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M&A Integration Methodology

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This page summarizes a refined integration approach, based on best practices, as well as a wide range of deal sizes. It outlines, in detail, how to implement this framework and methodology step-by-step.  While the methodology is very disciplined and structured, it is also flexible enough to easily customize and scale for each specific deal.

Table of Contents

Overview

The realization of strategic and synergistic goals defined by management during due diligence and valuation, is what essentially determines the final success of an acquisition.  A standardized and well-defined M&A Integration Methodology is critical achieving these goals.  Properly executed, the combination of the two companies will yield a new enterprise that delivers robust, innovative solutions relevant across the industry.  Leveraging the best of its predecessors, it will deliver more compelling solutions for clients, better customer support for clients, more rewarding careers for employees, and more attractive returns for shareholders.  This document summarizes a refined integration approach, based on best practices within several different industries, as well as a wide range of deal sizes.  While the methodology is very disciplined and structured, it is also flexible enough to easily customize and scale for each specific deal.

The Integration Methodology is divided into three phases: 

Integration Framework Definition

Integration Framework Definition should begin as soon as possible after detailed Due Diligence is underway.  The objectives of this phase are to clearly and effectively structure the integration teams and special purpose teams, and to determine the leaders and members, as well as outline the hierarchy and the roles and responsibilities for the integration teams.

Integration Planning

Once the Framework is defined and in place, Integration Planning should begin, continuing through Day 1 (closing of the deal).  It is important to begin Integration Planning as early as possible, so that the transition from Due Diligence to Integration is seamless and effective.  The timing is also very important in ensuring that all merger objectives are planned for and realized.  Each company continues to operate independently during this phase, making its own business decisions in a manner that protects its own interests.   Information exchange is guided by the legal principle that neither company should empower the other to become a more effective competitor should the transaction not close. 

Note: The extent of Integration Planning is dependent on time between the beginning of Due Diligence and Day 1, resources dedicated to integration, the size/complexity of the deal, etc.  The general goal should be to minimally plan for through Day 30 before the deal closes.  After Day 1, execution begins and extended planning continues. 

Integration Execution 

Once the deal has closed, Integration Execution begins.  At this time, the legal and business interests of the combining companies merge.  Issues of independent decision-making and control that exist during the planning phase disappear, and the new organization is free to begin implementing the plans made in the prior phase of activity.   Some of these plans, such as those pertaining to finance and HRIS systems, are typically executed on or near Day One after the transaction closes.  Others, such as those pertaining to product and technology integration, have longer horizons because the proprietary information needed for these efforts should only be shared after the companies become one. 

Benefits of a Standardized Integration Methodology

A standardized and well-defined integration methodology provides clear direction in ultimately meeting all merger objectives. This methodology structures the management and information in a way that gives clear visibility to all areas of the integration.  The high-level benefits of this methodology are:

Integration Quality

    • Supports logical identification and management of tasks and milestones
    • Provides transparency into all integration areas for identification of issues and risks, as well as cross-functional dependencies
    • Increases overall quality of integration through proactive management and structured reporting
    • Ensures that integration requirements are addressed in a systematic manner, and that scarce resources are properly focused to achieve overall integration priorities

Financial & Strategic Goals

    • Provides tracking of integration budget and ensures that it is properly managed
    • Allows synergy targets to be proactively addressed by functional leaders and closely managed by the integration team, increasing likelihood of meeting goals
    • Supports methodical management and attainment of strategic goals set forth by executive leadership

Communication / Executive Reporting

    • Gives complete visibility into all functional areas of integration, allowing early identification and management of issues and risks, cross-functional dependencies and critical decision points
    • Enables prompt and clear communication to Executive Steering Committee on potential roadblocks to meeting strategic or synergy goals
    • Facilitates escalation and prompt assessment and conclusions on critical decision points

Schedule / Planning

    • Results in more efficient project flow, by giving more priority and focus to integration activities
    • Supports timely awareness and proactive mitigation of schedule / timeline risks

People / Culture

    • Helps to manage associate expectations of both the acquiring and acquired organizations
    • Encourages focus on the people and cultures of both organizations, and ultimately a “combined organization” tone
    • Encourages inclusion from both companies for both integration planning and execution

Information Sharing

    • Gives guidance in properly documenting and sharing the “right” information between the two organizations, to ensure an optimally combined business
    • Steps the functional teams through transitioning from Due Diligence and assessing what additional information is needed to successfully integrate the businesses
    • Gives structure to timely reporting of material findings and any issues or risks

Critical Success Factors

Below are elements critical to the success of any integration.  These items need special attention in the beginning stages, to ensure that the best resources for the integration are allocated and that the right tone is set for the integration, as teams begin developing.

