Capturing sustained value from M&A is elusive even in a thriving economy. During the current global pandemic and economic recession, acquirers must renew and increase their focus on ensuring that deals deliver the expected value. Buyers that fail to successfully integrate companies quickly and efficiently will struggle, especially in a slow economic recovery.
But for many acquirers, M&A integration remains a challenge. It’s a highly tactical effort that requires large-scale, enterprise-wide coordination of activities on a scale most companies haven’t experienced. The process is often considered 20% strategy and 80% execution, but the 80% relies heavily on the 20%, and a well-thought-out integration strategy is critical for setting the course to capture deal value.
In PwC’s 2020 M&A Integration Survey, 62% of executives said their companies had an integration strategy in place when they signed their largest recent deal. But a large majority also said integrating key areas still was difficult, and less than 20% of respondents reported significant strategic, operational and financial success.
A successful integration strategy involves looking across the entirety of both companies involved in a deal and converting the acquisition strategy into specific strategies for all areas of the organization. In this sense, there’s no one-size-fits-all for each part of the new enterprise or even for each deal. The degree of speed, consolidation and other aspects of an integration strategy can and often does vary, and some areas may not be integrated at all.
Planning the degree of M&A integration across functions and geographies and tailoring it for the type of acquisition is critical to translating acquisition strategy into integration strategy. Deals come in all forms, but there are four main types:
When developing integration strategies, executives need to consider the specific deal type and translate the strategy for that acquisition into specific integration strategies across both enterprises.
Developing integration strategies requires balancing multiple factors, impacts and trade-offs. In addition to the critical question of how value will be captured, companies should ask the following:
The integration strategy is important for setting the direction of a target operating model, and 59% of executives surveyed said their companies had a model in place by the time the deal was signed. An effective operating model should include eight critical components that are aligned with the acquisition and integration strategy and centrally managed at the executive level. Even then, operating models can take years to fully mature and be realized. Acquirers today are increasingly tasked with rapidly developing a model at the outset, but they also should be agile and able to adjust the operating model throughout the integration.
A well-defined M&A integration strategy must be developed for each function and geography across the entire enterprise. It requires careful consideration of the deal strategy and overall deal value to be achieved, especially as new drivers continue reshaping M&A during and after the COVID-19 pandemic and recession.
One last element to consider is who executes the strategy. Yes, entire companies — from top executives to frontline workers — often are involved in integration in some way. But successful integration requires dedicated oversight throughout the entire process. Without it, various teams are at greater risk of being in the weeds on specific, individual actions instead of actions more likely to create shareholder value and result in sustainable returns.
A key to success is establishing an integration management office and empowering a dedicated integration leader. The integration leader should be someone who understands the business strategy, deal objectives, and the current operations and operating model. A senior person with deals experience can be the tip of the spear for the overall integration and manage all stakeholders and competing priorities. Yet the survey found that among companies with a cross-functional change management program, less than one-third had an integration leader as the primary sponsor.
The successful output of the integration strategy should culminate in a set of guiding principles that enable individual teams to develop their specific functional integration plans. Creating continuity from acquisition to integration, with coordination across the combined enterprise, will provide a path to turning anticipated deal value into reality.