I wanted to take a quick moment to discuss something I found interesting as I was reading about trends in M&A transactions, and how companies are not so great at integrating dissimilar businesses and / or operating models. Well, to that regard, some companies do not integrate new models into their existing platforms at all, leaving them completely stand alone. With a wave of M&A transactions upon us, coupled with rapidly changing technologies and worries about maintaining competitive advantage, these integration decisions are becoming key to making better business decisions. Don’t forget that consumer demands are continually rising, consumers and businesses alike are requiring more “out of the box” approaches to innovation and there is a lot of buzz around mobile, cloud and security out there right now.
So, how can companies change their mindsets, look to the future and think “differently”? It’s definitely easier said than done… I’ll give you an example of one that I have seen, which brought on a level of good competition (as there is good and bad) throughout the business. This company was setting up plans for growth and wanted to involve their employees. Each of the functional groups (and they were allowed to combine efforts with other teams) were asked to arrive at “pitch day” with a new idea or concept on where the company should expand their business given their capabilities/competencies; and these were not to be bound by specific industry trends. The teams came back with very innovative ideas, the first annual pitch day was an amazing event and within 9-months the company closed on an acquisition.
Pretty great, right? Yes, the way the company approached making the acquisition was quite clever, however, the target company was not of similar size, complexity nor business model and thus once a part of their ecosystem created confusion that drove inefficiencies as well as an inability to report financials in a timely manner, etc. Well, that is what happens, even to leading companies, when there is minimal to no thought given to how to integrate dissimilar business models. You may think there are some exceptions, like Johnson & Johnson or Roche, who can easily make up for any inefficiencies with their higher than average margins. But even then, why operate less efficiently when you know there is an opportunity to improve the operation and increase shareholder value? Got your attention? Good, so now comes the question – “what are some things to think about when integrating a target company?” And don’t worry; I’ll come back at a later time and write about divestitures.
Some “not so basic” questions to ask yourself:
- How can, and should, the integrated company position itself to benefit from revenue synergies?
- Are the go-to-market strategies similar, and if not, do they adopt ours or vice versa?
- What is our product pipeline, what is their pipeline, and how to we support both?
- How are we going to handle customer migration and feedback?
- Do all of the capabilities, assets or products align with our overall business strategy? If not, which ones need to be exited (as quickly as possible)?
- Have we evaluated the operating models, to understand how we can maintain or improve efficiency performance? Do we need to perform a supply chain assessment on old / new capabilities to assess risk?
- What systems does the target company use for enterprise data and resource management and how can we integrate those with ours to drive more optimal data management, financial reporting, forecasting & planning, etc.?
- Have we evaluated all sets of business practices to see which are more innovative and to see how can we leverage and build the most sustainable set of practices moving forward? Do we integrate all capabilities and processes, or just specific ones, leaving some decentralized (or stand-alone)?
- What do we do with their executive team? Cut all of them, keep some of them on retainer via a consulting agreement, adjust the reporting structure and absorb of the team, etc.? The key here is to retain knowledge, but keep it lean…
Remember to start with a vision pre-due diligence and an end-goal of what you want it to look like post-integration. From there, once you develop a strategy, build a roadmap to guide the team through execution to ensure that you don’t stray from the established guiding principles. Also, when in the due diligence phase, be sure to think through the integration processes and needs in order to enable downstream success and not create situations of panic.