Acquisition Integration studies report that some 70% of merger and acquisition fail to meet the goals of the investment case. One reason is that executives fail to distinguish between deals that are expected to improve current operations and those that are intended to dramatically impact growth prospects. As a result, companies often pay the wrong price and integrate the acquisition badly.
Other reasons private equity acquisition integration’s fail are underestimating the effort and not planning ahead.
We’ve found a number of private equity Merger & Acquisition Integration success factors:
- Act quickly and decisively; prioritize the acquisition integration important and urgent tasks; maintain control; keep everyone informed – hit the ground running on Day 1 with a 100 Day Plan
- Create and implement the organizational structure and leadership plan
- Know your stakeholders and have a Communications Plan before closing the deal
- Consolidate HR policies and marketing brands (logos, signage, emails addresses and signature, business cards, templates)
- Visit key customers and suppliers ASAP
- And finally, celebrate the formal closure of the acquired company – say goodbye!
- Pick the best leaders from both organizations
- The best teams are a blend and not just the acquiring company team taking over
- Pick leaders with growth potential using assessments; don’t default to the leaders of the larger firm
- Build the detailed acquisition integration plan before ownership
- Establish leadership accountability for tasks and business performance metrics
- Link leadership metrics to integration and business results
- Assign a dedicated project manager with ample time and influence
- Detailed Gantt chart covering the full scope, and for as long as 18 months
Acquisition Integration – Delivering Results After Ownership
Flow Consulting has repeatedly found that most private equity companies underwhelm the acquisition transition. You, as the new owner or managing partner, fight constantly with systems and status quo inertia. Even when things are going great, the capacity of the team to navigate the new waters without dropping the ball can be quite a challenge. Flow has also experienced this delicate period of operational and organizational transition. We have taken our clients’ new companies through this transition many times. Our goal is to have the combined entity complete the integration with the following results:
- The leadership team has combined the best talents from both companies and is stronger than each company before the integration
- Leveraged costs savings are significant, with a clear understanding as to why these costs could be reduced.
- The combined entity is stronger, more agile, and a higher performing business.
This integration period is never easy and should never be taken for granted. Doing so squanders or, at least, severely delays the expected success of the acquisition. Our typical 100 Day Plan has the goal to provide a step improvement in operational efficiency and increased capacity for growth within the first 6 months.
These results translate into:
- Increased near term margins; free up cash for debt reduction
- A more capable team that has learned to make improvements quickly
- Long term EBITDA growth.
All of these contribute positively to the “earnings multiple” at exit and to your investment success.
Flow Consulting follows a proven process of integration planning and execution with steadfast focus on achieving the goals set in the investment case.
- Customer Service
- Finance & Accounting
- Human Resources
- Information Technology
- Supply Chain
- Sales Operations
- Guiding Principles & Investment Thesis
- Strategy & Governance
- Integration Training
- Risk Mitigation
- Communication Plan
- Staffing & Retention
- Project Planning
- Lessons Learned
- Optimization Plan (the next phase of ownership)
Integration Risk Management – Overcoming Merger Risks
Common risks are many, and can mitigated to avoid potential cost, schedule, and technical problems. Risks occur across the entire spectrum of the new organization from people, to processes, policies and systems. Most companies don’t give this enough attention or resources until too late. Risks can be identified, prioritized, and managed.
Communication Plan – Managing the Message, Telling the ‘Story’
In the absence of a clear and compelling story rumors, fears, and doubts will fill the silence. A successful merger or integration isn’t about getting operations up and running, or just a financial transaction. A well thought out communication plan is vital. The ‘Story’ should help stakeholders connect on an emotional level as to why the companies are merging and how this will impact them. Timing is critical. Your managers and supervisors need to know what to say when questions come up.
This is a stressful time and people often need to hear the story several times and in different ways. You can’t over communicate. In the absence of a good communication plan, usually only the ‘worst case’ gets communicated, causing fears and doubts resulting in lost effectiveness. A Communications Plan will focus on goals and desired outcomes, identify target audiences, select appropriate communication methods, assign responsibilities and timing.
Acquired organizations need road maps with clear destinations. It is all too common for employees to stumble around for months before somehow figuring out what’s going on and where the new company is headed. Typically, a steering committee oversees the Integration Project Manager (or in very large mergers, the Integration Management Office). Governance is the leadership role of assuring management best practices for team charters, issue resolution, risk management, communications, status reporting, and resource allocation.
An Integration Project Plan is a set of documents that outlines how and when major resources and processes of the acquired company will be combined in order to achieve the investment strategic goals. The outlines for this ought to be part of the acquisition investment strategic plan.
