How Complex Will Your Merger or Acquisition Really Be?

Mergers and acquisitions (M&A) offer companies opportunities to:

• Grow exponentially and improve access to talent.
• Acquire and integrate new and complimentary services or products.
• Increase customer base and enter new markets.
• Gain economies of scale and purchasing power.
• Address Environmental, Social, and Governance (ESG) gaps.
• Access new technologies and innovations.
• Drive geographical expansion.

However, there are also complex risks and integration issues that can’t be overlooked. Several challenges that commonly impact just how complex the transaction will be are:

• Entity audit readiness.
• Legal entity structures and intricacies.
• Transition services agreements (TSAs).
• Communication and change plans.
• Financial implications of the size of the business and the size of the deal.
• Purchase contingencies.

Integrating business operations requires advanced planning, coordinated execution, and effective communication – capabilities that may not be innate to existing organizations and that often require expert third-party support.

A Framework for Understanding and Overcoming M&A Complexity

Achieving the objectives of the transaction requires a defined roadmap with dedicated resources to manage the transition to a profitable post-integration state. Before, during, and after the transition, all expected and unexpected risks must be monitored, managed, and minimized as well.

The table below shows many of the fundamental questions leaders must consider when creating a transaction roadmap and before embarking on the integration journey. These questions are bucketed into three core focus areas and will greatly influence the complexity of the transaction.

Additionally, three crucial factors merit specific attention at all times:

1. Finance and accounting: Merging finance and accounting teams, processes, and systems is vital to reporting, close, and consolidation cycles. Inefficient or unsuccessful integration of this functional and technological infrastructure will slow down every other aspect of the business and negatively impact the organization’s ability to accurately monitor financial health.
2. Integration governance and management: A structured methodology for approaching, executing, and reinforcing the integration requires well-defined roles, responsibilities, milestones, communication, and training – ideally rooted in a centralized entity like a PMO, TMO, IMO, CoE, or steering committee. The enormous number of tasks for each functional group need to be properly tracked, enforced, and reported on consistently, a job only a centralized group can perform successfully.
3. Future organizational structure: The target operating state will determine the best organizational structure for the business and affect how complex the transition will be. What’s important throughout the process is that all levels of the company are aligned on the future vision of the business, so that a cohesive culture can be maintained.

Explore in more detail the questions and answers that should be top of mind for leaders:

Have the Accounting Implications of the Proposed Transaction Been Assessed?

A transaction changes the consolidation structure and processes of the organization. This requires careful evaluation of:

• Accounting policies.
• Financial reporting implications, such as segments and reporting units.
• Financial statement disclosures.
• Key performance metrics, including non-GAAP financial measures.

Transactions also provide opportunities for the organization to evaluate its current accounting and finance function, increase efficiencies, and potentially automate processes rather than simply replicating the current state. An effective finance and accounting integration plan should include strategies for the following:

• Standardization of corporate finance processes, policies, and reporting requirements.
• Consolidation of payroll practices and systems.
• Integration of travel and expense policies, systems, and procedures.
• Financial forecasting and budgeting for the new entity.
• Taxation issues.
• Integration of billing, accounts receivables, and the general ledger.
• Procurement systems and practices.

Featured Insight

The Value of an Exit-Readiness Assessment for IPO, M&A, or Private Equity

READ MORE

What’s Required to Ensure Merged Companies Operate Effectively as One?

Successful acquisition integrations are founded on a methodical strategy, attention to human capital concerns, a dedication to speed, and frequent communication to every stakeholder group throughout the process. These processes should be based around a team of dedicated integration practitioners both at deal-level project management and in functional areas.

To ensure the new company will operate effectively, leadership must develop a detailed integration plan that considers all aspects of the business, including:

• Finance and accounting.
• Business operations.
• Client/customer support.
• Communications (internal and external, including public and investor relations).
• Facilities.
• Governance.
• Human resources.
• Information technology.
• Legal.
• Marketing.
• Product development.
• Project management.
• Sales and sales operations.
• Tax.

To ensure that each of these functions is comprehensively addressed, it’s critical to create an integration governance structure that focuses executive time and talent on achieving the intended financial and operational objectives of the deal thesis. Merely putting people into transition or implementation management positions doesn’t keep a merger on a successful course. It requires an effective structure, able leadership, and systematic processes to make progress. This means molding individual contributors into transition teams and helping them handle the many operational and political factors that can otherwise transform good ideas into bad practices and great opportunities into painful memories.

Objectives achieved in the first 100 days post-close will create organizational momentum, set the tone for a cohesive culture, and create a smooth handoff to the functional leaders charged with the successful completion of the remaining integration tasks.

An organization’s integration governance structure should include:

• A client-led steering committee to provide strategic input, escalate issues, and resolve challenges.
• An executive sponsor to guide any decisions required by the integration team.
• An integration management office (IMO) leader to provide overall direction of the integration process.
• An integration project team responsible for day-to-day project management of the integration.
• Functional leaders to lead execution and provide subject matter expertise.

What’s the Vision for the Organizational Structure?

When integrating two companies, leaders can’t ignore these change management questions:

• How will you integrate the cultures of the two organizations?
• How will the integrated company’s organization merge with the existing structure?
• How will the reporting relationships change?
• What is the impact on HR processes like performance management, compensation, promotion, and career mentoring?
• Are there different operating models, such as decentralized processes versus a shared services model, that need to be reconciled?

Failure to consider these questions can lead to attrition, lost productivity, and integration delays.

A well-executed integration can provide a unique opportunity for businesses to grow rapidly and achieve strategic goals that may not be possible through organic growth. To achieve these benefits, though, management must understand and assess the complexity and potential challenges of the transaction and, in so doing, help to prevent disruption, delay, additional cost, and frustration from customers and key stakeholders.

To realize the deal thesis and execute a successful transaction, contact CrossCountry Consulting.