  1. Strong executive sponsorship and frequent access to the Executive Sponsor and Executive Steering Committee by the Integration Leader
  2. Identification of an Integration Leader in the early stages of Due Diligence, so that he/she can understand the strategy and material findings early on and start on the Integration Structure Definition as early as possible
  3. Adequate resources for the workstream teams to achieve the expected goals and timeline; Dedicated time for the Workstream Leaders and team members must be thoroughly assessed early on to determine % time of dedication needed at each stage
  4. Clear roles and responsibilities defined for the integration in order to assure accountability, ownership, and quality
  5. Timely, fact-based decisions at all levels
  6. A thorough understanding of the merger strategy by the Integration Leader and Workstream Leaders
  7. A well-defined transition from Due Diligence to Integration Planning – Appointment of an Integration Leader that has been involved in Due Diligence is ideal
  8. A clear and thorough understanding by the Executive Steering Committee and the Integration Leader, of potential integration risks and assumptions defined during Due Diligence
  9. Knowledge of core business functions and future business requirements by all integration team members
  10. Significant involvement of target-company personnel on the integration teams at all levels and all stages, and total collaboration between organizations on all integration activities
  11. Executive/leadership support of the disciplined process and the acquisition strategy
  12. Communication and “lead by example” on the value and respect of all employees in both organizations

Integration Framework Definition

Team Structure Overview

Probably the most complex and critical part of the Integration Framework Definition phase is the structuring of the teams and the hierarchy and process for approvals and decisions.  The below diagram illustrates the team portion of the Integration Framework and the high-level flow.

*Note: Criteria for Level 1 and Level 2 decisions should be defined during Framework Definition, to outline which types of decisions can be made by the ILT and Workstreams vs. the ESC / ES.  Typically, only critical decisions like Organizational Structure, closing of facilities, etc. are escalated to the ESC / ES.

To learn more and for a detailed description of each role, go to the M&A Team Roles, Responsibilities and Skill Sets page.

Integration Process Overview

The diagram below illustrates the general timing of the three phases of the Integration Methodology and outlines the major milestones for each phase. 

The Integration Framework Milestones

A)  Appoint Executive Sponsor (ES) and Assemble Executive Steering Committee (ESC)

Owner: Company Executive(s) (typically CEO and/or COO)

Definition: The ES is typically the GM of the division sponsoring the transaction but could be another divisional executive.  This person provides executive level ownership of the integration, owns development of common vision and strategy for the combined organization and identification of business imperatives.  The company CEO and or COO typically appoints this person.

The ESC is typically made up of company / divisional senior executives and includes the Executive Sponsor.  Other executives appointed generally includes representatives from HR, sales, legal, finance and IT, but the level of involvement and committee membership varies depending on the size, strategy and complexity of the transaction.  This committee provides overall governance to the integration process.

B)  Identify Integration Leader (IL) & Assemble Integration Leadership Team (ILT)

Owner: Executive Sponsor

Approvals: ESC

Definition: The IL is typically a Senior Manager or above in the division sponsoring the transaction and is the liaison between Executive Steering Committee, Executive Sponsor and Product Advisory Committee, and the workstream teams.  This person is ultimately responsible for managing all aspects of the integration and reports to the Executive Sponsor.

The ILT Consists of the Integration Leader, Project Manager, functional workstream team leaders, as appropriate, and outside integration consultants/advisors, as required.  Functional workstream team leader’s appointment to the team should be based on factors such as acquisition focus / strategy / structure, potential areas of risk (HR, Legal, etc.), etc.  It is the team that helps make Level 1 decision, as needed, and helps to formulate recommendations for Level 2 decisions.

