FORUM: Creating value through post-deal integration


Financier Worldwide Magazine

June 2013 Issue

June 2013 Issue

FW moderates a discussion on value creation and post-deal integration between Denzil Rankine at AMR International, Richard Jackson at Bain & Company, Danny Davis at DD Consulting, and Jeffery M. Weirens at Deloitte.

FW: In your assessment, do acquirers pay enough attention to post-deal integration when pursuing a deal? Do such acquirers often hold unrealistic assumptions about the ease of achieving synergies and combining operations?

Rankine: A survey we conducted 15 years ago showed that less than half of buyers had a proper integration plan. Since then, there has been a substantial improvement in post-deal planning. However, this is a complex topic, and still too often the urgent crowds out the important and there are too many loose ends at the point of change of ownership. These lead to uncertainty and often to a post-deal performance dip. Synergies tend to be overestimated. Cost reduction synergies are typically more deliverable; it is the sales growth synergies that are generally overblown due to optimism or a lack of understanding of the real fit between the businesses. 

JacksonBuyers, generally, drastically underestimate the time and effort required to achieve a comprehensive, successful post-deal integration. While most buyers know synergy realisation will take a large-scale coordinated effort from both parties, many underestimate the myriad stakeholders and constituents who must be managed, how difficult managing culture integration will be, and how much anxiety will permeate the combined organisation throughout the process. The starting point for unrealistic synergy assumptions is often before the deal is signed. In fact, when we recently surveyed more than 350 executives on the reasons for disappointing deal outcomes, overestimating synergies was the number two reason – poor diligence was number one. Hence, companies should use the diligence process to realistically assess the nature and extent of synergies available. These will depend on the deal’s strategic rationale, and whether you are pursuing a scale or scope acquisition. Only then should you estimate the potential value, the probability and the speed with which synergies can realistically be achieved. Also be sure to account for the investments or one-off costs, and the work required to achieve them. The first day of diligence is really the start of merger integration. It is an opportunity to chart a course early and set a plan to capture as much value in the business combination as possible. 

Davis: All buyers think about post-deal integration, as this is needed to put synergies – costs and deliverables – into their discounted cash flow (DCF), in order to get a valuation and thus a satisfactory purchase price. Do they get the right people with the right experience to help them think about the synergies? I would have to say, no. So, do they often hold unrealistic assumptions about the ease of achieving synergies and combining operations? Yes. Clearly if the company, or the people working on the deals, do not have a good enough deal experience, they will struggle to make good estimates of the synergies. Nor will they know how those synergies are to be planned and delivered, or how much time and effort they will take. They are not going to arrive at a good purchase price or a suitable 100-day plan. Furthermore, they will not deliver a good deal, or deliver the maximum value. 

Weirens: In the rush to finalise a transaction – sometimes referred to as deal fever – post-close integration planning is at times not attended to until very late in the diligence process or even post-deal announcement. This is a risky occurrence, with the result often being unexpected surprises and lower than projected results. Sophisticated serial acquirers have learned to avoid this occurrence and bring post-close integration planning or business leadership – often one and the same – into the deal early to begin developing the overall integration strategy, governance, and priorities. This allows proactive acquirers to not only jumpstart post-close integration planning but also to begin modelling potential integration decisions into the valuation model during the diligence phase. This often leads to improved decisions, to more accurate financial models, and to acquirers avoiding potentially nasty integration surprises. 

FW: What kinds of risks should corporate executives expect to face in the post-close integration process? What specific areas should acquirers focus on to achieve a successful integration?

