When you hear Mergers & Acquisition (M&A) what comes to mind? Valuation, Inorganic growth, hostile takeovers, Strategic alliance, etc. Now let me ask you what makes a M&A successful? The answers I have heard most commonly to this question has been, a right partner, trust between the parties, good valuation, good communication etc. which are all true, albeit incomplete.
Mergers & Acquisition is an option a company/organization can take to achieve inorganic growth, kill competition, gain market share, etc. It is when the parent company buys majority/controlling stakes in a smaller company. In my write-ups, I shall be focusing on M&As which are more growth focused and where we want the combined entity to flourish. As an acquiring organization, there are various parameters which need to looked at from Finance, Legal, HR, IT and above all Business to analyze the right company to acquire. There is also a similar kind of analyzes undertaken by the company wanting to be bought. The details of which are outside the scope of my current article.
Once we sign the deal and complete the transaction (money exchanges hands), the next step in the long journey begins. It’s a journey of working together as one, working towards a common goal. This is one of the most important steps for a M&A to become successful. This step is called Integration. To draw a parallel from everyday life. The first step of M&A (of finding the right partner, a good valuation and signing the deal) is like finding the right parents for a teenage orphan, when the new to-be parent and kid decide they are ok to start a life together, they sign the papers and move in together. This alone would not ensure that the kid thrives in life and that the parents are content with the kid. The expectations of the parent would always be to help the kid grow and thrive in life, for the kid to assimilate with the family and be an integral part of it. The same goes for acquired organizations. The Parent organization would want to ensure that the acquired company grows at a faster rate than what it was doing earlier and that the people of the acquired company are happy and have growth prospects. Hence just like we would want the kid to get integrated with the new parents, the same applies for the acquired company and the parent organization.
Let’s understand what Integration could mean in the context of M&A, when does it begin and when does it end. The work for Integration begins much before the deal is signed and continues until we can ensure that the acquired entity and parent company are jointly working together and their people, systems and processes are aligned to give the best outcomes. Even before the deal is signed, we need to start understanding the culture at the acquired company, the policies, the people, the organization structure, the system and processes etc. This information will help determine the good fit question (among other parameters).
So, what exactly is Integration? It’s the process of combining and aligning both businesses to obtain maximum efficiencies and synergies. It can broadly be divided into 2 parts, Go to Market (GTM) and enabling functions. GTM integration would be working towards how to ensure that both businesses work together to create and implement a combined market offering and how they align their sales approach. Enabling functions or Corporate Integration is about marshaling the enabling functions like Finance, HR, IT, Security, legal, etc. to align and create a best possible ecosystem which will help attain the business goals set by the GTM Integration. The key driver for a successful Integration has to be preserving the value of the acquired organization while achieving the objectives.
In the coming blogs, I shall try going into more details about some key aspects of Integration. In the meanwhile, do share your thoughts on what does Integration mean to you? Do you agree or disagree with the above thoughts? Share some insights/experiences of yours.
