Why Acquisitions Fail: It’s the Integration
Companies seek to accelerate revenue growth or enter new markets through mergers and acquisitions. They spend a lot of energy and resources identifying the right targets based on synergy and combined financial models.
But oftentimes, the real value of the acquisition is not realized. M&A typically fails during integration. All that effort and capital spent on acquiring the target is wasted.
Why? There can be several reasons:
1. Unless you are a large company that can afford their own in-house acquisition integration department, companies simply don’t have the internal resources to assign to an acquisition integration to do it right.
2. The existing management team fears creating a costly disruption in the acquired target.
3. The integration burden is placed on existing managers who already have a day job causing endless delay and lack of initiative.
4. The talent in the acquired firm is ignored and “stars” exit early, quickly causing a critical talent drain and loss of business know-how.
Every acquisition integration requires a dedicated, objective leader to achieve a timely and cost effective successful outcome. The leader must have the business acumen and soft skills to execute on the complex business objectives and strategy without negatively disrupting the combined organizations and their customers. It’s a careful balancing act that is learned from years of extensive experience.
TechCXO has on-demand executives that can lead your next acquisition integration.
The emphasis is on leader. An executive that can readily step-in, manage the various functions, communicate with the C-Suite, Board and management teams with confidence and execute.
The benefits of an interim executive to lead the integration are manifold:
1. The interim executive is not connected to either company’s political structure. He/she can speak freely, impartially and objectively about the problems. He/she will include and listen to the right functional leads on both sides. He/she will build needed relationships and trust on all sides to accelerate the integration.
2. The interim executive brings experience and best practices of completing acquisitions for other companies. For most clients, an acquisition happens every five years or longer and the internal talent lacks enough experience.
3. The interim executive has the experience to distinguish the real problems from the “noise.” Every acquisition or merger generates a tremendous amount of what I call “noise”: It’s all the supposed problems identified by employees in all functions at all levels of why the integration is going to fail. Most of it is rooted in cultural differences, feelings of resistance, lack of vision, fear of being excluded, organizational misalignment, geographic separation, to name a few. The experienced acquisition leader will collect all of the noise and identify the real problems in an atmosphere of inclusion and trust. Each acquisition is different and the real problems can exist anywhere inside the noise. The acquisition leader will engage and communicate with the organization to be effective in every situation.
4. The interim executive will also ensure that the customer experience is not negatively impacted. This is not easy, as you will have disparate sales, customer service, ERP systems, order management protocols and supply chains. Customers are always weary of mergers and acquisitions, but the consensus is that the customer experience never improves. You do not want to lose market share.
5. The interim acquisition leader will establish a timeline with hard milestones and report progress to a Steering Committee of carefully selected stakeholders (C-Suite, Board Members, Investors as appropriate). He/she will make sure that communication occurs at the right intervals and in real time. The acquisition executive will level-set the integration objectives up front: What do we want this integrated company to look like? An assimilation? A hybrid of best practices? A cost optimization play? The acquisition executive can advise the leadership on these decisions and develop the integration plan and timeline accordingly.
6. The interim executive has the ability to shape the integration around the complex acquisition objectives that drove the merger in the first place. Sometimes these objectives are highly sensitive in nature and should not be shared with internal managers (i.e divestiture, cost reduction, geographic consolidation, liquidation of assets)
7. The interim executive will lead the teams and reduce the “human toil” and accelerate the average acquisition experience. The leadership is accomplished through influence or cross-functional reporting structures as appropriate. Every company culture is different.
The four important areas that a seasoned acquisition integration leader manages are:
1. Customer experience (communication, order management)
2. Creation of a joint sales force
3. Proper cadence of system integration (email, ERP, portals, platforms)
4. Managing the temperament of the leadership (CEO, CFO, Board, Owners, Investors) on all sides for the benefit of a successful, timely integration. This is where executive soft skills are crucial. The soft skills, the executive’s ability to lead organizational change and influence, are equally important, if not more important, than the hard skills.
One more note: Timing is critical. A successful integration requires preparation and a strong “Day One” execution. The integration executive should be brought in at least two weeks before the closing to prepare the organization for a successful kick-off.
Matt Oess (full bio) are partners in TechCXO’s Atlanta office.