framework should recognise the key stages of an acquisition or a sales process. There are some obvious ones, such as the purchase stage, but also some less obvious ones that should be included to help ensure the smooth and effective running of the process.
Without recognising that an acquisition or sale has key milestones, a framework will be out of sync with the reality of the process, leaving the acquisitions or sales preparations team in difficulties in using the framework or achieving the desired outcome.
Recognise the transition stages: a good acquisitions framework should ensure that not only does the acquisition or sales process run to plan but that there is a good transition to a business as usual stage. This process is all too often not done well or at all, or at best is misunderstood. In many cases, this can mean that the benefits that were part of the business case for an acquisition are not achieved, because the business as usual team haven’t been involved as much as they should be.
If your organisation is in the process of preparing for sale or looking for acquisitions then there are a number of preparatory steps that you can take, as follows.
Preparing for sale: if your organisation is preparing for sale then there are a number of steps that you can take to help ensure that any company that performs a due diligence process on your organisation gets the right information in a timely fashion. The key to successfully completing these steps is using an acquisition framework to analyse your organisation from an external perspective. Even if you have all the information required for due diligence, running this process will, at the very least, ensure that the information is well maintained. If your organisation doesn’t have the information then this process will help ensure that the information is created without a purchaser watching.
Preparing for purchase: if your organisation is looking for acquisition targets, ensure that your acquisitions team is prepared by implementing a mature acquisition framework. This will offer the benefits described in this article and ensure that your process is repeatable and improvable allowing your organisation to be successful and improve on the success of each and every acquisition.
Darren Wray is the CEO of Fifth Step Limited a company that is helping organisations with their merger & acquisitions and other business-critical change. Find Darren on LinkedIn or at www.fifthstep.com