Devensoft

Typical M&A Functional Workstreams

Introduction

The team framework, particularly the structure of the functional workstreams, is dependent on several factors, such as type of business, organizational structure, size of acquisition, the focus and strategy of the acquisition (i.e. product integration, new product, strategic uplift, synergies), etc.  There are typically between six and twelve workstreams, as some of the workstreams may be combined into one with subteams (i.e. Treasury may be a subteam of Finance) or may not be applicable.  The Integration Framework Definition process focuses on analyzing the particular deal, in order to most effectively design the team structure.

Below are some common functional workstreams with high-level descriptions, but keep in mind it is critical to determine which workstreams your business needs and how they should be structured.

Product Strategy

The Product Strategy functional workstream defines a high-level product direction for the combined organization that will achieve industry leadership.  Responsibilities include:

  • Validating the overall product direction and developing a high-level product roadmap
  • Defining feature and functionality requirements and desired timeline for implementation in order to accomplish goals (i.e., market leadership within 12 months)
  • Determining how the target’s releases impact acquirer’s desired future features and functionality
  • Developing plans to offer combined products
  • Defining strategies for legacy clients and those currently in the process of being implemented
  • Managing the product message in the market place

Product Technology & Operations

The Technology & Operations functional workstream designs a go-forward Technology and Operations organization that can support the development requirements as outlined by the Product Strategy Workstream and the client delivery requirements outlined by the Product Strategy and Sales Workstreams.  Additionally, they need to ensure the retention of key talent required to preserve intellectual capital.  Responsibilities include:

  • Developing recommended organization structures and strategies for Client Services, Customer Service and Product Development organizations; Identifying key resources required to support existing products (including Client Services, Customer Service and Product Development organizations)
  • Securing existing acquirer and target software documentation
  • Completing software documentation where deficiencies are identified
  • Developing a high-level product development plan based on the Product Strategy Workstream team’s defined features and functionality; Addressing expectation gaps, as appropriate
  • Assessing the capabilities of the target development organization to achieve the desired product plan

Identifying key resources in the Customer Services organization to execute the Client Contact Plan

Sales

The Sales functional workstream works in conjunction with the Client Retention Workstream (can be combined into one team) to mitigate the risk of client and prospect defection and develops a world-class sales organization by combining the best practices of both the acquirer and the target.  Responsibilities include:

  • Ensuring contract and approval processes are implemented and applied to both organizations
  • Identifying best practices and implementing a common sales management process
  • Reviewing the target pipeline to ensure consistency to acquirer’s standards, and, if necessary, recommend steps to reconcile between the two
  • Integrating the target and acquirer sales teams consistent with management’s desired structure
  • Executing the client and prospect contact plan developed by the Client Retention Workstream:
    • Identifying and mitigating defection of key prospects
    • Identifying a mitigating defection of key sales personnel
  • Developing cross-selling strategies for complimentary products

Client Retention

(Can be combined with the Sales Workstream)

The Client Retention functional workstream develops a comprehensive strategy for mitigating the risk of client and prospect defection.  Responsibilities include:

  • Developing a segmentation analysis of the target organization’s clients and prospects; prioritizing most “growable” and most valuable clients and prospects (Tiers 1 – 3)
  • Developing a contact plan for each client and prospect segmentation, including key messages for each; determining communication media and frequency (e.g., Tier 1 should be a telephone call or personal visit, while Tier 3 may be initially notified by email.)
  • Defining retention goals for each client and prospect segment (e.g., 100% retention of all Tier 1 Prospects with a greater than 50-percent probability of closing, etc.)
  • Identifying key resources (e.g., Sales and Customer Service) based on segmentation analysis (which includes assigned resources) and communicating to Sales and Product Technology & Operations teams, as appropriate
  • Identifying overlapping clients and prospects and determining who from the acquirer and/or target should make the initial contact.
  • Involving the Sales Workstream team and Customer Support personnel in reviewing the draft of the contact plan in order to obtain input into the overall process
  • Planning a sales meeting with all sales associates to outline strategic objectives
  • Developing an Early Warning System to monitor the risk of client defection
  • Developing monitoring reports associated with Client Contact Plan execution and commencing reporting to executive management

Marketing & Communications

The Marketing & Communications functional workstream proactively manages messaging around the transaction by developing a series of frequent and consistent messages for the acquirer’s and the target’s legacy customers, clients currently going through implementation, prospects, employees, and external stakeholders (i.e. vendors, partners, etc.).  Responsibilities include:

