Integrating the Acquired Business
Added on April 18, 2015
Middle Market M&A activity for the last twelve months continues to handily outperform the prior year trailing 12 month period. No doubt, low interest rates and favorable credit markets have contributed to this increased rate of activity. The private equity industry has invested a record amount of capital; exit volume was equally high combining to provide PE investors with record distributions. Industry experts expect this robust activity to continue as long as public indices remain high. Skeptics contend that the expected increase in interest rates and the shift from a perceived buyer’s market to a seller’s market will quell transaction activity in 2015. Either way, it does appear that M&A volume in 2015 will compete with 2014’s activity levels.
A significant effort and investment is made understanding the implications of a transaction and for many professionals, once a deal is closed, it is time to move on to the next deal. For the acquiring company’s managers and the professionals they choose to hire, however, the acquisition date is merely the end of the first leg of the journey. A continuing significant effort is required to integrate an acquired business into the existing business and/or to establish the appropriate infrastructure post close.
Using the deal thesis as a guide, managers have been strategizing about what and how to handle the integration of the target for some time – but once the deal closes, it is time to put those plans into action; and in many cases, integrate the acquired business while continuing to manage the acquiring company’s core business.
As a result, management teams need to be keenly focused on key aspects of the value proposition. Major decisions should be made, if possible, prior to the acquisition and if not, as close to the acquisition date as possible. If not already captured, managers should identify the top opportunities and execute on plans to realize the benefits of those opportunities as quickly as possible. Plans to mitigate risk should also be implemented as quickly as possible.
Such decisions, however, must be made on solid facts and data. The lens through which an acquiring company views the target company begins to change post closing. The “rose-color” starts to fade, and many times, acquiring companies learn of new facts – from operational to financial – while they attempt to integrate the acquired company. Identifying and addressing those issues, whatever they may be, as quickly as possible post close will ensure a better return on the investment.
Unless your organization has a sophisticated M&A team, the difficult juggling act of ensuring forward progress of the acquiring company and the target business while at the same time ensuring optimal integration of the target business should not be tackled alone. A false step can lead to problems in both businesses and a below expected return on the investment. Consider using well trained and experienced professionals to supplement the existing team. Outside professionals are often an essential (and variable) cost to integration of an acquired company; and it is highly likely the return on that investment will be swift.
Change always heightens uncertainty, but forward momentum can quell that anxiety. As with any major change, project or event, top management must provide the integration team the power and support to ensure optimal value is achieved. Setting realistic achievable integration goals, measuring progress and reporting back to key constituents will help mitigate uneasiness, improve effectiveness and improve the return on investment.