Jackson: Our deal-integration work shows three things can typically go wrong in failed integrations: first, failure to capture incremental value from deals and synergy targets missed; second, loss of key people; and third, the integration process fails, which causes the base business to suffer. Successful integrations require laser-like focus on articulating the value of the transaction early, resolving the thorniest people issues quickly and productively, and resolving key decisions early to minimise the distraction to the base business. Successful acquirers plan carefully for merger integration. They determine what must be integrated and what can be kept separate, based on where they expect value to be created. It is critical to design the integration program to the deal, not vice versa. To integrate where it matters, experienced acquirers understand the need to tailor their actions to the nature of the deal. Then, they mobilise to capture value, quickly nailing the shortlist of ‘must-get-right’ actions and efficiently executing the much longer list of broader integration tasks.

Davis: The main risk is not having a well thought out plan. In our work we refer to a 6000-item checklist and a draw on a great deal of experience. With poor or slow planning you get very poor implementation and will probably experience a downward effect on sales or profit. Taking communications as an example, if you know what you’re going to do, when, where, how and with whom, then you can develop a communications plan that will inform employees, customers, suppliers, and so on. If you do not have a good communications system, you will probably suffer from poor integration and outcomes. Most people would agree with this assertion, yet few truly understand how to put together a great communications plan, the basis of which is a full and comprehensive 100-day plan. 

Weirens: Risks are present in many deals and attempting to capture each risk may likely require a significant amount of space and time. That said, there are several major risks which have a high probability of occurrence and a severe negative impact when they do occur. First, rigorous day one readiness plans that are pressure tested prior to close with a specific focus on customer and employee retention and the understanding and communication of the organisational structure and the operating model of such organisation. Second, a robust post-close 90-day roadmap that analyses the organisational interdependencies to assess business continuity and to build momentum post-close to keep the organisation focused on significant priority items. And third, a culture assessment and broad change management plan. We use our battle tested change management playbook to endeavour to identify cultural similarities and differences in order to develop strategies for the combined organisation to maintain performance while addressing cultural challenges. Examples include the innovative use of change leaders, communications, and leadership alignment. 

Rankine: Communication is the most essential starting point. At the time of a deal the only people who are genuinely happy are the seller and all the advisers who have their fees. Everyone else is somewhere on a scale from concerned, through worried to frightened. That includes senior management, employees, customers and suppliers. An acquisition is fundamentally disruptive and all of these people will be thinking about the impact that it will have on them, not how great the deal is for the buyer and seller. 

FW: Do cross-border mergers give rise to greater post-deal integration challenges in comparison to domestic mergers? What steps may be taken to mitigate the challenges unique to cross-border deals?

Davis: All integrations are complex. So running across geographic locations, functions and divisions just adds a little more. There are always differences in culture, people and processes. When considering cross-border deals, it will depend on the type of company that is being purchased and what the buyer intends on doing with it. Working cultures will be different, and this will only be magnified when buying across borders. Sometimes the cultural differences will be irrelevant, yet on other occasions these differences will be critical to the future of the business, the integration process and the status of the deal. Companies need to start thinking about the cultural assessments that can be carried out, the plans and mitigating actions coming out of those assessments and how to deliver any changes required. Culturally speaking there is clearly a spectrum. At one end, you cannot fundamentally change a person’s nature; you cannot turn a French person into an English person, for example. In the middle of the spectrum, you may wish to alter certain behaviours within a workforce. At the other end of the spectrum, you might buy a company and be forced to impose things upon them, such as health and safety regulations. 

Weirens: While many deals have their unique challenges, cross-border mergers bring their own additional risks and considerations – as well as opportunities – due to myriad legal, regulatory, and in-country standard practices. Examples include: addressing Foreign Corrupt Practices Act requirements and specific in-country considerations – for example, works councils – and even getting the transaction approved by the various country antitrust authorities can be a challenge. The biggest step to mitigate these challenges is for the integration team to have the global governance in place to monitor and prioritise risks and drive value creation across the entire footprint. Another leading practice is having home country integration hubs connected to regional or country integration centres to stay ahead of specific cross-border challenges because, just like in politics, all integration is local. 