Total Footprint Analysis
When organizations merge there can often be redundant facilities, equipment, product and production lines. Efficiency gains made by moving products and equipment around are often part of the investment thesis. Freeing up cash often depends on taking costs out of the network. Often this ‘rationalization’ is done in emotional or informal ways. Time and expenses can be minimized with a data-driven footprint design study and implementation plan.
During due diligence or early in the integration phase it is important to identify the potential for site consolidation. By looking closely at working capital, fixed assets, material flows and plant layout, it is possible to uncover wastes and unnecessary redundancies. Demand Segmentation, Process Mapping, Logistics Network Analysis are just some of the tools used to optimize the total footprint and improve customer service while reducing operating expenses.
Consolidated Facility Layout Design
Growing companies often make plans to expand or move to larger facilities before exhausting the possibilities of consolidating and streamlining the existing facility. Consolidating can greatly lengthen the longevity of a site and eliminate the expense and disruption of expanding or moving to a new site. You want to have a trusted advisor with a wealth of experience in facility and production line design, lean layout, and lean transformation at your side when it comes time to transform the facility layout.
Defining the expected sales volumes and sorting out the process flows can often uncover unnecessary handling and storage space. By straightening out the process flow ‘spaghetti’ both time and space can be freed up. If you haven’t applied a rigorous facility layout analysis recently, then it is almost certain that space can be saved, often 10-40%. Once your staff has the proper tools and training then ongoing layout improvements can lead to further facility consolidation to allow for new product lines or additional capacity as the business grows, while avoiding the expense and disruption of new construction.
Site Consolidation Project Management
There are many scenarios in which you might find you have far more manufacturing and/or warehouse capacity than the company will need for the foreseeable future. This typically happens as a result of a merger or acquisition, but this can also be the result of the following:
- The company has embarked on a comprehensive lean manufacturing roll-out resulting in freeing up wasted space
- A product life cycle has ended
- A mature product line has been transferred to a less expensive manufacturing region
- Or combinations of any of the above
Whatever the reason, you probably need external help during this intensive effort, and your total focus should be to not impact the customer. We can cite multiple incidents where the clients did not properly allocate the necessary resources and time to perform a proper acquisition integration consolidation; the loss in customer base far exceeded the costs saved by underwhelming the project.
The following areas reflect our skill sets in helping you with your site consolidation:
- Project planning – the best consolidations are planned months ahead of time, with key personnel tasked and led to cover and plan every conceivable task – electrical, plumbing, layout, machine moves, operator training, inventory strategies, contingency planning, systems, etc. Flow Consulting works with your team to insure that the detailed project plan is in place prior to the consolidation
- Project management – the best option is for you to assign an internal project manager that can be coached but Flow Consultants, but often this is a 3 to 6-month job, and you may need an external Flow Project Manager that can step in and then phase out as you near completion
- Site design – One of the most meaningful benefits of any site consolidation is the ability to step back ahead of time and look at the total site picture, and implement as many pure lean flow concepts – unilateral flow, optimized material presentation, pull processes from finished goods thru raw material, etc. Spending the time to develop a world class lean layout saves millions in costs every year going forward. The inverse is what we typically see – shoe-horned production lines put in the only open spots, with not thought to product flow.
- Production layout – within the specific product line, the use of lean tools to maximize the product line speed and flexibility need to be determined early. Typical line balancing tools include product-process matrix, spaghetti map, yamazumi load charts, demand segmentation, capacity profiling.
- Systems integration – most consolidations, especially in the case of an acquisition, result in systems integrations. And these integrations, if not done well, often impact the customer experience in a negative way – confused orders and slowed response times are typical. Flow Consulting makes sure this is addressed early, planned well, and tested extensively before the systems migration.
- Consolidations of warehouses are often the result of acquisitions and mergers. And many of the same systems issues exist along with nomenclature issues. This consolidation effort is often underwhelmed, but we have experience in insuring that these go smoothly.
- Logistics – There are nearly always benefits to looking at your logistics costs when a merger or acquisition occurs, and we’ve provided countless savings by helping our clients focus on this area.
Integration Project Management
Without disciplined execution the best strategy can end up going nowhere. The combination of lean thinking, agile development, visual management, and theory of constraints all combine under the umbrella of Lean Project Management. Faster acquisition integration projects at lower cost. One problem with traditional project management is that the only one who understands the project dependencies and resource assumptions is the project manager. While the people actually doing the work have a completely different reality to deal with. By making project management more visual it is easier to get more alignment and involvement which reduces project risks and expenses.
Christensen C.M., Alton R, Rising C, Waldeck A. 2011. The Big Idea: The New M&A Playbook. Harvard Business Review. March 2011. https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook
Galpin, Timothy, 2014. The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level. Jossey-Bass. ISBN 978-1118827239.
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