Growth by acquisition can be a risky proposition, but it carries less risk when compared with organic growth. In theory, you are paying market value for a book of business that will immediately begin generating cash flow. If the valuation is reasonable, then the deal should be appealing to shareholders. In contrast, organic growth or investment in new growth areas doesn’t always materialize. Acquisitions are the preferred choice for many companies looking to grow on a retracted timetable, and the process is an exciting one.
When it comes to acquisitions, the “closing date” is often seen as the crescendo of a purchase. Months and sometimes years pass between initial discussions and the closing of a deal. The weeks leading up to closing are high paced and stressful, coupled with exhaustive checklists barreling toward completion. The parties breathe a sigh of relief when the closing meeting concludes, and both parties leave – for one of them, the transaction likely marks the end of the road. However, on the other side, closing is just the beginning.
The first 100 days
With investment bankers, attorneys, accountants, and sellers in the rearview mirror, buyers then turn their focus to integration. The most seasoned buyers view the first 100 days after closing as a pivotal point in the process. During the month or so leading up to the purchase, integration teams begin to plan for this period. The starting point for this plan is the investment thesis – a document that outlines how this particular company fits into its investment criteria, the intentions and goals with this acquisition, and ultimately how it plans to effectuate change in pursuit of these goals. The deal team and integration team have likely had a conversation with internal teams as well as management from the target company.
Integration plan best practices
The integration plan is vital because inexperienced and ineffective deal makers often fail to plan accordingly for this period following closing. Deals fail for several reasons but generally fall within a few broad categories: missed targets, poor performance in the core business, or an unintended loss of essential people. To avoid these pitfalls, we recommend focusing on a handful of best practices for integration.
First, assess the “human” aspect of the deal. In most cases, due diligence includes an organizational health assessment and inventory of current personnel. It would be best if you started conversations with employees at the onset of the integration phase. These discussions are an incredible opportunity to speak one-on-one with as many people as possible. Use this opportunity to gauge their sentiment on the deal, to explain the buyer’s thesis behind the acquisition, plans for integration, and also to assure them that you are committed to a successful transition. These interviews will provide you with insights on the backgrounds, talents and aspirations of the human capital existing within the target company. With this knowledge, you can begin the process of organizational design – mapping people throughout the organization – to determine future needs and redundancies.
Second, assess the company’s technology. If the current infrastructure is inadequate for financial and operational discipline, as well as the reporting of key metrics, then special attention should be focused on how to get technology to a point where it can provide the necessary feedback.
Corporate governance and alignment with new management is another area of focus for these first 100 days. Most sellers adopt the “thousand points of light” approach in courting a buyer and also during due diligence, which can skew perception. Now that the deal has closed, it is crucial to get your arms around what you bought. Establishing trust and aligning interests with current management is vital to move both parties in unison successfully. The integration process should, of course, include any off-site locations; a “roadshow” approach is typical for acquirers as they begin to present their investment thesis across the entire organization.
Finally, controls from a financial accounting and operational standpoint are also necessary. In smaller acquisitions, appropriate internal controls are not always in place because the company might not have the resources to install these controls. It is vital to implement controls over corporate assets, especially cash. As you learn more about current policies, be sure to amend as needed to ensure appropriate custody over corporate assets, including items such as cash, corporate credit cards, and expense reports, to name a few.
By David Killion and Bryan Graiff
For more information on post-merger integration best practices, contact David Killion, Transaction Advisory Principal, at email@example.com or 314.983.1304.