Acquisition Integration Challenges: Navigating the Complexities
By Chris Charlton, UK Managing Partner at Global PMI Partners
Acquisitions are a common strategy for businesses seeking to expand their market share, diversify their portfolio, broaden customer acquisition and customer base, or accessing new capabilities and technologies. However, integrating these acquisitions can be a challenging task that requires careful planning and execution.
Acquisition integration requires a strategic approach that addresses both the operational and cultural aspects of the process. In this article, we’ll explore some of the key challenges that organisations face when integrating an acquisition and highlight strategies for overcoming them. These topics include:
|Retention of Key Staff||Resources: Capacity & Capabilities|
|Cultural Integration||Sales & Marketing Integration|
|Operational Integration||Integrating Property & Facilities|
|Integration of IT systems||Financial integration|
|Legal and regulatory compliance||Supplier & procurement integration|
|Resistance to change||Timing|
Effective leadership is essential to the success of any acquisition integration. However, integrating the leadership of two companies can be complex, particularly if there are differences in style, priorities, and vision.
To overcome this challenge, it’s important to identify and leverage the strengths of the leadership teams from both companies. This can involve creating cross-functional teams to work on specific integration initiatives, as well as providing leadership training and coaching to ensure a shared vision and approach to leadership.
The most important workstream for leaders to get right is the strategy and operating model workstream, and it should be a goal to complete that work as early in the integration process as possible. This starts in the diligence phase, is further refined from signing to close, and finalised in detailed planning, culminating in the blueprint to-be operating model for the combined business. This should align business strategy, deal thesis, integration strategy, target operating model and prioritised integration workstreams.
Agreeing the leadership team of the combined business as early as possible makes all other activity easier, as leadership alignment and drive is essential to success.
Effective communication is critical to the success of any acquisition integration. However, with multiple stakeholders involved, including employees and unions, customers, suppliers, and shareholders, communication can quickly become complex and overwhelming.
To overcome this challenge, it’s important to establish clear communication channels and protocols from the outset of the integration process, including a transparent communications plan for all stakeholder groups. For staff, for example, this should include regular email or newsletter updates, town hall meetings, and one-on-one meetings with employees, to continuously reduce uncertainty and anxiety among employees, which can lead to unhelpful rumours and misinformation. It may also be important to have a dedicated communications team that can handle customer, employee or supplier concerns and questions.
- Retention of Key Staff
When two companies merge, there can be a lot of uncertainty among employees, particularly around job security. This can lead to a high level of turnover among key employees, which can impact the success of the integration.
To address this challenge, companies need to focus on retaining and motivating key employees, whilst thinking carefully about the consequences for all staff. This should include communicating the benefits of the merger or acquisition, offering career development opportunities, and perhaps providing retention bonuses for those employees that are critical to the integration process, even if they are ultimately let go once integration is complete. This can be critical, both to integration success, and also to manage market reputation.
- Resourcing: Capacity & Capabilities
In addition to the challenges mentioned above, resourcing, skills, and capabilities can also be a major hurdle when integrating acquisitions. Companies may face a shortage of skilled resources or a mismatch in capabilities, which can impact the success of the integration process.
To address this challenge, companies need to conduct a capacity, skills, and capabilities assessment to identify any gaps, appropriate to the level of complexity inherent in the integration process. This can help them to determine the resources needed for successful integration and to develop a plan for filling any gaps, and/or the provision of training. It is also important to involve key personnel from both companies in the integration process to ensure that the necessary skills and capabilities are in place. By investing in their M&A playbooks and employees, companies can build a stronger and more capable team that can handle the challenges of integrating acquisitions.
- Cultural Integration
It is important to make a distinction between culture and values.
One of the biggest challenges in acquisition integration is aligning the values of the two companies and stimulating employees to aspire to those same values. Cultural differences can be a major source of friction, leading to a lack of trust, resistance to change, and communication breakdowns. Different types of organisation, such as corporations or family-owned businesses; or companies in different geographies, all add to the cultural complexity.
