The 10 Key Stages of M&A Transaction

Key Takeaway

• Successful M&A integration starts during the due diligence phase. Plan early, identify synergies, and utilize detailed insights to lay the foundation for value creation post-deal.
• Modern integrators use digital tools and AI to manage processes, identify cultural differences, and manage risks.
• Prioritize critical decisions that deliver the most value, such as operational alignment and cross-selling strategies. Detailed planning for revenue synergies is essential for sustained growth and integration success.
• Resolve cultural differences, power dynamics, and staffing issues to prevent disruptions. Align leadership and vision for smooth integration and avoid financial and organizational setbacks.

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Frequent acquirers have a significant advantage in integrating two companies compared to others. They view integration as a skill rather than a process and understand that each deal requires a specific approach to achieve the strategic goals.

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These acquirers are willing to invest in the integration process as they recognize mistakes can lead to unsuccessful deals.

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There are several reasons why mergers and acquisitions often fail. Common issues include loss of value, ineffective communication, and differences in company cultures. If these problems are not adequately managed, a successful merger or acquisition becomes challenging.

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What sets successful integrators apart, and how can ambitious M&A companies without much experience in this area stay competitive? The most effective integrators consistently follow a set of 10 steps.

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1. Plan Integration during Due Diligence

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Companies must consider integration early in the process rather than waiting until after a deal is finalized. Acquirers should use the due diligence process to ensure they can integrate effectively to maximize value creation once the deal is completed.

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Top-performing companies maximize a brief investigation period with an early start and utilize external data to identify synergies quickly. Subsequently, they dig deeply into particular sources of value and utilize streamlined teams and swift data analysis to assess possible financial benefits.

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For instance, when Emerson acquired National Instruments, they were well-prepared with essential details, like clear synergy goals and a thorough understanding of the technology involved. This level of diligence sets Emerson apart from many other acquirers and lays a solid foundation for creating value during the integration process.

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2. Financial Planning

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A key element of a successful deal is a clear plan that outlines the acquisition's strategic purpose and potential benefits. However, it is essential to go beyond this initial plan. Effective integrators use the deal thesis to create an integration plan that defines how the integration process will achieve the intended benefits.

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Many companies miss out on the opportunity to fully transform both the acquiring company and the target company by only focusing on essential integration efforts defined during initial due diligence.

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3. Plan and Deliver through Software and AI

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For years, integrations involved project managers filling up meeting rooms and lunch areas to oversee weekly operations. Nowadays, top integrators utilize digital technology and AI to reform the M&A process. Apart from cost savings, these tools offer significant benefits by providing leaders with the necessary information to make value-oriented decisions when allocating resources swiftly.

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Even though artificial intelligence (AI) and generative AI are relatively new to some people, they are already proving valuable tools for many individuals. According to a recent survey of over 300 M&A practitioners, 22% have started utilizing generative AI to improve their integration planning process.

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This technology has significantly expedited tasks that were previously done manually. It assists in quick matching and analysis of data from different companies.

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Some of the common benefits include:

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• Identification of cultural differences.
• Creation of new job descriptions.
• Written communications that align with the deal's vision.
• Identification of potential risks that require extra attention from leadership.

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The most effective integrators understand the importance of using digital tools specifically created for integration, in addition to artificial intelligence. While it might seem more straightforward to adapt existing transformation or project management tools for integration purposes, such tools are usually designed with only one company in mind.

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They may not meet the fundamental needs of integrating two companies. It is essential to recognize that the effectiveness of tools depends on the processes implemented and the quality of data available.

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Must Read: 7 Common Risks involved in Mergers and Acquisitions.

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4. Prepare for Multiple Closing Scenario

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Recently, there has been an increasing trend of global regulators becoming more involved in questioning deals, resulting in delays and uncertainties in their closure. Compared to 2015, challenged deals now take an average of three months longer to finalize.

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Surprisingly, over 40% of these challenged deals require a year or longer to navigate regulatory processes. This uncertainty can distract teams, leaders, and customers as plans constantly need to be adjusted due to evolving circumstances.

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5. Prioritize Decisions that Deliver the Most Value

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One strategy for successful integration is to use stage gates that allow most of the company to concentrate on the core business. Dell's $67 billion acquisition of EMC involved countless decisions, but they focused on one crucial aspect of the deal's success.

