Merging two businesses is a complex task — even just the pre-deal buying process requires a great deal of time, resources and strict confidentiality. It may surprise you to learn that some organizations end up focussing so much on pre-deal due diligence that integration is treated as an afterthought — or even deliberately delayed. Ultimately, 80% of M&A deals lose value because the integration process is overlooked. We already know that integration can provide countless benefits, ranging from improved efficiency to enhanced customer experience, but there are several reasons why companies might not give it the attention it deserves from the outset. In these cases, companies might engage in late-stage integration, where it becomes a priority much further down the line. In this article, we will shed light on some of the reasons why integration might start late, and explore challenges we have seen that can arise from tardy integration.
In the throes of an acquisition, companies may either delay integration unintentionally, or they may choose to do so deliberately. Unintentional delays can be caused by a myriad of factors, the most common being under-preparation. For management teams with limited M&A experience, the scope of integration work can be vastly underestimated, meaning that internal teams are too busy to take on extra responsibilities on top of their day-to-day roles. In our experience, this is particularly the case with smaller companies who don’t have extra resources to dedicate to integration. But it isn’t always an inadvertent oversight. On the flipside, some leadership teams may make a conscious decision to keep the two organizations as separate entities (i.e. no integration of the Target). While this choice falls to management discretion, it is not to be taken lightly, as an un-integrated Target can have negative knock-on implications across the wider organization. In many cases, keeping the Target completely siloed waters down the expected deal value as you don’t reap the benefit of combined synergies, but it can be retroactively reversed with a late-stage integration approach. A final option is that the organizations sit separately for a set period of time (say, the first 6 months post-close), after which integration will commence.
Here at Scion we have been brought in to support our clients in each of these scenarios. In every case, our team will perform an initial diagnostic report to understand the lay of the land and figure out where any roadblocks are — whether that’s due to limited resources, lack of planning or missed synergy opportunities — then, if required, set the integration plan in motion. In a recent project, we worked with a client who aimed to keep their Target separate without integrating it into their wider business. The Buyer’s management team were able to justify this at the time due to complexity, cost and regulatory hurdles, but it ended up being the wrong decision. The fragmented structure hindered business performance and keeping their entities separate meant that there was no ability to create a shared culture between the two organizations. Teams were unable to collaborate with one another, which was exacerbated as there was no IT integration, meaning that employees were using entirely different communication platforms. The lack of systems integration also impacted financial reporting, as there was no overarching system to keep track of business performance of the newly combined org. Unsurprisingly, this displeased investors, who were unable to measure the success of the acquisition. After facing mounting pressure from stakeholders, the management team were left with no choice but to attempt integration as a last-ditch effort to salvage its position in the market after 6 months of sloppy and disjointed operations. Enter Scion! This forced late-stage integration became a pivotal moment for the company; we were delighted to help catalyze resolute action and decisive leadership. Despite its delayed kick-off, fortunately our integration plan was able to steer the company back towards a path of renewed success.
This just goes to show that embracing integration, even at a late stage, holds the potential to breathe new life into an organization that might otherwise be struggling. In an ideal world, integration would be prioritized from the outset of any M&A deal, but in reality, external circumstances or strategic considerations may delay this crucial process. Making a concerted effort to integrate further down the line signals a company’s commitment to transformation, where they will hopefully emerge stronger and more agile. Have you decided against integrating your Target? What was your experience? Let us know in the comments below.
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