This summer, West Monroe hosted its first annual M&A summit for strategic and financial buyers. We invited senior executives from various functional areas (business development, IT, finance, operations and private equity operating partners) spanning multiple industries including manufacturing, life sciences and insurance, to name just a few. The diversity of the audience provided varying perspectives and approaches to dealing with the difficulties of conducting a well-organized and executed M&A integration initiative. In this article, we will review hot topics discussed and share the common hurdles faced by attendees. For those that weren’t able to attend, we hope you can learn from (or commiserate with) our unique group of attendees.
Defining your M&A strategy
How does your acquisition strategy compare with the strategies of our attendees? We used live polling to ask the audience about primary deal drivers and the overwhelming majority of attendees confirmed that product or service diversification was at the top of the list. Not surprisingly, the group also believed that operational integration was the most important area to consider during the integration planning.
We also asked participants about non-traditional M&A tactics and best practices. Half of the participants have incorporated social media into both their due diligence and integration phases of M&A - leveraging everything from LinkedIn to Zillow to research targets.
Managing the complexities of M&A integration
M&A integration is recognized as an extremely difficult process. During the summit, we shared best practices and lessons learned among the leading M&A experts within West Monroe with key industry executives responsible for making M&A integration work within their organizations. The goal was to understand how companies can effectively drive value and momentum during the M&A integration process.
One common M&A integration problem voiced by the participants concerned the transition between due diligence and integration planning. The key takeaways concerning the question of “How do you successfully transition from due diligence to integration planning?” included:
- Team assignments: Identify the integration manager during due diligence and have that resource participate in the diligence process. Include other functional leads in the due diligence team where appropriate.
- Communications: Conduct post-diligence workshops that include the diligence team and the functional teams to define the integration strategy, high level business operating model and red flags that will impact the integration.
During the execution phase of M&A integration, the group determined that the following items were best practices that should be included in your integration efforts:
- Capture synergies wherever possible
- Establish processes to record and report synergies
- Define value capture/synergy projects separate from functional projects
- Look for value-added synergies not previously defined
- Complete both a top-down and bottom-up synergy analysis
- Deliver on 30 day business milestones
- To keep momentum, create business milestones every 30 days and include them in the planning process
- Actively manage milestones to deliver on that schedule
- Focus on employees
- Design an employee engagement model that ensures employees from both organizations are engaged and integration “fatigue” does not set in
Assessing M&A readiness
The summit sessions were comprised of a mix of information sharing, activities and practical guides. Participants were provided with a number of tools. One set of tools allowed participants to self-assess their readiness to perform an M&A integration. Several “best practices” for integration readiness were summarized:
Using a proven methodology
- Every deal is different: Recognize that no two transactions are the same. All mergers have different value drivers, cultural & retention challenges, and definitions of success.
- Deal strategy: Ensure clear deal objectives, integration strategy and timelines are clearly communicated.
- Team capability: Understanding each deal is different; select the right team members to achieve the deal objectives. Base the selection of the team on the complexity of the integration and target culture. Assign the right resources, don’t simply grab whoever is available.
- Planning: Start your planning early, obtain executive level approval and balance the transaction with other corporate and strategic initiatives.
West Monroe emphasized how the value/deal drivers identified in the investment thesis and financial model should be carried forward throughout the integration planning and execution phases to keep the teams focused and to ensure that the value proposition is met.
An overall methodology for organizing and managing the M&A process from due diligence through execution was shared with the group. Tools and templates that support the methodology were also provided.
Preparing for complex transactions like carve-outs
The summit also included special topic areas like the proper approach to planning and executing carve out transactions. Given that carve-outs are predicted to increase in prevalence (particularly in life sciences, energy & utilities and technology sectors), we thought it would be worthwhile to dig into their complexities a little further.
One of the biggest concerns for attendees was how to structure the transition services agreement (TSA) and how the TSA impacts price, planning and execution. Attendees discussed how to determine what they would spend on pre-separating business versus keeping co-mingled data after close, understanding the operational and security issues this can create. TSAs ranged from 30 days to two years (on the buy side, luckily). Typically though, both parties have expressed interest to get off the TSA as quickly as possible to move on with their core business objectives.
We also discussed the importance of Day 1 planning – getting the right people onsite to manage the transition as seamlessly as possible.
Lastly, we focused on the complexities of technology infrastructures and business systems integration, as well as discussed whether to clone existing systems or establish a new set of core systems (see the other article in our newsletter that digs into this topic further).
The participants left the Summit with practical advice that they could immediately use on their existing or future integration efforts. If you are interested in any of the content, templates or tools shared during the M&A summit or are interested in attending next year’s summit, please contact John Hurley or Steve Sapletal.