Do your M&A integration strategies need a new boost?

Authors

Brian Salsberg

EY Global Buy and Integrate Leader

Passionate acquisition and merger integration leader and aficionado of all things deal-related. Global citizen. World traveler. Husband. Father of two.

Mitch Berlin

EY Americas Operational Transaction Services Leader

Dedicated to finding and capturing the most value from every transaction. Passionate advocate for diversity and inclusiveness as the cornerstones of successful teams and businesses.

7 minute read 26 Oct 2017

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We explore the five areas for companies to focus on when assessing potential transactions and in the crucial first year. 

With unprecedented business model disruption across the majority of industries, integrating acquisitions has never been more complicated. But those who prioritize and resource their efforts appropriately are likely to seize a measurable competitive advantage.

Geopolitical issues may dominate the headlines, but corporate boards and senior management are laser-focused on countermeasures against technological disruption and seizing new routes to growth. Those countermeasures will often involve M&A as a faster route to innovation and expansion.

Our October 2017 Capital Confidence Barometer, which surveys almost 3,000 C-suite executives from around the world, showed that 56% of companies globally plan to make acquisitions in the next 12 months and that technology and digital disruption are two major drivers of the current market.

Ultimately, for an acquisition or merger to create value, the combination must become more than the sum of the parts. Realizing that potential relies on best-in-class integration strategies that quickly address risks and seize opportunities and synergies.

Understanding this, many companies have developed leading-practice M&A playbooks and dedicated M&A teams within functions. But, with deal premiums high and no evidence to suggest that will change, and as the pace of technological change accelerates, these approaches will need updating.

In our work with clients, we recognize the importance of integration strategies that address this new environment — to master it can mean gaining a competitive advantage over less digitally advanced peers, while failing to can mean unfulfilled potential and exposure to new kinds of risk.

With the right strategy, we believe companies can rise to the challenge and reap the rewards of effectively and efficiently integrating organizations in the digital age.

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Chapter 1

Big data

With data analytics, companies can harness information technology to allow executives to make faster, more fact-based decisions.

Wherever two integrating companies find overlap — supply chains, product mix, channels or operations — decisions must be made about what to retain, what to jettison and what to combine.

With the advent of big data and data analytics, companies can harness information technology to allow executives to make faster, more fact-based decisions about what the customer of tomorrow is going to want, how the newly enlarged and integrated enterprise can meet those wants, and how to allocate capital and resources accordingly.

Consider, for example, a bank that decides to buy a competitor and wants to minimize the loss of customers from the acquired entity. By looking at which services individual customers use, their history with the bank and other key metrics, the acquirer can predict which customers are most likely to consider leaving the combined enterprise and implement programs designed to keep their business. Similar analyses could be undertaken to figure out where the best opportunities are to cross-sell to customers of the two institutions.

The opportunities don’t stop there. Companies can also use data analytics to tailor their approach to supply chain integration or assess contractual relationships of the new combined entity. All of these processes can use public and private information to identify synergies and even business opportunities.

In a recent health care services merger, for example, the acquirer was able to have a proprietary data set developed to evaluate the customer opportunity available from the target company. They used this to establish a clear picture of the total market accessible to the combined entity. The analysis involved combining and querying multiple data sets enabling the acquirer to identify synergy opportunities and potential risks, both by service line and by market.

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Chapter 2

The customer experience

The whole experience must embody a seamless, omni-channel approach with the service they’ve come to expect in a digitally connected world.

Marketing is no longer a one-lane or even three-lane highway. Companies don’t just market to customers via advertising or direct mail or in-store promotions. And it doesn’t stop there. The whole customer experience must embody a seamless, omni-channel approach to engaging customers and providing them with the service they’ve come to expect in a digitally connected world.

Companies can’t afford to duct-tape themselves together when addressing the customer’s mobile experiences, transactions, purchase history or follow-up care. They must identify the issues that matter to their customers and focus on creating an integrated experience and value proposition. And they must keep customers honestly informed about the process along the way.

Used correctly, social media can be a powerful tool and offer organizations a vast trove of useful information. Smart acquirers will pay attention to what customers, vendors, analysts and other stakeholders are saying about a potential target, and then what they are thinking and saying about the combined enterprise and the integration process. Social media can also provide an early warning if the process begins to veer off track.

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Chapter 3

Cloud computing

Moving enterprise resource planning and other computer systems to the cloud can make future acquisitions easier to integrate.