Rankine: Cross-border deals are naturally more risky. It is essential to buy in countries where you have some level of cultural alignment. Does your CEO love or hate Club Med holidays? A very successful roll-up in the events industry in France was led by a UK CEO who loved this very French experience. This example may seem trivial, but it is fundamental. 

JacksonIn general, the elements of success for integrating a domestic merger and cross-border deal are very similar. However, cross-border deals generally add three layers of complexity that must be addressed: first, exacerbated people and culture issues; second, complex institutional structures and legal and regulatory frameworks; and third, geographic dispersion of operations and key stakeholders. To address these issues, integration leaders must be proactive in attacking each one early and with dedicated resources. The chief executive officer and leadership team should make it a priority to tackle cultural and people issues early. Furthermore, dedicate resources to navigating legal and regulatory frameworks in order to keep the integration on track. Finally, mitigate geographic dispersion by setting up the integration team where the action is. Plan globally but think locally.

FW: Could you outline the benefits of appointing an Integration Director? What should this role entail and what attributes and experience should the director possess?

Weirens: Choosing an effective Integration Director pays huge dividends, such as effective governance and leadership, accountability, and speed to value. Executive leadership can benefit from a full-time, dedicated integration lead who guides the team through integration strategy, planning, and ultimately execution. Such a lead is accountable for delivering the deal’s intended results to shareholders, employees, customers, and the board of directors. Effective integration leaders move easily between strategic and more operational environments and should be able to translate the vision of the deal into well-disciplined planning and execution. I have seen the most effective integration leaders coming from the stable of established leaders existing in a company. A common pitfall is appointing a less experienced or senior professional to the position. This may lead to credibility issues, and a lack of comfort with the conflict or tough decisions and actions present in every deal. Put simply, executive leadership should be looking to the brightest in the organisation, otherwise they are looking in the wrong place. If it doesn’t hurt to take the selected individual out of their current role, then they aren’t the right person for the job. 

Rankine: Integration requires a lot of time and effort, so appointing an Integration Director is a solid move. However, depending on the size of the business, that person need not have that title. The most important thing is to second management to the acquired business. This improves the atmosphere and heads problems off at the pass. Ideally these people will have good communication skills, and can act as a bridge between the businesses and add value where there can be some positive skill transfer. 

JacksonThe largest benefit of appointing an Integration Director is clearly setting out a single point of coordination across all integration programs. It also establishes clear lines of accountability to lead, monitor and communicate progress. Key attributes of successful Integration Directors include a deep understanding of the post-integration business model and how change will affect key constituents, a strong connection to the corporate functions, and a person widely respected across the organisation. An acquisition or merger needs a strong leader for the Integration Management Office. He or she must have the authority to make triage decisions, coordinate taskforces and set the pace. The individual chosen should be strong on strategy and content, as well as process and relationships – in other words, one of your rising stars. 

Davis: It is imperative that companies appoint an Integration Director to manage the deal and ongoing integration; without this, all is lost. The Integration Director would ideally be sourced from within the acquiring company or the target firm. Although an independent person could also be appointed to the position, it important that that person does not have a vested interest in the deal, such as someone who is trying to sell a large number of consultants into the deal. The appointed officer would then need to be supplemented with capable, knowledgeable and resourceful staff who have the requisite skills to provide support. Previously we have established a project management office – PMO or IMO – and have supplied good support staff. An Integration Director will be aware of the politics involved with the integration process and will understand that actions and decisions taken today will have consequences and repercussions in the near future. 

FW: Is poor communication a common problem in post-deal integration? How can firms better communicate their aims and intentions to an acquired business and its employees? To what extent is this fundamental to the integration process? 

Rankine: Communication is the top priority. It is impossible to over-communicate. Tell them what you are going to tell them – tell them, and tell them again. There are so many ways for messages to be misheard when people are under stress, as at the time of a takeover. One silly example was a company meeting called by the new owners in a room with fewer chairs than participants – the rumour soon went around that those not sitting would be fired. 

