With all the changes to M&A processes, dealmakers have had to react accordingly in order to stay competitive in the M&A market. And getting these processes right is key to any successful deal.
With all these factors coming into prominence, Mergermarket and Vintage gathered five experts to discuss how the dealmaking process has changed. As well as this, they offer up the lessons they have learned, through decades of dealmaking experience, regarding what makes for successful M&A targeting, negotiation, due diligence and integration.
Q: What are the main obstacles you face when integrating, and how have you learned to overcome them?
Brian Moriarty, former Vice President, Hewlett-Packard > Before doing serious integration planning, a buyer must consider three fundamental questions: are you going to integrate?; if so, when?; and how long should integration take (i.e., are you willing to potentially adopt policies and procedures of the target in the merged company or do you want to align the target to the acquirer’s practices). Many buyers close deals without a fundamental view on these questions; this ultimately impacts the business plan.
Karim Motani, Corporate Development and Strategy Director, 1800flowers.com > Cultural aspects are also a challenge, and it is something you should expect to face when combining two different companies and company cultures. Motivating parties on both sides to help out with the integration can also be hard, especially as those people will still be doing their day-to-day jobs and have full calendars. It’s important to clearly communicate the value that the deal will generate, and that integrating properly is a key driver of that value.
Finally, you have to manage employee concerns. In the immediate aftermath of a deal there will be lots of questions and concerns from your employees, and addressing these questions and concerns early is very important.
Matthew Gemello, Partner, Baker & McKenzie > The biggest hurdle that we frequently see is internal resistance from the C-suite that manifests itself in two areas. The first is a more philosophical perspective as to the need to integrate and how critical integration is to achieving longer-term objectives. Buyers simply have to get over that hump.
The second area is resource allocation and the internal importance placed by senior management on the integration effort itself. In more cases than not, companies have a dedicated M&A team that’s doing the buy-side of the transaction, and those folks disappear after the closing party and don’t have to deal with what’s afterwards. There are a host of employees who play a greater role on the operational side, who have to undertake these integration activities alongside their day to day activities.
The companies that do it well are the ones that have dedicated integration teams, with a senior integration leader who has some gravitas within the company, who can really drive home the importance of the post-acquisition steps within the larger organization. Success here is dependent about driving full engagement and commitment.
To overcome these challenges, we spend a lot of time talking about the integration up front including at the targeting stage. We really try to help clients think about synergies that can reduce the overall cost of the transaction, so we’re doing a lot of dualtrack due diligence for both the deal as well as the downstream integration, and thinking potentially where contracts or people might be moved or assets might be relocated. Getting the synergistic potential on the table early is often a critical step to buy-in from the C-suite. Interestingly, it takes one successful integration for clients to see the value. We have found that this is not a continual fight, it’s more of an episodic battle and trying to help clients get over that hump. When they do, they’re cruising from there because the potential to save costs and accelerate the larger strategic goals are obvious. We have three clients that have a VP to EVP level head of integration, and I can’t say that I knew those positions existed five to ten years ago.
Marshall McKissack, Managing Director, Head of M&A, Stephens Inc. > Some problems are a result of those cultural differences, and not identifying those fairly with a corresponding plan to manage. A lot of organizations have fundamentally different cultures that sometimes is difficult to understand and plan for. Understanding culture is a great perspective to have to properly assimilate organizations.
Jeff Drazan, Managing Partner, Bertram Capital > As Marshall said, culture is everything. You have to make sure you assimilate correctly, do so with integrity and communicate the changes effectively.