High-Performing Integration Management: Extract the Full Potential of Your Acquisition

The Case for an Integration Program Management Role

Integrations are high-risk, high-reward endeavors. In early 2019, 68% of the 350 U.S. middle-market companies surveyed by TD Bank said that they planned to engage in M&A activity within the next six to twenty-four months [1]. While COVID may have temporarily slowed a lot deals, many analysts predict a return to high levels of M&A activity. History suggests that the majority of these deals – perhaps as high as 80% [2]– fail to deliver the expected value over the long-run. The good news for middle-market leaders is that a large portion of these “failures” can be averted by establishing a proper, straightforward management system dedicated to overseeing the process. The primary purpose of such a management system would be to track progress towards defined goals with laser focus. More so than merely preventing failures, such a system has the potential to deliver integration value beyond the primary goals.

From our experience four strategic pitfalls with integration planning and execution need to be intentionally avoided. First, many of the clients we’ve worked with fail to explicitly translate the primary strategic drivers for the integration (i.e. investment thesis) into a set of desired quantitative outcomes for each function to manage over the course of the first year. Second, middle-market companies often fail to go far enough in looking for, identifying, and acting on potential synergy opportunities outside of the main reasons for executing the deal. Third, several organizations understand that there are many tactical activities to coordinate ahead of a “Day 1” – hence the prevalence of “100-day plans” – but these coordinated program management teams often stop short of including strategic objectives of the deal into their scope. Fourth, in the middle market, the responsibility for planning and executing an integration often falls to a company leader (e.g. Operations Director, CFO) who is busy with his/her primary job, and likely has no experience managing such projects.

When time and resources are tight and the stakes are high, making the investment to establish a proper integration project management office (“PMO”) with dedicated staff and even engage outside support, can make a considerable difference in the success of the acquisition, and the continuity of the core business.

What is the role of an Integration PMO?

While many of the integration team’s activities will vary depending on the specific reason for your acquisition, at a high level, there are five primary objectives of an integration PMO:

  1. Delivering on the investment thesis (primary reason(s) for the integration)
  2. Establishing clear metrics and measurement milestones for the project
  3. Allowing the core business to operate without disruption
  4. Managing the master plan and logistical tasks needed ahead of day 1
  5. Finding additional opportunities to capture value and efficiencies

Delivering on the investment thesis

Integration planning should start with a clear and shared understanding of the rationale for the investment and the primary drivers of value. This should be communicated from the CEO and the executive team to the PMO. With this common “vision,” all integration activities run by the PMO should be in direct service of the value identified in the diligence phase. A good practice would be to ensure that departments such as finance, HR, and operations have clear 3-month, 6-month, and 12-month quantitative outcome objectives that, in total, deliver the primary drivers of value for the deal.

Establishing clear metrics and measurement milestones for the project

To measure the health of the integration efforts when they are underway and after they are complete, it is important to have agreement on critical success metrics. These should be defined upfront in measurable terms in order to provide transparency to how the integration is tracking against pre-defined financial objectives. Such deal-level objectives should be cascaded down and translated into functional-level metrics. For example, a manufacturing company purchasing a supplier in order to more vertically integrate might charge the finance team with realizing a certain percentage improvement on cost-of-goods-sold, and operations might be expected to see specific improvements in on-time-delivery and inventory – all measured at particular intervals (e.g. 90 days, 180 days, 360 days). Reporting out on these measures should be a part of regular status meetings. Metrics that are not hitting their target should be communicated loudly by the PMO so mitigation plans can be put in place with the assistance of the executive team, if necessary.

Allowing the core business to operate without disruption

The integration team should be clearly identified and endorsed by management. Team members should be allowed to dedicate a significant amount of time to the project or, ideally, be assigned full time. This will help ensure that the core business is not disrupted.

The team should have regular access to executives, including an established forum cadence for timely decision making and issue resolution. Finally, based on the established shared vision, the executive team and PMO should have a holistic understanding of where the biggest risks lie (e.g. culture, systems, etc.).

Managing the master plan and logistical tasks needed ahead of “day 1”

The integration PMO should serve as air-traffic control, managing the logistical activities (organized by functional area, e.g. finance, HR, operations, technology)  necessary to ensure a smooth transition on day 1, across all function-specific tasks: payroll processing, organizational design, benefits, site access, security, IT, contracts and legal, etc. A successful PMO will have detailed project plans—guided by the shared vision for the project—with explicit ownership and timelines for each activity. These plans serve as the basis for the regularly cadenced status meetings discussed above. These methodical activities will help to hold the schedule despite inevitable challenges that arise.

Finding additional opportunities to capture value and efficiencies

Though you have established a shared vision that serves as a blueprint for integration activities complete with initial objectives, you should continue to seek out additional, secondary drivers of value that were not part of the original rationale for the deal. This is where many middle-market companies fail to identify the full value of acquisitions – by not going far enough in their efforts to extract the full cost and revenue synergies available.

A good exercise is to think through how to leverage the “best of best” people/processes/technologies to further advance the capabilities and potential of the combined company. The idea is to constantly think bigger than just A+B. The sum should be far more powerful than the parts.

Sample cost-cutting opportunities:

  • Leveraging higher direct procurement spend (e.g. raw materials) for better contract terms, pricing, and volume rebates
  • Leveraging higher indirect procurement spend (e.g. freight, marketing, travel)
  • Consolidating back-office operations and rightsizing SG&A
  • Consolidating and negotiating IT spend
  • Footprint/capacity optimization and capacity rationalization

Sample revenue-increasing opportunities:

  • Cross-marketing new products and customers
  • Increased capacity to produce / ship
  • Talent/culture arbitrage
  • Access to new customers/markets
Establishing an Integration Management Office – Where to Begin?

Integration planning and execution can turn theoretical value into reality. However, planning must be thorough, and execution well-thought-out. Here are some simple guidelines to help operationalize your integration PMO:

  • Establish your integration team, including 1) a PMO leader that is dedicated to the project, and not distracted by competing priorities, 2) executive sponsors that can be regularly available to the integration team, and 3) select functional leaders
    • Document(s) – integration charter
  • Set up a regular meeting cadence for functional team checkpoints, cross-functional checkpoints, and status meeting with the executive sponsors; consistent access to the executive team is critical
    • Document(s) – integration-level, and functional-level status reports
  • Develop a 100-day plan, including activities laid out by functional area with clear owners and timelines, and a clear view of the critical path activities
    • Document(s) – overall integration and functional-level project plans
  • Document your communications plan, considering all key stakeholders (integration team, employees, customers, suppliers, etc.)
    • Document(s) – communication plan
  • Initiate an issue-escalation process within the PMO to track issues and drive timely decision-making and issue resolution
    • Document(s) – master issues log
  • Continuously measure integration success against targets set out prior to close, and constantly seek out additional synergy opportunities;

A robust PMO can manage this complex and often overwhelming undertaking and ensure that your integration not only goes smoothly, but also realizes its full, often hidden, potential.

We Can Help

Focusing on the most important KPIs to maximize business results can be complicated. Elliott Davis is here to help. Our Management Consulting practice is poised to help your team think about your business differently and transform your team’s actions to those that will maximize profits and minimize costs. Contact us for an exploratory discussion to define your needs and mobilize action.

Authors

Sources:

[1] TD Bank

[2] Harvard Business Review

 

The information provided in this communication is of a general nature and should not be considered professional advice.  You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.