  • Developing and maintaining an impactful communications campaign including Day One messages and post Day-One messages.
  • Developing sales collateral
  • Developing training materials and toolkits
  • Obtaining inputs from the Culture Workstream team in order to more effectively tailor internal messaging
  • Preparing FAQs
  • Updating internal and external Web presence
  • Assessing the effectiveness of internal and external messaging and revising if necessary
  • Developing the combined organization’s marketing and brand strategy

Human Resources / People Retention

The Human Resources functional workstream is charged with developing a key employee retention plan as well as aligning the pay and benefit structures between the acquirer and the target. Responsibilities include:

  • Working with functional areas to identify key employees of both organizations
  • Developing and executing a retention plan to retain key employees
  • Involving target organization personnel early in the integration process to provide input to the key messages (interdependency: Culture Workstream team)
  • Working with Marketing and Communications Workstream, addressing “me” FAQs no later than Day One (e.g., benefit plan strategy, reporting structure, overall integration approach, the timing of any contemplated reductions in force, transition plans for those not remaining long-term with the organization, etc.)
  • Maintaining an internal communication campaign for acquirer and target through the transition process
  • Ensuring alignment of pay and job classification between both organization’s employees
  • Ensuring alignment of benefits (insurance and retirement) between both organization’s employees
  • Working with functional areas to identify employees who will be transitioned and those who will be severed
  • Developing and executing a transition and severance plan
  • Defining a formal intellectual property capture plan
  • Developing and executing a plan for ongoing monitoring of employee retention and employee satisfaction

Culture

(Can be combined with the Human Resources Workstream)

The Culture functional workstream is essential on transactions to understand differences, leverage commonality, and ensure a smooth transition of the target company into the acquirer’s culture.  Responsibilities include:

  • Developing an understanding of the unique attributes of each company and identifying best practices and attributes to implement
  • Providing input to the Communications Workstream
  • Determining lessons learned from prior transactions
  • Interviewing select target personnel to gain a better understanding of the target’s culture

Information Technology

The Information Technology functional workstream will assess existing systems (hardware and software) of the combined organization as well as related policies and procedures and develop a go forward strategy to support the organization’s business strategies.  Due to the volume of activities of the Information Technology Workstream, the acquirer may consider dividing this team into smaller, more manageable sub-teams.  Responsibilities of the Information Technology Workstream team include:

  • Linking email systems
  • Arranging interim connectivity
  • Completing network connection between key facilities
  • Developing an ERP integration plan
  • Communicating data center protocols (i.e., processing, storage, back-up, maintenance, disaster recovery)
  • Defining PC hardware and software platform for future purchases
  • Identifying and assessing user applications for both organizations and determining (1) surviving applications for the target’s organization and (2) associated support requirements
  • Reading and analyzing contracts for software licensing, desktop, call center, specialty applications, etc. and proposing a rationalized integration strategy into acquirer’s master agreements (including remedying any deficiencies)
  • Identifying the target’s registered domains and associated expiration dates
  • Assessing the current hardware and assessing the ability to support the acquirer’s processing requirements
  • Evaluating human resource access services/software (plus tie-ins) and proposing an integration solution to acquirer’s core HR package
  • Evaluating finance and accounting software and proposing an integration solution to acquirer’s core finance package
  • Determining the best integration strategy as it relates to infrastructure management and oversight
  • Evaluating and proposing solutions for internal knowledge sharing
  • Evaluating and proposing solutions for network, file, and print server support for the target

Facilities and Physical Security

The Facilities functional workstream will coordinate the physical consolidation of the combined organization’s operating locations.  Responsibilities include:

  • Cataloging all real property, including square footage and lease terms
  • Changing office signage
  • Preparing preliminary office consolidation plan
  • Preparing relocation timetable for key functions
  • Assessing telecommunications (long-distance and local lines) and proposing an integration solution for the target
  • Determining mail processing and distribution plan for Day One
  • Determining and planning for Physical Security needs at target’s facilities
  • Determining go-forward real estate and facilities needs and preparing a preliminary office consolidation plan
  • Preparing estimates of cost savings and associated one-time costs
  • Developing synergy plans and determining the timing of synergy realization for Real Estate / Facilities (closing and consolidation of office locations)

Sourcing & Procurement

The Procurement functional workstream will assess the future contract and commitments of the acquirer and the target, and leverage the purchasing power of the combined organization.  Responsibilities include:

  • Assessing significant purchasing contracts and commitments
  • Identifying and quantifying any potential synergies
  • Communicating the purchasing process to the target’s employees

Legal

The Legal functional workstream defines the legal entity structure for the combined organization and ensures all legal and compliance issues are addressed in a consistent manner between acquirer and the target. Responsibilities include:

  • Defining appropriate Day One procedures
  • Providing standard terms and conditions to the target and working with Executive Sponsor, negotiating terms and conditions
  • Assessing and rationalizing the legal department responsibilities of the target and determine the appropriate integration strategy
  • Assessing and rationalizing the compliance department responsibilities and functions of the target and determining the appropriate integration strategy
  • Determining the protocols for legal matters within the combined organization for the following areas:
    • Contract review
    • Contract maintenance
    • Trademarks
    • Licensing
    • Regulatory Issues
    • Litigation
    • Other (governance, employment law, etc.)

