Crafting a 100-day M&A integration road map

Consider this scenario: You buy a house, and before moving day you call utility companies to turn on the electricity and other services and television and internet providers to set up the connections. Then, you paint the walls — all to make your relocation as painless as possible.

"If you do the painting before the furniture comes in, it's easier," said David Braun, founder and CEO of mergers and acquisitions advisory firm Capstone Strategic Inc., in McLean, Virginia, and author of Successful Acquisitions: A Proven Plan for Strategic Growth.

Now, consider this analogy again but with a scenario that has gone wrong: Your company acquires another business. But unlike your home-buying process when you planned ahead, company leaders focus so intently on deal negotiations that they overlook what comes next. They aren't prepared to add people to payroll quickly, to handle branding issues, to set up technology changes, or to communicate with employees, customers, and others about why they did the deal and how things will unfold. As a result, post-merger chaos ensues, causing angst and costing money.

"The longer such nuts-and-bolts issues are put off, the more ambiguity and uncertainty predominate — and the more value can leak from a deal," reported Grant Thornton, in its 2018 Deal Value Curve Study, which polled CEOs, CFOs, managing directors, and other high-level executives. Only 14% of all deals surpass their early expectations for income or rate of return, the study noted.

The solution, said Braun and other M&A experts, is clear: Create a 100-day road map well before the deal closes to guide acquirers through even the trickiest of unions. In truth, integration can take months or years, but the first 100 days is crucial to jump-starting a successful merger. This initial plan, which outlines integration stages and involves teams in all functional areas, is critical to ensuring that the merger goes smoothly and that all stakeholders in the deal — especially coveted employees — are satisfied and retained.

"At its core an acquisition can be deemed a success if the return on invested capital is greater than the buyer's cost of capital," Braun noted. "This isn't going to be defined or measured by anyone other than the finance leaders." And this plan, he added, needs to be executed quickly so customers are not annoyed or lost, and at a time when employees and others are open to change. After several months, that window of opportunity vanishes, like water evaporating on a sweltering day.

"Without the plan it's basically a false start," echoed Christophe Van Gampelaere, founder of Global PMI Partners in Ghent, Belgium, and a contributor to the books Mergers & Acquisitions: A Practitioner's Guide to Successful Deals and Cross-Border Mergers and Acquisitions. Without a detailed strategy, expected synergies may not be reached, revenues and profitability may slide, and disgruntled employees, confused by the changes, may exit. In its recent study, Global PMI Partners found that inexperienced buyers have more than a 50% chance to be in worse shape financially three years post-deal.

While integration plans vary in structure, all acquirers, particularly finance leaders, need to take basic steps to ensure a smooth transition. And these actions need to be thought out early, prior to the deal's close, to avoid disarray and disruptions in operations.

M&A specialists offer the following tips for establishing a successful 100-day course:

Communicate the rationale of the deal

Once the acquisition closes, communicate with stakeholders quickly to avoid uncertainty. Keep your message consistent to employees, unions, suppliers, customers, and shareholders as to why you did the deal and how things will work. "When you have shareholders involved, they need to be satisfied that you have an integration plan and that the plan is being implemented professionally," said Terry Irwin, founder and CEO of TCii Strategic and Management Consultants in London.

Communicate organisational structure

Once a deal is announced, employees are eager (and anxious) to know where — or if — they fit into the new organisation. Who is their new boss? How will they get paid? Thus, it's imperative that the buyer outlines roles and responsibilities — even if it's a work in progress — quickly, Braun said. If staff are confused and anxious, gossip begins to occur. "They will always think the worst if they don't know what's going on," Braun noted. "People's rumour mills are always about fear." Also, said Van Gampelaere, "Communicating that you don't know yet ... is better than not communicating at all."

Mix and match

Identify key employees, or people representing various departments, and have them meet in person — even as a temporary relocation — with staff from the newly acquired organisation, Braun advised. This helps fuel camaraderie and allows your trusted employees to report back on any issues that have surfaced. Disconnect can happen across time zones and geographies, and in-person integration increases the likelihood of success. "Ask for volunteers," he said.

Tap company leaders

Heads of finance, human resources, IT, and other departments must develop key areas of focus from both due-diligence and integration standpoints. Braun advises colour-coding things based on their "danger" potential. A "red" flag, for instance, could mean that certain governmental regulations regarding payroll or taxes need to be addressed. If your company can get a less expensive supplier due to the growth in size of the combined organisation, that would be considered a "green" or "opportunity" item, he said. Company leaders should do this analysis and draft recommendations, which will jump-start the 100-day plan.

Create cross-functional teams

Appoint an overall integration project manager who can stick to deadlines and keep others on track. Then, create in-house functional area teams such as sales and marketing, operations, IT, customer support, legal, HR, and finance. Assign team leaders — company stars — to oversee each group. While the CFO continues running the financial operations of the company, for example, a trusted employee in the finance department may lead the finance integration group. These teams should include both your employees and staff from the acquired business. Hold team meetings early in the process to avoid disruption, and use technology, such as spreadsheets or other software programs, to keep people on point. "The evidence is clear that getting these teams together early and ensuring you get the right people on board is critical," Irwin said. "Put the right people on those teams and they will recognise when things are going off course — and help get things back on course."

Identify top performers

Prior to the deal's close you should have identified the rising stars, at both your company and at the one you are acquiring. Now, the key is to involve them and not lose that talent. "Top performers need to be put to the test, by giving them challenging goals in the 100-day plan," Van Gampelaere said. Also, these top performers can "effectively communicate to the other members of the acquired organisation", Irwin noted.

Create and monitor key performance indicators

You know why you did the deal, so make that reason an area of focus. If you bought another company for its sales team, measure how the team is performing. Make sure you use "data to drive decisions — not personalities", Braun said. Similarly, if you bought the company for its product line, you must ensure you have enough product to keep current and new customers happy without interruption. "The mistake I often see is lack of a clear business model and shared understanding of where the company is supposed to go," Van Gampelaere noted. "It's often in the head of the owner."

Key performance indicators should also involve your employees and those from the acquired business, to help you "ensure progress is made and corrective action identified and implemented as needed", Irwin added.

Don't overdo it

If you try to achieve too much too soon, you may lose your focus and get off track. "Limit the number of milestones you want to reach in the first 100 days," Van Gampelaere advised. "There is only so much you can do."

Uncover duplications

Functional teams should uncover duplications when conducting due diligence, but even so, some redundancies take time to implement, and that process needs to continue once integration begins. During the pre-closing phase, "Visibility is often not there yet, and some people [or] teams need to get a chance to prove themselves," Van Gampelaere said.

Consider an M&A adviser

Look into hiring an M&A advisory firm to guide you through the post-merger process before integration begins. "Companies have smart people who are used to managing projects," Braun said. "They just don't know how to organise this type of project. It can be helpful to have a third party to get you on the right path."

Cheryl Meyer is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.