C)  Determine need for Product Advisory Committee (PAC)

Owner: Integration Leader

Approvals: Executive Sponsor

Definition: A PAC may or may not be needed, depending on the businesses, the industry and type of acquisition.  Very product-intensive companies or acquisitions that are dependent on product strategies will most likely need a PAC.

D)  Identify Functional Workstream Leaders & assemble teams

Owner: Integration Leader

Approvals: ESC

Definition: Each workstream typically should include two co-leads, one from the acquiring and one from the target organization.  These are typically managers or above in their functional area.  These leaders ultimately own the development and successful execution of all workstream team deliverables, including Status Reports, Charters and Workplans.

E)  Develop Reporting / Escalation Plan, Level 1 & 2 Decision Criteria and Meeting Cadence

Owner: Integration Leader

Approvals: ESC

Definition: The IL is responsible for defining how progress reporting to ESC will be handled, as well as regular communication with the ES.  He/she will also need to define how risks and issues will be escalated to the ESC/ES and how the feedback loop to the workstreams will happen.

Secondly, the criteria for Level 1 and Level 2 decisions need to be defined, to outline what types of decisions can be made at the workstream / ILT level and which ones need to be escalated to the ESC/ES.

F)  Develop Transition Plan for moving from Due Diligence to Integration

Owner: Integration Leader

Definition: If the IL was also the Due Diligence Leader, this is not as critical.  If not, it is critical that the IL work with the Due Diligence Leader on a transition plan to ensure that all material findings, potential risks, etc. are documented and communicated to the IL.  The DDL will need to be available through closing of the deal, to ensure proper support.

G)  Finalize Integration Framework

Owner: Integration Leader

Approvals: ESC

Definition: The IL is responsible for tweaking and finalizing, documenting and communicating the integration framework, which includes all the other components in this section.

H)  Develop Integration Planning Kick-off materials and plan for session

Owner: Integration Leader

Definition: With the help of the Project Manager, the IL is responsible for planning the kick-off workshop for integration planning with all workstreams.  The purpose of the kick-off is to give an overview of the acquisition, the acquisition strategy, align the teams on their scopes and goals, to give an overview of the tools (integration workplans, charter document, issues/risks tracker, etc.) and to have break-outs by workstream to have the charters developed.  This workshop could take up to 2 days but can normally be done in one.

M&A Integration Planning Milestones

A)  Hold Integration Planning Kick-off / Orientation Workshop

Owner: Integration Leader

Definition: With the help of the Project Manager, the IL is responsible for planning the kick-off workshop for integration planning with all workstreams.  The purpose of the kick-off is to give an overview of the acquisition, the acquisition strategy, align the teams on their scopes and goals, to give an overview of the tools (integration workplans, charter document, issues/risks tracker, etc.) and to have break-outs by workstream to have the charters developed.  This workshop could take up to 2 days but can normally be done in one.

B)  Workstream Charters Developed and Approved

Owner: Functional Workstream Leaders

Approvals: Integration Leader & ESC

Definition:  Workstream charters should be completed during or shortly after the kick-off workshop and approved within a few days.  Some may need to be re-worked after IL / ESC review.

C)  Begin ESC, ILT and Workstream cadence

Owner: Integration Leader, Functional Workstream Leaders (respectively)

Approvals: Integration Leader & ESC

Definition: Meeting cadence should be established for the ESC, ILT and each workstream during or shortly after the kick-off workshop.  This varies by company, by deal size/type and by phase/stage of integration planning and execution, but general guidelines during integration planning are once a week or bi-weekly for the ESC, weekly for the ILT, and twice a week for workstreams.  In determining this, “E” in the previous section should be considered, so that material findings can be escalated between meetings, if needed (or emergency meetings called).