JacksonA well-developed, proactive communication plan is a key element of any successful integration. Communication should start early – at announcement – and continue throughout the integration process. Initial communication should focus on clearly articulating the deal vision and integration thesis. Later communication – post-close – should focus on highlighting early integration successes. Along the way, integration leaders should be careful to communicate consistently across stakeholders and avoid statements that may limit future flexibility on major decisions. It is okay to acknowledge uncertainty on key issues but emphasise commitment to resolving and communicating these issues as soon as possible. 

Davis: Communication is often poor during the integration, planning and delivery stages. In our experience we have found that one of the keys to ensuring good lines of communications is having a great overall integration plan. This means every part of the integration across each function and division is planned well in great detail. That way, because we know exactly what is going on at any given time, we can plan to communicate the right message to all stakeholders at the appropriate time. One of the keys to good communication is reducing the levels of uncertainty people have. If employees clearly don’t know what they’re supposed to be doing, people will pick up on this and therefore feel increasingly uncertain. This could lead to high turnover of staff or could impact productivity, hurting the performance of the company in the process. The solution is to plan, plan, and plan.

Weirens: Poor communication is common in post-deal integration, which is unfortunate because an effective communications campaign is your biggest weapon in owning the narrative with your customers, employees, shareholders, regulators, and board of directors. Serial acquirers realise this and have a robust communication playbook that tailors messages to each audience and provides content-rich and timely messages. They use two-way communication, including face-to-face as well as many of the newer social media channels, and also provide a feedback mechanism so they know what’s working and what isn’t. Keeping all stakeholders informed behind the reasoning and potential impact of specific integration actions aligns the organisation in one strategic direction and serves as a building block of the new company. 

FW: If the acquired company is carving-out of an existing entity, how should integration leadership manage the need to receive support from the parent company? Can post-close services between parties pose a risk to the value of the deal?

JacksonCarve-outs require careful planning to mitigate the risk to deal value. Acquiring companies should invest the time to define the operating model for the target company from day one and beyond. Furthermore, confirm the parent is willing to provide the necessary transitional support under reasonable terms and costs. This step includes pressure-testing transition services agreement (TSA) terms and comparing them to external benchmarks. Don’t be afraid to negotiate. These post-close services only pose a risk to deal value to the degree that they force acquiring companies to lose focus on core customers, key talent, and critical processes. 

Davis: We frequently put in place a TSA between the two parties. This establishes the services the seller will provide to the buyer. However as the seller has a great deal more information about the state of the business, its systems, people and process there is often a ratcheting up of costs after a given period of time. In order to minimise costs, we need to fully understand what to integrate and how, and get plans turned into action – otherwise we will get caught with large running and transition costs later in the deal. These costs pose a risk to the overall deal value if they are not remedied quickly and successfully. A seller may prepare a business for sale and, as part of their aim to maximise value, might be playing games around this area. 

Weirens: Acquiring a carve-out entity comes with its own unique challenge in that you’re acquiring a business that may not be a standalone entity – for instance, it has to rely on shared services with its soon to be former parent company. The acquirer has two main strategies in this situation. The first is to try to rapidly integrate and build the capability in the acquired business. The second is to rely on transition services from the parent company. In our experience, it usually takes a combination of both strategies to achieve business continuity at close. This situation increases the buyer’s risk as they are relying on a company that is not in the service providing business. To address this risk and decrease costs, the buyer should have a rock solid TSA that contains detailed schedules outlining the business requirements, service levels, timing, and responsible parties. This detail avoids confusion on what is being provided, and equally importantly, what is not being provided. Post-close, integration leaders need to have detailed TSA exit plans, including escalation paths for rapid conflict resolution. Early and active management of TSAs can decrease risk and, in many cases, accelerate the final separation and integration. 

Rankine: Acquiring a carved-out entity is not an ideal scenario and needs careful planning and negotiation. There are inevitable hidden costs and this is typically a bumpy ride. 