Any M&A integration is an opportunity for a company to evaluate how it’s been doing things and whether change is appropriate — whether it can learn from the acquired company’s business processes, for example, or if it can impart some of its own competitive advantages to the acquired organization.

Today, part of that opportunity is the chance to evaluate the speed and cost benefits of cloud computing. Especially for highly acquisitive companies, moving enterprise resource planning and other computer systems to the cloud can make future acquisitions easier to integrate and non-core assets easier to separate.

The use of this technology can save time and money compared to integrating traditional on-premises applications and allow you to optimize the way systems work together early on in the life cycle of the new combined entity. An M&A integration is a great opportunity to reshape the way the two parties involved go about their business. And it shouldn’t be postponed until things “settle down” or you may have to start all over again just when people have begun to settle.

For this reason, among others, companies will also want to pay attention to what has become, at many organizations, a self-service approach to human resources. This can add a lot of complexity to the IT integration, since so much of what employees need access to — salary information, vacation tracking, performance reviews and more — is now self-serviced. Migrating this activity to the cloud may be able to reduce complexity and provide a better experience for employees.

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Chapter 4

Cybersecurity

Companies merging with or acquiring another organization must quickly assess its new partner’s current cyber vulnerabilities.

For all that technology has to offer acquisitive companies, it’s also true that the convergence of the internet, mobile computing and social media has led to the emergence of cybersecurity as a great new business risk. Hackers can bring corporate operations to a standstill with a denial of service attack or severely damage a company’s reputation by causing sensitive customer data to fall into the wrong hands.

Companies merging with or acquiring another organization must quickly assess its new partner’s current cyber vulnerabilities and how seriously that partner took cybersecurity. The acquirer also has to oversee the integration of the two firms’ information systems in ways that do not expose the combined entity to new risks.

This undertaking needs to begin early in the due diligence process and continue through the post-close integration and evaluation. This is fraught with pitfalls that many companies may not have considered just a few years ago, and companies need to be aware of past breaches and any liabilities they may inherit, as well as prevent future risks to the business.

To make sure everything gets done, it is important for the head of cybersecurity at an acquiring company to work closely with the acquired organization’s chief information security officer and its head of human resources. If the target company doesn’t have a chief information security officer he or she will usually work with the company’s general counsel and head of compliance.

Working with the head of HR is important too because HR organizations typically own the identity and access management process at their companies.

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Chapter 5

Culture integration

The acquirer may wish to “harvest the cultural DNA” of the acquiree without imposing itself so strongly that it destroys its culture.

In industry after industry, traditional companies are making high-tech acquisitions to help them adapt to and compete in the digital age. For many traditional companies, buying a high-tech business raises a host of new issues and risks: how to value a tech company; how to retain its intellectual property, which may be in the form of human capital; and how to blend — and how tightly to blend — what often will be two very different corporate cultures.

In some cases, the acquirer may wish to “harvest the cultural DNA” of the acquired business without imposing itself so strongly on that business that it destroys its culture or DNA. But this is no easy task.

Where the acquirer operates in a heavily regulated industry, meanwhile — in financial services or health care, for example — the acquiring company also may have to help the acquired company learn to operate in a regulated environment.

To help mitigate culture clash, acquirers can make sure that a newly acquired management team has a seat at the table to identify early on which aspects of culture in the acquired company need to be preserved for employee retention and employee engagement, what changes need to be made to culture, and how to develop a timeline of rolling out changes on a gradual, manageable basis.

To help foster cultural integration, rotating talent from the acquired company into the acquirer’s organization to give them a better sense of how it does things — and vice versa — is a highly effective method for aligning the combined workforce and reinforcing the same common purpose of the combined organization. Communicate clearly to the acquired company what changes will be made, and why they need to be made, to support the value to be achieved from the transaction.

Summary

Effective M&A relies on best-in-class integration strategies that quickly address risks and seize opportunities and synergies. With the right strategy, we believe companies can rise to the challenge and reap the rewards of effectively and efficiently integrating organizations in the digital age. Five key areas we’ve identified that companies must focus on in the first year are big data, the customer experience, cloud computing, cyber security and culture integration.

About this article

Authors

Brian Salsberg

EY Global Buy and Integrate Leader

Passionate acquisition and merger integration leader and aficionado of all things deal-related. Global citizen. World traveler. Husband. Father of two.

Mitch Berlin

EY Americas Operational Transaction Services Leader

Dedicated to finding and capturing the most value from every transaction. Passionate advocate for diversity and inclusiveness as the cornerstones of successful teams and businesses.