value private equity

How to Drive Value and Consistency Across Your Portfolio
A Repeatable Methodology for Private Equity

By Michael Holm, Nordics Partner


There are a multitude of reasons for Private Equity firms to naturally gravitate toward M&A integrations.  To drive value and create consistency across their portfolios, two scenarios are most often used:

  • A roll-up/build-up of a fragmented market created by a serial acquirer from a platform company. These companies generally look to perform multiple add-on acquisitions in a similar manner since acquisitions are a large part of the company’s strategy.
  • An acquisition of a portfolio company where the investment rationale is to acquire 3-4 different companies in the value chain or a company that is selling to the same customer base.

For both scenarios, utilizing a repeatable M&A integration methodology should drive value and consistency across a PE portfolio of the companies and remain part of the private equity’s tool kit. Integrating an acquisition from M&A integration strategy, planning and execution is partly deal rationale specific and partly generic.

Deal Rational Specific Areas

For a roll-up/build-up, the deal rationale specific areas are found in:

Go to Market:

A roll-up of smaller and similar add-on acquisitions will have one go-to-market for all acquisitions – an accounting market roll-up to buy market share and penetration by buying accounting firms – the go-to-market is the same for platform co and acquisitions.

Sales Integration and Cross-sales:

Sales integration will be the same for all add-ons with some minor customizations. Cross-sales will be about selling in new services – payroll,  tax, or legal – to existing accounting customers.

Product Portfolio Integration:

Products and services will overlap and the migration of clients over to the platform company’s product packaging, pricing and terms will be done over the course of one year, or sooner, depending on the customer cycle.

Business Processes an IT Applications:

Add-on acquisitions will quickly move to the platform company’s business processes and IT applications.

For larger add-on acquisitions, the deal rationale specific parts are found in:

Go to Market:

Acquisition of larger and more complex companies with new products or new markets results in more than one go-to-market approach.

Sales Integration and Cross-sales:

Different sales integrations and cross-selling setups for each of the acquisitions.

Product Portfolio Integration:

Limited product overlap and integration is needed to be able to sell and invoice all products in one offer and invoice – through common master data for products and customers.

Business Processes and IT Applications:

Integration will, in most cases, work with integrating and optimizing processes into one core process and one set of IT applications.

The generic parts of an integration that can be addressed by a common repeatable methodology are discussed in these five dimensions:

Integration Project Leadership, Project Setup and Governance:

How to select and get an internal (or external) integration project leader and integration team up to speed is not deal rationale specific. The setup of the integration project in workstreams, alignment between acquirer and target integration teams, kick-off/transition to line management at the end of the project, risk management, reporting and governance by a steering group are also generic. These integration common tools, templates and methods can be captured in a methodology to compare KPIs across the PE portfolio.

Functional Integration:

The approach to integration of Finance, Legal, HR, Sourcing and other corporate functions are to a large extent generic. To have a repeatable methodology for how to secure company funds, level of authority, assets and IP rights, approach to suppliers on Day One is fundamental.

Core Process Integration:

Operational synergies, transparency and operational leverage can only be achieved when the acquirer and the target are integrated into a common core process. The process varies from portfolio company to portfolio company but the way one approachs process integration is common for all large and complex add-on acquisitions. How one maps existing operating models and defines the common model is a generic exercise. It is, however, not valid for a roll-up where the platform company operating model is not changed for each add-on acquisition.

People and Culture Integration:

Soft factors like leadership, corporate culture, people, approach to harmonization in M&A integration are very important in all deal rationales and can also be generic across the PE portfolio. The generic approach needs to reflect the values that a Private Equity has for their internal team as it will influence the relationship and communication with the portfolio companies. For example, if a PE uses one method to assess and build their internal team, the same method should, in our opinion, be used at the portfolio company. Again, by using the same method across the portfolio you can learn and improve.

Geography:

M&A integration activities can, at times, be too focused on corporate functions and headquarter employees. The need to reach and involve leaders in subsidiaries, rep offices, distribution and service points are generic.

Benefits from using a repeatable methodology across a PE portfolio:

  • Ease of communication between portfolio and PE teams
  • Ease of tracking KPIs across the portfolio
  • Faster execution by portfolio company teams

In Summary

There is an opportunity for PE companies to create a common methodology to be used across all portfolio/platform companies for M&A integration of add-on acquisitions. This can be done without limiting creativity in value creation and deal rationale, nor losing agility in execution of deal strategies. The methodology can be established and tweaked in steps and can be the repository for lessons learned post-deal. Going further, strategy execution and operational KPIs can be defined, measured and improved for post-deal across the portfolio.

Michael Holm is a Partner at Global PMI Partners, an M&A integration consulting firm that helps mid-market companies around the world by delivering exceptional consistency, speed, and customized execution on the complex operational, technical and cultural issues that are so critical to M&A success.

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