FW: What steps can integration leaders take to carefully measure the achievement or failure of the integration effort? What, in your assessment, is the leading metric to measure such achievement?

Davis: Integration leaders need to plan well and plan early, utilising internal staff wherever possible and supplementing their experience with suitable veteran externals. It is also important that potential consultants be thoroughly vetted, checking people’s CVs, meeting them, ensuring that they know what they are up to. In one horrendous example, a partner moved from one firm to another, taking the sales presentations with him for both strategy and M&A. He only managed to take the strategy consultants with him. He sold some M&A work to a client, and you can guess what happened to the deal. Integration leaders will need to decide on management straight off, as well as having good governance, delivery tracking and structures in place. Staff who can spot issues rapidly and a strong steering committee are also crucial, so that any issues indentified can be flushed out and sorted before they become problems. 

Rankine: Everyone will obviously look at financial performance, but that is just a part of the picture. Operational KPIs are a good measure – for example, has the number of sales calls dropped as staff worry about internal politics? Has absenteeism increased through lack of motivation or people going to interviews? Where feasible, a company should conduct a ‘before and after’ employee survey measuring atmosphere and motivation.

JacksonIntegration leaders must track two types of metrics while monitoring integration efforts. The first is related to implementation progress – for example, implementation milestones and key decisions made. The second is related to synergy, including synergies banked, and change in industry KPIs. The key is to monitor these at both the individual initiative level and integrated across initiatives. This comprehensive viewpoint will provide integration leaders with the visibility necessary to diagnose and address issues before they disrupt the integration. 

Weirens: Qualitatively, achievement is measured by how closely the transaction achieved the original strategic rationale – for example, realising growth through cross-selling and new product introduction, capturing cost synergies and retaining key talent. Quantitatively, synergy realisation is the most common metric used, comparing realised savings – and costs to achieve – to the original deal model. Many successful firms expand and accelerate synergy opportunities and track their realisation through an approach that drives accountability beyond the integration team. Building on the top-down estimates provided in the deal model, the integration leader can work with the business and functional leaders to expand and accelerate both cost and growth synergies and then develop rigorous bottom-up achievement plans. To help achieve alignment and success, these savings plans should be tracked separately, as well as built into respective business and function budgets through the organisation’s regular monthly and quarterly reporting management processes.


Denzil Rankine founded AMR International in 1991. His experience spans 30 years of advising companies on strategic development and acquisition throughout the world. Mr Rankine has worked across numerous sectors but has a particular focus on media, information and technology, as well as industrial products. In addition to strategic development work for major groups, he has been involved in significant deals in these sectors, and dozens of smaller transactions. He has authored five books on M&A.

Richard Jackson is the head of Bain & Company’s M&A practice in the United Kingdom. He possesses over 12 years of consulting experience and advises clients globally in both developed and emerging markets with a focus on investment opportunities, for both strategic and financial (private equity) investors. Mr Jackson earned an MBA from Harvard Business School and a Masters of Engineering and Bachelor’s degree from the University of Cambridge.

Danny A. Davis is an M&A integration expert who  established DD Consulting  12 years ago. He has been a guest speaker on strategy and M&A at London Business School for more than a decade, and was program director of M&A at Henley, providing training and consulting services around M&A integration, carve outs and internal consolidations. Mr Davis was a Trustee on the Board of Chartered Management Institute, part of GPMIP and recently authored a book on M&A integration.

Jeffery Weirens leads Deloitte Consulting’s global M&A and restructuring practice. He serves as adviser to senior client executive teams and boards of directors on improving shareholder returns through effective execution of acquisition, divestiture and restructuring strategies. He works closely with both strategic and private equity clients across the entire M&A lifecycle. Mr Weirens was awarded a Master of Business Administration (MBA) at the Johnson Graduate School of Management at Cornell University.

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Denzil Rankine

AMR International


Richard Jackson

Bain & Company


Danny Davis

DD Consulting


Jeffery M. Weirens


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