Any consulting industry inevitably tries to develop a metric that attempts to determine a specific “% of something” figure to help determine a budget.
According to a recent article* in Axial, middle market companies should expect to pay somewhere around 8 to 12% of a deal’s price to ensure effective integration.
So what should companies budget for integration support? I think that there are so many situational nuances to any deal that trying to establish a set % to guide resource decisions is extremely difficult. For example, some platform consolidation deals may be rather straightforward and require less integration support, while others may have a lot of complexity and require more. Another driver might be geographic scope–a deal in a single geographic region is easier to manage that a deal in multiple geographies.
Instead of trying to establish a metric to drive resourcing decisions, it’s better to scope your integration requirements from the bottom up and use the resulting data to help inform your decision.
“…scope your integration requirements from the bottom up…”
For example, starting with the questions below may help you zero in on a budget for your integration support:
- Does the transaction require integration in the first place? Or is it so limited in scope it can be handled by existing personnel as part of their day jobs?
- If integration is required, how many internal company personnel will be assigned to the integration effort, what % of their time will be dedicated to integration work, and for how long?
- Does the integration scope include all facets of people, process & technology? If so, you may not only need integration project management expertise and support, but also some SME level support for key areas such as system implementations, process alignment, culture & change management….all which will require investing more for support.
- If bandwidth and capacity are an issue, calculate the rough costs of what the internal personnel effort would cost (e.g. X people at 50% utilization with an average salary of $125k equals $XX).
- Figure out what the amount would be by month and create a ballpark figure of what it costs to bring in support to replace what you can’t do internally. Granted, experienced external expertise may not correlate 1:1 with your internal salary figures, but at least you’d have somewhere to start that’s significantly better than the “% of transaction value” guesstimate.
- In addition to the above, a review of what you are already paying for other transaction costs (legal, transactional due-diligence, environmental audits, etc.) might provide perspective on what would be a reasonable amount to budget for integration support.
In conclusion, between these sunk costs and the transaction costs, the total cost for some outside integration help may look small in comparison–more of a “rounding error” in the grand scheme of things.
In many cases, Global PMI Partners has found it’s helpful for a company to think of investing in integration support as insurance to make sure the people involved don’t neglect the most important part of the deal–the integration!
*SOURCE: Yorke, D., “3 Keys to Success for Infrequent Acquirers”, March 29, 2018, Axial.net – Middle Market Review
Scott Whitaker 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. > Read more about our Leadership Team