To overcome this challenge, it’s important to begin the integration process early and involve key stakeholders from both companies. This allows for a more proactive and collaborative approach to identifying and addressing cultural similarities and differences, as well as fostering open communication channels to build trust and a shared vision for the future, all to be included in your cultural integration plan. This may include the provision of training to employees on how to work effectively in the new culture. Most importantly, don’t force cultural change, it is always most effective for leaders to role model expectations.
- Sales & Marketing Integration
Integrating sales and marketing teams can also be critical for achieving revenue synergies when integrating acquisitions. Companies may have different sales and marketing strategies, tools, and processes, which can lead to inefficiencies and missed opportunities. Further, creating an early plan for dealing with any overlapping accounts, and a clear go-to-market strategy underpin revenue growth ambitions. It will also be essential to align both corporate and product branding strategy, and how this feeds sales and marketing processes.
To address this challenge, companies need to develop a clear and unified sales and marketing strategy that leverages the strengths of both companies. This can include aligning sales and marketing teams, processes, and systems to ensure a consistent customer experience. Companies can also consider investing in sales and marketing training to ensure that employees are aligned with the new strategy.
Furthermore, companies can leverage technology solutions such as customer relationship management (CRM) and marketing automation platforms to support the integration of sales and marketing teams. These tools can provide valuable insights into customer behaviour and preferences, allowing companies to better target their sales and marketing efforts.
By integrating sales and marketing teams, companies can achieve revenue synergies by cross-selling products and services to existing customers, expanding their customer base, and increasing customer loyalty. It is important to prioritise sales and marketing integration early in the integration process to ensure that revenue synergies are achieved as quickly as possible.
- Operational Integration
Another challenge in acquisition integration is integrating the operational aspects of the two companies. This includes everything from IT systems and processes to supply chain management, property, and customer service.
To overcome this challenge, it’s important to conduct a thorough assessment of the operational systems and processes of both companies, a process which starts in detail in the operational due diligence phase. This can help identify areas of overlap and potential efficiencies, as well as areas where integration may be more complex.
- Integrating Property & Facilities
Integrating property footprint, including offices, distribution centres, and manufacturing facilities, is another important aspect of integrating acquisitions. Companies may have different real estate portfolios, lease agreements and insurance contracts, which can all impact costs and operations.
To address this challenge, companies need to conduct a thorough assessment of their property footprint and lease agreements. This can help them to identify any redundancies or inefficiencies and develop a plan for integrating the properties. This can include consolidating office spaces, distribution centres, and manufacturing facilities, and renegotiating lease agreements. It is essential to manage inter-dependencies with all other business functional workstreams to ensure any disruption to business as usual is minimised.
- Integration of IT systems
One of the most complex aspects of integrating acquisitions is integrating IT systems. This can be a major challenge, particularly if the two companies are using different systems or if their systems are not compatible. It is essential to take a strategic approach to IT integration. This can include conducting a thorough assessment of the existing IT systems, identifying any areas of overlap or redundancy, and developing a plan for integrating the systems. It is also important to involve IT teams from both companies in the integration process to ensure a smooth transition. The clarity and simplicity of the IT roadmap developed to deliver the target operating model for the business can accelerate value delivery.
It can also be very helpful to appoint a Design Authority committee for making all decisions about core application choices, with appropriate representation from the business and from technology. These choices should be future-proofed, considering the long-term picture, such as additional planned or expected acquisitions.
- Financial integration
Financial integration can also be a major challenge when integrating acquisitions. This can include everything from aligning accounting systems to managing cash flows and debt.
To address this challenge, companies need to have a clear and detailed financial integration plan in place. This plan should address all aspects of financial integration, including accounting systems, financial reporting, cash management, and debt management. It is also important to involve financial experts from both companies in the integration process to ensure a smooth transition.
- Legal and regulatory compliance
Integrating acquisitions can also raise several legal and regulatory compliance issues. This can include everything from employment law to environmental to antitrust and competition compliance regulations.
