Opinion: Integration is key in acquisitions

According to a number of studies, 70%-90% percent of acquisitions fail. However, notwithstanding this truly depressing statistic, the number and scale of M&A transactions in our sector has increased exponentially. The main reason for these failures is often cited as being problems with integration.

What does integration mean? It always surprises me how integration in this context, still means so many different things to so many different people. At its most basic level, and according to one dictionary, integration ‘is the act of bringing together components into a single system that function as one’. But what does this concept of oneness really mean? Does it mean under one name, under one system or under one legal entity?

In truth it can mean all three of these things. For some, integration simply means a shout out to the owning company in the small print or having the same name above the door. While for others, integration means a true meeting of minds, culture, systems and processes with the aim of creating value and serving customers better. However, the most important driver for the shape of the integration should be the original objective of the deal itself. The deal rationale is specific to each acquisition, and therefore the integration approach should be too.

The best integrations bring out the best of what each firm has separately and combines them to achieve things together

Partnering vs integration 
There is a trend among a number of firms, particularly when they acquire an overseas entity, to partner rather than integrate. With this model, incoming firms are deliberately left alone to do what they were doing pre-acquisition. The incoming firm retains their organisational structure and the acquirers retain the senior executives, particularly the CEOs, and give them the same autonomy they previously enjoyed. The new parents simply lay down their values and create a fresh sense of purpose in their acquisitions. They hunt for synergies in a few careful areas, so that they are not disruptive to their acquisitions’ business. Essentially, the acquirer treats the acquired organisation as it would a partner in a strategic alliance. The questions that spring to mind with this approach, is what does that mean for value creation over and above the addition of the incoming revenue, and what was the deal rationale, if it was not value creation?

The best integrations bring out the best of what each firm has separately and combines them to achieve things together that could not be achieved apart. The aim of this is to realise the benefits that were wrapped up in the deal itself. This means looking at each strand separately such as sales, IT, operations, etc. and determining where to accelerate or delay integration activities, by considering which create the most value while sustaining the momentum of the integration.

It is not a linear process either. Rarely do you start at step one and progress through to step 100 without having to re-evaluate priorities or the approach. The incoming firm’s appetite for change is a key factor and foundations and expectation must be set way before the deal is closed. If a firm believes that they will be left alone and then the integration team pitches up on day one, things are destined not to end well.

What about culture?
Executives often convince themselves that the cultures of the companies involved in the transaction are similar and will be easy to combine. This is a very common mistake and results in too few resources being allocated to this. Cultural integration should be seen as equal in importance as due diligence, negotiation and close, and it should be started early. It is not something that should be left for the HR function to run either. Business leaders need to be visibly leading the charge and actively prioritising the cultural integration.

However, one of the difficulties that leaders often face when trying to talk about culture, is articulating what “the culture” of the firm actually is. In essence, what it feels like to work there. Unless you have done a cultural diagnostic, conversations are often based on anecdotes or beliefs and this can lead to misconceptions. These can sometimes start to unravel integration efforts soon after the deal is signed. Even if it is not possible to have a full diagnostic done, there are some tools that can be used to articulate “how things are done round here” to help leaders have more productive conversations.

Whatever the approach, one thing is very clear, rarely do integrations run smoothly. However, as Leo Tolstoy once wrote: “What counts in making a happy marriage is not so much how compatible two people are, but how they deal with incompatibility,” and that is why at SRG collaboration, transparency and flexibility are seen as key to the integration process. 

Clare Lebecq is group chief operating officer at Specialist Risk Group