Buy side M&A investment bankers typically are involved in three components: 1: search, 2) negotiate, and 3) finance. Those roles were discussed in a previous article, but for the acquirers, a fourth component, “integrate,” is perhaps the most important. Many sellers share the same goal. They might have additional monies tied up in a note or an earnout or ongoing employment, they might still own some stock in the company, and even if none of those apply, most sellers will want the acquisition to be successful for the sake of their former employees.

Successfully integrating an acquired company means being proactive. An acquirer must be ready to interact, as much as possible, with the acquired company. As much as a buyer might want to create algorithms, or worse, AI programs to handle the task, integrating a company is very much a people business. An excel spreadsheet cannot be created to handle integration. Culture clashes can flair quickly, and if not settled, an “us vs them” mentality can be the death knell of acquisitions.

In addition to culture clashes, acquisitions fail for many reasons. Fired by customers, lack of synergies, ERP and payroll systems that do not integrate, too much reporting and bureaucracy (or too little!), assigning responsibility without authority, lack of communication and follow up, poor execution, wrong management team, and much more. Integration planning and an integrated business are not the same.

Merged companies do not automatically integrate. Managers of the two companies must work together – immediately! Planning starts with understanding who will run the company. Will existing management stay, or will new managers be needed. How long will the seller stay to transition the business to the new owner? If the owner is retiring, will an operating partner need to be hired?

Determining the level of autonomy is also important. Is the company entrepreneurial in nature? Will moving it to a more professional management style cause any issues? Most financial buyers are of the “let it be” variety, while strategic buyers will usually require more reporting and control.

The old saw, “measure twice, cut once” is in full effect for acquisitions. The buyer may have ideas of how a company can be improved, but instead of immediately instituting changes to operations on day one, most acquirers are wise to do nothing. Instead, wait. Observe. Learn. If changes are needed, do them after sufficient time has elapsed.

Set up a time-based plan to implement integration.  Each to-do should have a person’s name attached and a due date, and one person should be assigned the role of integration manager. The following is a truncated list of what should be accomplished. Integration is much more complex than this brief list, and the specifics will vary from company to company, but this should be a good start:

• First Hour – the announcement is made to the assemble troops. Key managers from both companies should attend. “All hands-on deck.”
• First Day – no “hiccups” is the goal. Payroll, phone, email, and IT systems should all be confirmed as accurate and working. What name is to be used? Any changes to purchasing or bill paying? How should supplies be ordered?
• First Week – key integration duties should be assigned. Determine what KPIs should be tracked. Are any operations closing or moving? Plan team building exercises.
• First Month – review and assess progress. Are any changes needed for the executive team? Any changes to software or banking relationships?
• First Quarter – any changes to products or services? Any “us vs them” issues?
• First Year – review and reward. How has the integration team performed? What has worked, what hasn’t?

Team building is easier said than done. Social events, dinners, and group outings can create cohesion in a merged entity. These should be considered and utilized.

I recently spoke with an executive who has successfully integrated companies. One of his techniques was to use a “cuss jar.” He held a three-day session with people from both companies. Everyone was instructed to bring twenty $1 bills. He placed a “cuss jar” in the room, but instead of paying a dollar any time a swear word was uttered, a penalty was assessed if people made comments such as, “that’s the way we’ve always done it,” or if they used the legacy name of the company.

Assigned seating was utilized to prevent attendees from sitting next to people they already knew. Very quickly, people held each other to account. If someone slipped up and said one of the verboten phrases, the group would point this out, often to laughter. It became a sort of good-natured game, but by the second day, collections were thirty percent of day one, and by the third day, the cuss jar did not collect any money.

Planning and regular analysis will help increase the chances for success. Good decisions and successful plans should become part of the ongoing canon, while mistakes should be identified and discussed so they are not repeated in the next deal. The purchase price of the acquisition is important, of course, but integration determines whether the investment thesis comes true or not.