Finance

The Finance functional workstream prepares timely management reports that enable management to make relevant business decisions and evaluate financial performance.  Responsibilities include:

  • Prepare a financial model for the combined organization including projected synergies, revenue uplift, new products, etc.
  • Preparing monthly management reports and associated financial and trend analysis
  • Providing adequate insight into the target’s financial performance in order to proactively address potential issues
  • Preparing budgets and forecasts for the combined organization
  • Valuation of the target company

Accounting

The Accounting functional workstream implements consistent reporting standards and policies.  Responsibilities of the Accounting Workstream team include:

  • Ensuring consistent financial statement presentation and classification, facilitating consolidated reporting
  • Applying consistent accounting policies from Day One forward
  • Developing closing procedures sufficient to ensure quality and consistency of reported results
  • Completing required regulatory filings (Form 8-K, UK statutory audit, etc.) on a timely basis

Treasury

The Treasury functional workstream manages and safeguards the financial assets of the combined organization.  Responsibilities include:

  • Identifying new lockboxes
  • Preparing instructions to sweep all target’s cash accounts into acquirer’s concentration account on Day One and going forward
  • Establishing ZBA disbursements and payroll accounts for the target within the acquirer’s cash account structure
  • Revising signature cards and providing to banks
  • Revising remittance instruction letters prepared for the target’s clients
  • Providing target with instructions for funding ZBAs (when making disbursements and funding payroll)
  • Preparing a go-forward strategy to ensure the combined organization has the financial assets necessary to execute against its operating plan

Tax

The Tax functional workstream will ensure compliance with all taxing authorities.  Responsibilities include:

  • Assessing the status of all returns (federal, state, foreign, payroll tax, sales and use, franchise, property, and other taxes) and resources required to complete all open returns
  • Determining which party will complete the stub period return
  • Evaluating the tax implications of the target’s legal entity structure
  • Determining if any changes in tax planning strategies are needed as a result of the transaction.

Internal Audit

The Internal Audit functional workstream will combine auditing processes and ensure audit compliance.  Responsibilities include:

  • Comparing and contrasting acquirer’s and the target’s policies and procedures and identifying those that need to be addressed by Day One
  • Standardizing critical policies and procedures between the acquirer and the target
  • Assessing the target’s existing control environment and determining potential issues or deficiencies associates with SOX compliance and associated mitigation strategies
  • Assessing the feasibility of integrating the target into the acquirer’s existing control environment, including costs associated with the transition, anticipated timeline, resources required, and costs associated with maintaining a separate environment.

Synergy Management and Realization

Each functional workstream team is responsible for the capture of synergies identified with each transaction, related to their functional area.  Typically, key synergies include the consolidation of offices and the rationalization of personnel.  However, each specific transaction must be evaluated to determine the key value drivers and related synergies.  For example, for manufacturing companies, a large percentage of synergies may come from consolidation of sourcing with vendors and/or evaluation of alternative parts for products.

In this section are some tips on the most common and complex area for synergies, organizational structure/personnel rationalization.  The overall ownership and coordination of this should lie with the HR Workstream, however, each Workstream should be responsible for evaluating the organization in their functional area, determining the future personnel needs and making recommendations on structure and how the positions are filled.

The high-level steps that need to occur are:

  • Assessment of current organizational structures (both organizations)
  • Defining optimal organizational structure for the combined organization – This is often a good opportunity for the acquiring organization to make internal organizational improvements, as well
  • Definition of a Day One interim organizational structure, so that each new employee will know where he/she fits into their new company
  • Determining whether the Day One interim organizational structure will create any potential cultural issues and make plans to address/mitigate
  • Developing of the Day 1 communication for the interim organization, as well as the upcoming action announcement – This should be as clear and open as possible, in giving a timeframe and setting expectations
  • Identifying if/where the first 2-3 levels of the target’s management fits into the new organization
  • Determining go-forward personnel requirements, based on redundancy, product roadmaps, long-term locations/relocation restrictions, etc.
  • Recalculating and validating synergy numbers identifies during Due Diligence
  • Finalize where each person fits into the organization and which employees will be released from each organization and when – Determine the timing of synergy realization and associated one-time costs (severance, retention, etc.)
Go back to the M&A Methodology.
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