Know why you’re doing it. Be clear on what have to offer each other. Treat people fairly. Integration is not without its complexities or work, but it’s all surmountable and can lead to a stronger outcome for everyone in the end.

You executed on your M&A strategy, found the right company to acquire and survived diligence and negotiations. Now it’s time to bring two businesses together – but that means two cultures, two sets of employees and at least two ways to doing things.

In the final post of our GrowthBits series on M&A, our panel of corporate development leaders weigh in on the ever-challenging task of acquisition integration.

Our panel of experts:

  • Jesse Gray, Vice President, Industrial Tech, LLR Partners
  • Joe Luceri, former CFO/COO at Numotion; former Chief Development Officer, Schweiger Dermatology Group
  • Ed Spaniel, former legal and corporate development lead at SDI Health (sold to IQVIA in 2011), SICOM Systems (sold to Global Payments in 2018) and Edmunds GovTech

Here’s how they recommend approaching the people, process and communication challenges that often come with acquisition integration.

 

Jesse Gray: Make it clear that all employees, customers and suppliers matter

It sounds simple, but it is imperative to have an acquisition integration strategy or framework. Think about how integration will start, how it will end and what the combined company will look like when all is said and done. Make sure everyone understands why both companies and their people matter and how they will be better together. The plan should include a timeline, measurable milestones and careful consideration of the impact on culture.

Your acquisition integration framework will start to form naturally during diligence. Focus on the top three things in each business area (e.g., HR, IT, Sales, Operations, etc.) that will drive the most value with the least amount of work, and when one is complete move on to the next. This will be a significant undertaking, but keeping people focused on a limited set of items makes the work more digestible and you can celebrate smaller wins along the way.

People are essential in this process. Show everyone why they’re important and communicate clearly about the opportunities they will have as part of a larger organization. Make it clear that the company cares for its people and remember that actions speak louder than words. For some key employees that you feel are still at-risk of leaving, retention agreements and bonuses can be an effective tool to keep them engaged.

It is vital that no disruption is felt by customers and suppliers. Keep all the exposure to the integration process internal at your two companies until you are ready to present one cohesive business to the outside world.

Like everything else, integration should be performance based. Set targets and outline what needs to happen to reach them; you can adjust and change strategy as you go if things aren’t working or unforeseen issues pop up (though hopefully you identified all the risks during diligence). Make sure that there is accountability all the way up to the integration head so each leader, committee member and individual contributor has designated responsibilities that will be monitored and measured.

M&A is not as difficult as it may seem. Know why you’re doing it. Be clear on what you and the seller have to offer each other. Treat people fairly. Integration is not without its complexities or significant work, but it’s all surmountable and can lead to a stronger outcome for everyone in the end.

Keep all the exposure to the integration process internal at your two companies until you are ready to present one cohesive business to the outside world.

Joe Luceri: Have a champion on the ground and communicate early and often

Integration planning should begin during the due diligence process. Invite key players and team leaders, especially from HR, Operations, Marketing and Finance to regular status meetings. The integration team should start planning once the LOI is signed.

Have a champion on the ground from the seller’s side to help with integration; involving someone who is an influencer and has early buy-in can make the process much easier. At Schweiger, since we acquire dermatology practices, we look for a physician who is respected as a cultural leader to help us onboard the other physicians, as well as an influential management level professional from the support staff to help sell our message.

Use what you learned during diligence to develop the integration plan and weave it into the longer-term strategy. If you’re going to make any changes to the way the business operates, outline the timing and what is expected of people. Don’t try to figure it out after you close the deal. Don’t make changes that don’t need to be made. Sometimes those changes do more harm than good.

Communicate with employees early and often. Start with the rainmakers and influencers. Discuss their needs going forward: schedules, compensation and employment terms. Clearly define reporting relationships and let people know how things will work in the future. Sometimes no matter what you do, people can overreact. But clear and constant communication can mitigate this.

Have a plan for addressing each employee’s situation before you close a merger or acquisition. Usually employees have three questions: Am I going to have a job? If so, what will my compensation look like? And are my working conditions changing? We like to prepare an orientation packet for each employee so that shortly before closing they have answers about their role, compensation, benefits, and other concerns.

Misaligned expectations often result from poor communication. Get this right early and you will help ensure a smoother integration process.

Ed Spaniel: Allow employees to see that you anticipated their concerns

The business unit that an acquired business will fold into should lead integration. If the leader of that unit doesn’t have the capacity to be the integration team lead, which is often the case, s/he should designate a lieutenant who can be laser focused on executing the plan.  Most frequently, it is the commercial lead that is best able to consider how the businesses fit together.

By example, if the acquisition is bringing additional functionality to an existing offering, the early alignment of the product teams from both businesses is integral to the integration of the businesses.  The success and speed of integration depends on the relationship and transparency between the operators.  Compare this model to acquisition integrations led by Legal, which can suffer from a disconnectedness to the practical/operational implications of combining businesses (says the lawyer).

You’re going to lose some people during integration, it’s inevitable. Offer fulsome communication from the buyer to the seller’s employees the day the deal is announced. Allow employees to see that you care about (and anticipated) their concerns. FAQs are a highly-effective way to initially communicate about the transaction with each employee base but be certain to deliver a single or consistent message and be careful not to oversell the deal to employees. Team leads should communicate to members of their teams early about how they envision the combination of the businesses. This is challenging because you don’t always have all the answers but engaging in candid conversations throughout the process will engender trust and keep spirits high.

Use all the tools and levers at your disposal. Compensation adjustments to align an acquired business’ employee base with yours will help morale, and retention bonuses for key employees encouraging commitment for an initial 12-24 month period are frequently an additional effective incentive. These agreements give you time to show employees that you’re walking the walk. Consider providing welcome/information packets to the acquired business’ employees even if compensation and roles will remain the same. The simple recognition that people want to stay informed throughout the integration process goes a long way toward building the employer/employee relationship.

Place extra emphasis on setting transition dates – the faster reporting lines converge and systems normalize, the quicker you’ll get the outcome you’re looking for. All the work you did on the front end during diligence should make developing realistic 30/60/90-day integration timelines easier. You need to remember that, for most team members, implementation means additional work. Be sensitive to that and use deliberate timelines so that everyone’s contributions happen when you need them to keep the integration process moving.

One final thought: Allow your decision to buy to win. There is a reason why your two businesses are better together. Keep coming back to that initial value proposition and take the steps necessary to see it come to life.