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Dell made a key decision to prioritize cross-selling both companies' products through separate sales teams early on rather than spending time integrating teams and systems initially. With this critical decision, Dell achieved significant revenue growth within the first year, while other acquirers would still be sorting out internal issues.

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Key decisions differ depending on the deal and often involve multiple departments. These decisions include determining operational structure, revising production and distribution locations, coordinating research and development strategies to achieve the results of the merged products.

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These decisions are crucial to the deal's success and should be discussed in the steering committee meetings and integration plan rather than left to one team to resolve.

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6. Move Beyond the Integration "Traffic Cop" Mindset

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Many companies, especially those with limited experience in mergers and acquisitions, may view integrations as simple projects that require project managers. This perspective often creates the belief that the overall strategy is already established, with the main focus being monitoring teams to ensure they adhere to their work plans.

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Such integrations are often called "traffic cop" integrations, as leaders primarily concentrate on identifying and correcting any deviations from the set course by team members.

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Effective acquirers concentrate on the deal's value, utilize cross-functional teams to oversee interconnections, and establish precise alignment on integration priorities and strategies throughout the organization.

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7. Resolve Power and People Issues Quickly

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Choose individuals from both companies who align with the vision and can contribute significantly to it. A challenging deadline for appointing top-level positions should be set and adhered to, as delaying tough staffing decisions can increase complexity.

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Announce the appointments instantly to prevent your top customers and employees from being repulsed by competitors during a vulnerable time. This way, you can avoid the risks of talent and customer loss and proceed with the integration smoothly.

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Delayed decisions will result in unnecessary employee debates and wasted time dealing with headhunters. 

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You may also enjoy: Mergers and Acquisition Fact Sheet.

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8. Remove "Fault Lines" that Hinder Process

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Cultural issues can lead to significant financial losses when they hinder integration. While not all cultural differences require attention, specific key differences, referred to as "fault lines," can harm the value of a deal.

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These differences may seem like isolated incidents, such as a missed deadline or altered decision-making processes, but they often stem from varied work styles and expectations between organizations. If not addressed timely, these issues can escalate into hostility. 

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A successful case study is seen in Hitachi's acquisition of GlobalLogic, where the Japanese company prioritized understanding and bridging cultural gaps to improve its digital engineering capabilities without hindrance. One significant concern was the possibility of the target losing its distinct advantages under Hitachi or any other big company. Hitachi made a substantial investment in identifying and addressing cultural differences. This involved conducting workshops, in-person meetings, and forming a diverse team across different locations to clear misunderstandings.

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The investment ultimately helped maintain the culture at GlobalLogic by acknowledging how it benefited innovation and then implementing those insights at Hitachi. Additionally, it allowed the best aspects of Hitachi's culture to be shared with GlobalLogic.

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9. Get Real on Revenue Synergies

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A primary reason deals don't succeed is the lack of expected revenue benefits. Many executives don't have enough detailed information on these benefits to include in their plans. Revenue benefits should be a priority as they require careful analysis to ensure all opportunities are maximized for both companies' products and customers.

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This process requires coordination and effort to ensure a smooth transition. Despite integration challenges, companies that approach revenue synergies with a strategic mindset can enjoy significant benefits. 

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The emphasis on cross-selling and go-to-market strategies confirms the merger's benefits to sales representatives and customers. This approach also allows the company to focus on developing long-term revenue opportunities through integrated product offerings.

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10. Invest to Build a Repeatable Model

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Companies that successfully engage in mergers and acquisitions often benefit from a continuous improvement cycle. You can initiate this system if your company has not established it during the following integration process. This requires several key elements to work together:

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• A strong commitment to M&A as a growth strategy.
• Investment in M&A capabilities such as the team and operational structure.
• Alignment of goals with management and the board.
• Access to a reliable network of advisors.
• A flexible approach to achieving objectives across various types of deals.

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Give a read to: A Complete Guide to Post-Merger Integration.

Final Thoughts

During the stages of mergers and acquisitions, it is essential to keep the main goal in mind: A profitable deal that is beneficial both on paper and in practice. 

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Moreover, companies should add an eleventh step after completing a deal: a review or "lessons learned" phase. This should involve gathering feedback from all leadership teams and a diverse range of employees from both sides of the transaction.

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Just as information about target companies is stored in virtual data rooms or project management tools, the insights from this review should be organized and saved similarly. This ensures that the information is easily accessible when the  M&A process begins.

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