D)  Phase I & II Workplans Developed and Approved

Owner: Functional Workstream Leaders

Approvals: ILT

Definition: Phase I & II workplans (Day 1 and Day 2-30) should be developed and approved immediately after charters are finalized and approved.  This is, of course, an iterative process and the workplans are living documents, but getting the first two workplan phases as solidified as early as possible is crucial to success.  There are many dependencies in the early stages (i.e. organizational changes, communications, etc.), so no time should be wasted in getting them started.  For the core functions, many / most of the workplan entries will come from the appropriate Integration Playbook.

E)  Hold Cross-Functional Dependency Workshop(s)

Owners: Functional Workstream Leaders / Integration Leader

Definition: As necessary, cross-functional workshop(s) should be held to discuss any cross-functional dependencies on Phase I & II workplans, to decide timing, owners of each action, etc.  The first workshop should happen immediately after workplans have been reviewed by the ILT and are considered 80% finalized.  The workplans will most have to be tweaked after the workshop(s), so close coordination is required.

F)  Finalize Day 1 Actions, Interim Organizational Structure and Day1 Communications / Packages

Owners: Functional Workstream Leaders / Integration Leadership Team

Approvals: IL

Definition: All actions that need to be executed on Day 1 (Phase I workplans) need to be finalized at the detail-level in the workplans.  This usually only includes a handful of things, like Interim Org Structure, communications (see Communications Plan), any town hall meetings, employee “welcome” packages, etc.  Some/all of what is implemented for Org Structure may be permanent, but not many changes have to be implemented immediately.   For example, you may only opt to announce who the CEO of the combined company is and what role the former CEO of the other company is and indicate that other changes will come in the next 30 days.

G)  Hold Day 1 Readiness Review with ILT and ESC

Owners: Functional Workstream Leaders / Integration Leader

Approvals: ESC

Definition: This is a formal session, sometimes lasting up to half a day, to review all Day 1 (Phase I) actions with the ESC.  Nothing reviewed with them should be a surprise, as material / Level 2 decisions should have already been escalated to the ESC.  However, many times there may be details that need to be worked out, such as exact timing of communications to employees of each company, the press releases, etc.

H)  Execute all Day 1 Actions (Phase I)

Owners: Functional Workstream Leaders / Integration Leader

Definition: Execution of all Day 1 actions on Day 1.  This is a coordinated and combined effort of all workstreams, the ILT and ESC.

M&A Integration Execution Milestones

A)  Execute all Phase II actions (Day 2-30 actions)

Owner: Functional Workstream Leaders / Integration Leader

Definition: After Day 1 fanfare is over, the execution of Phase II workplans (Day 2-30) should begin.  It is important that these plans are finalized and approved before Day 1, so the execution can happen starting Day 2. 

B)  Finalize and Implement Final Org Structure

Owner: Functional Workstream Leaders / Integration Leadership Team

Approvals: ESC

Definition: Recommended organizational structures and recommendations on which roles are redundant for each function, should come from each corresponding workstream.  These recommendations must be approved by the ESC before being implemented.  The executive-level organizational structure recommendation should come from the ILT, but most decisions usually happen during regular ESC meetings.  The timing of implementation depends on many factors, but generally, the new organization should be completely in place within 60 – 90 days of closing.  Open and honest communication to employees about potential redundancies / lay-offs, changes in structure, etc. is critical in maintaining employee morale.

C)  Develop Phase III, IV & V actions and get approval, then execute (Day 30-90, 90-180 & 180+ actions)

Owner: Functional Workstream Leaders / Integration Leader

Approvals: ILT

Definition: Development and approvals of Phase III, IV and V workplans should start immediately after Day 1, in parallel with the execution of Phase II workplans.    For the core functions, many / most of the workplan entries will come from the appropriate Integration Playbook.  Execution of each should start at appropriate time intervals.

D)  Phased Transition to Business as Usual

Owners: Functional Workstream Leaders / Integration Leader

Definition: Transition of each major task to Business as Usual should be part of all workstream workplans.  It is important that this transition for each major area of integration, for every workstream, be considered part of the integration workplan, to ensure a smooth transition to Business as usual.  Some pieces may move to BAU within the first 30 days, while some may take much, much longer.  This has to be closely managed.

Typical M&A Functional Workstreams

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.

A detailed description of each functional workstream can be found here: Typical M&A Functional Workstreams