To overcome this challenge, companies need to have a clear understanding of the legal and regulatory landscape in the regions where they operate. This can include conducting a thorough compliance assessment, identifying any potential risks or issues, and developing a plan for addressing them. It is also important to involve legal and regulatory experts in the integration process to ensure compliance with all applicable laws and regulations. As the deal progresses, identifying, prioritising and delivering Day 1 and post-close mandatory tasks is a constant need.
- Supplier & procurement integration
Supplier integration and procurement savings are an important aspect of integrating acquisitions. By conducting a thorough assessment of supplier relationships and procurement processes and developing a comprehensive integration plan, companies can achieve significant cost savings and improve supplier relationships. Leveraging technology solutions can also help to support the integration process and enable companies to make data-driven decisions about their procurement strategy.
Companies may be able to leverage economies of scale, negotiate better pricing agreements, improve supplier relationships, and streamline procurement processes. It is important to involve key suppliers and procurement personnel from both companies in the integration process to ensure a smooth transition and to minimise any disruptions to the supply chain. Often, companies may find that indirect cost savings can represent some low hanging fruit, whilst direct cost savings may take longer to deliver.
- Resistance to change
Resistance to change is a common challenge when integrating acquisitions. People are naturally resistant to change, and when two companies merge, there can be a lot of uncertainty and anxiety among employees. This can lead to resistance to new processes, systems, and even new leaders.
To overcome this challenge, companies need to be proactive in managing change. This can include providing training to employees on new processes and systems, involving them in the integration process, and communicating the benefits of the merger. It is also important to have a change management strategy and plan in place that addresses potential resistance and provides strategies for addressing it. Integration projects can change everything about an employee’s day job – the organisation into which he or she reports, business or customer objectives, the processes and technology used, even the office or location from which they work, so appreciating this dynamic and proactively managing it is essential.
If you think of the difference between effective project and business change management as two sides of the same coin: the first, project management, is about ‘send’, or making it happen. The second is business change management, which is about ‘receive’, or how the organisation understands and embeds the changes that projects are delivering to them. These two essential integration skills need to be managed effectively to deliver the value of your deals.
Timing can be a major challenge when integrating acquisitions. The integration process can be lengthy and complex, which can impact the timing of key business decisions and initiatives.
To address this challenge, companies need to have a clear timeline and milestones in place for the integration process, as well as clear strategic framework with which to prioritise all the possible tasks and challenges. This timeline should be realistic and consider all aspects of the integration, including cultural integration, IT integration, and financial integration. It is also important to be flexible and adaptable, as unexpected challenges and delays can arise during the integration process. Strong project leaders and their steering committees will consistently identify and manage the critical path for the project.
- Effective Planning
A lack of comprehensive integration planning covering all aspects of the merger or acquisition can frequently lead to confusion, delays, and exacerbate risks, which can ultimately impact the success of the integration.
To address this challenge, companies should start planning early and involve key stakeholders from both organisations in the process. This can help ensure that all areas are covered and that everyone is on the same page. It is also important to have a clear timeline and milestones in place to track progress and ensure that the integration stays on track.
Acquisition integration can be a complex and challenging process, but with the right approach, it can also be a transformative opportunity for businesses seeking to grow and diversify. In turn, this delivers desired deal value successfully, further building capabilities and platforms for future organic and inorganic growth. By addressing key challenges proactively and effectively, such as leadership, communication, cultural differences, operational integration, resistance to change, and effective timing and planning, the most successful acquirers can navigate the complexities of acquisition integration and achieve a successful outcome.
Chris Charlton is a Managing Partner and the UK CEO for Global PMI Partners, a specialist consulting firm supporting our listed company and private equity clients with their inorganic growth strategies and M&A integrations and divestments. We provide expert, on-demand M&A services and resources, leveraging our market leading M&A approach & methodology.
With a track record of over 500 operational due diligence, acquisition integration, divestment, carve out and growth projects utilising our UK team of 170 seasoned professionals (400+ globally, across EMEA, North America and APAC), Global PMI Partners is adept at helping our clients achieve the desired value from both acquisition and divestment strategies.