Mergers & Acquisitions

Navigating Acquisitions for Better Integration Outcomes

In today’s market, executives are often all too familiar with acquisition activity. Companies choose inorganic growth for any number of reasons—whether to expand their market or geographic reach, grow their product and policy portfolio, or better leverage technology and analytics to deliver solutions in a differentiated way—with the intention of yielding strong ROI as shifts in the macroenvironment and regulations create new business opportunities. Amidst M&A activity, leaders can look to best practices for one of the most challenging elements of acquisitions: integration.

Studies have shown that more than 70% of all acquisitions fail to achieve their goals. In part, this is because too little attention is given to factors outside of finance: questions about how the different company cultures align, leadership capabilities, brand, business processes, and the supporting technology are matters that acquirers must answer early on. Like with many challenges for senior leaders, a lack of clear direction and alignment on these factors can create significant headwinds.

An integration plan should address the following key elements to ensure a successful transition:

Leadership Transition

When a business is acquired, it is important to look beyond the actual purchase and define a strategy for integrating the acquisition’s management team. Those leaders may not necessarily leave when the deal closes, so the context within which they lead will change significantly. As part of a larger organization, they will need to take the perspective of the new enterprise, not just their line of business. They will need to influence decisions on business strategy and resource allocation, which is not an inconsequential reduction in authority and control. On a personal level, leaders may perceive a reduction in status, particularly across the C-suite where reporting relationships will change as they and their teams become more engrained in the parent company. Being transparent and communicative with acquired and incumbent leadership teams will be vital for strong relationships from the start. Much of this involves peer relationships, making it vital to be intentional and thoughtful throughout the process.

Culture Evolution

Imposing a different culture on an acquired company can destroy the very things that make the acquired company desirable. By trying to understand what aspects of the acquired company’s culture are critical for its success, you can determine what to keep, what to add, and what to shift to enable integration without destroying value. This might involve finding ways for the acquired company to stay nimble and avoid getting weighed down by unnecessary bureaucracy of a larger enterprise. Remember: culture isn’t just words on a page, it is realized through the way people work on a day-to-day basis, including the business processes and technology or tools they use.

Corporate Identity

Remember that the acquired company already has an identity that has likely been in place for years. The people at that company have business cards, email signatures, and email addresses that connect them with the business and the brand. First assess the value of the brand—in particular, its recognition by customers and the talent market—to understand whether concerns about changes during the transition to the new enterprise, like introducing new logos or changing email addresses and signatures, are well-founded or not. Adjusting to different company names and reputation can be a emotional hurdle that employees might need some time to overcome. Hearing and seeing leaders acknowledge this and recognize the adjustment on this front helps build trust and show support throughout each step of the process, no matter how minor it may seem.

Generating Buy-In

Developing a compelling story that speaks to the mission and vision of the business for all stakeholders generates buy-in and overcomes concerns people may have about the impact on themselves, personally, right off the bat. What will the parent organization bring to the acquired business that the business would be unable to do on its own? What will the benefit be to customers, employees, and other stakeholders? As leaders, it’s meaningful to acknowledge and express gratitude for everything people have done to make the company successful and speak to how they will leverage their strengths to grow both the business and their individual careers.

Timing

The timing of integrations should be determined on a case-by-case basis. It might make sense for an acquired business to continue to operate independently if it will likely end up being sold rather than retained long-term. Or integration might be delayed to maintain the speed, agility, customer-centricity, and innovation capabilities underpinning that acquired company’s success. There are trade-offs involved with this approach because there might come a time when it no longer makes sense to operate independently. This presents different hurdles compared to when a company is purchased outright and then quickly integrated into the acquiring company subsequently after the close. If the business doesn’t get properly integrated, the initial message from the acquisition’s benefits will no longer cut it, and there may be an “us versus them” mentality, making later integration more challenging. People will need to understand the benefits for their business and themselves after they have successfully run the business without fully integrating into the parent company.

This was the case with a client in the insurance industry that left its acquired businesses to operate independently for more than ten years. There was a good case to be made by the parent organization for the benefits of integration (operational efficiency, economies of scale and purchasing power, cross-selling opportunities, sharing of expertise). However, for the people who had been operating just fine with a high degree of autonomy, they started asking ‘why?’, quickly followed by ‘why now?’ Working with the parent company and its acquired businesses, we helped address concerns around the shifting roles of the executives and the cultural differences between the individual businesses and “corporate.” By coming together to share the new compelling story and clearly answer the ‘why now?’ questions, leaders at all levels began to see the value of integration and started to build relationships and share knowledge that was fundamental to the success of the integration.

Timing will vary but the important thing is that a parent company integrates its acquisitions by being intentional when it comes to leadership, culture, identity, and formulating a compelling story—a message that builds trust and answers the questions of ‘why?’ and ‘why now?’. By meeting the company where it is, leaders will be able to build the foundation for buy-in through both the head and the heart. Keeping these factors in the forefront can help overcome integration obstacles and realize the full value of acquisitions.


Deborah Seidman

Deborah Seidman is a Principal at Kotter, a change management and strategy execution firm, with more than 25 years of experience in critical issues resolution and process improvement for clients across industries.

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Deborah Seidman

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