5 minute read 27 Jan 2021
Two businessman talking by the window.

How a timely integration strategy leads to success

By Robert Kendzia

Buy & Integrate Leader | Switzerland

Leads Buy & Integrate services. He advises clients in life sciences, industrial products and telecom, as well as media and technology.

5 minute read 27 Jan 2021

Market changes? Cultural differences? When goals are not achieved, it is often down to the lack of an integration strategy.

The gap between transaction strategy and post-merger integration (PMI) is wide – but bridgeable. Yet many companies continue to neglect to establish a key link that would successfully bring together both phases. Often, the complex bundles of integration measures insufficiently follow the strategic rationale of the transaction. As a result, communicated value enhancement goals go unrealized and, at worst, value is destroyed.

Changes in market conditions or other incalculable external factors are frequently cited as the main reasons for mergers and acquisitions falling short of expectations. Or unforeseen cultural differences are blamed. An inadequate integration strategy is rarely considered to be the cause of a failed transaction. This is simply not seen to be a key success factor and is therefore not given the attention it deserves.

Many companies still consider the integration strategy to be outside of the remit of the M&A department. Nevertheless, a paradigm shift is slowly underway and companies are beginning to realize how vital it is to strategically plan integration before a transaction takes place. The strategic integration blueprint becomes a key tool that defines and operationalizes the integration strategy. 

The integration strategy was simply not seen to be a key success factor and was therefore not given the attention it deserves.
Klaus Haberfehlner
Partner Operative Strategy and Transactions | Österreich

Features of an integration strategy

A successful post-merger integration requires an integration strategy that

  1. is defined prior to the contract being signed
  2. is closely linked to the transaction strategy (deal rationale)
  3. quickly releases synergies
  4. addresses cultural and organizational changes
  5. is achievable

Current challenges in the context of a transaction

In today’s VUCA world (volatility, uncertainty, complexity, ambiguity), it is becoming increasingly important to develop suitable strategies. Companies are tasked with fronting up to the challenges of a transaction, particularly with regard to integration.

  • Necessity of accelerated implementation: strategies must be revised regularly in a more volatile environment, their half-life and thus also the half-life the identified value levers in an M&A transaction is constantly shrinking.
  • The need for new flexibility: the expected useful lives of strategies are shorter and more uncertain. Competitor and market behavior are becoming increasingly difficult to predict. Implementation approaches themselves must therefore be increasingly agile.
  • The need for a custom-made strategy: there is no one-size-fits-all integration strategy any more. The standard strategy of buying and fully integrating a competitor is too simplistic for today’s world. Instead, tailored solutions must be developed and stakeholders must decide how much integration and adaptation is required for each stage of the value chain and how quickly to integrate in order to maximize synergies or safeguard value.
The integration strategy is essential to understand, to assess and to communicate the expectations and key parameters for the integration. It connects the deal rationale with the operational integration.
Robert Kendzia
Buy & Integrate Leader | Switzerland

Integration strategy and transaction strategy are not the same

In order to address the specific challenges of a transaction, the integration strategy must be customized and this must be done early. It is important to realize that the integration strategy and the transaction strategy (deal rationale) are not the same.

The integration strategy defines how the deal rationale will ultimately be achieved. It transfers the ideas about the business model (including market, customers, channels, products, price, competition) to the operating model of the companies to be integrated (including, e.g., management, people, processes, organization, infrastructure). Therefore, it is about choosing a playing field, but also about how to win on that field. And this “how” can vary widely depending, for example,, on whether a fast-growing, emotionally appealing brand, a technology or a complementary product is being acquired.

The sooner companies start planning their integration strategy and the more clearly the strategy is defined in a strategic integration blueprint, the more goal-oriented the post-merger integration phase.

The blueprint is an essential bridge between the transaction strategy and the operational integration. It establishes a basic model for implementation in three dimensions:

  • The first dimension is located at the level of the strategy and business model and is closely connected with the transaction strategy that is pursued and operationalized for the integration. The topic of revenue synergies is particularly important here. “What is my strategic ambition and my deal rationale?”, “What are my target markets, products and brands?”, “How do we join forces to acquire additional customers?” and “What guiding principles arise for the operating model of the integrated company?”

  • The second dimension is more removed from the business model and revenue generation and focuses more closely on the operating model and the employees of a company. While markets, products and customers are analyzed in the first dimension, the second dimension looks at the cogs of the machine. It is about building a clear architecture with firm pillars. It considers employees, processes and structures: “Who will be the key figures in the new company?”, “What are the core processes and necessary adaptations?“ or “How must the integrated organization be controlled and structured to ensure that the strategic objectives are met?”

  • The third dimension targets the actual integration and involves defining the basic architecture of the project. It addresses questions such as “How must the integration project be managed, controlled and structured in order to be successful?”, “What is the best team make-up and who is the designated integration manager?” and “What are the activities along the critical path?”

Crucially, the mapping out of guidelines at an early stage in the acquisition process does not have to be at the expense of flexibility. On the contrary: thanks to a thorough examination conducted at an early stage, the correct integration strategy can enhance flexibility in numerous areas, in particular in an uncertain and volatile environment.

The strategic integration blueprint is an essential bridge between the transaction strategy and the operational integration. It establishes a basic model for implementation.
Bastian Bender
Associate Partner, Strategy and Transactions, Consumer | Deutschland

Summary

A timely and tailored integration strategy is one of today’s most important success factors for mergers and acquisitions. As an implementation framework, the strategic integration blueprint connects the transaction strategy with the operational integration and defines it in three dimensions: the strategy and business model, the operating model and the integration project.

About this article

By Robert Kendzia

Buy & Integrate Leader | Switzerland

Leads Buy & Integrate services. He advises clients in life sciences, industrial products and telecom, as well as media and technology.