Back to Basics – Step 2: Confirming your Integration Objectives and Benefits

Back to Basics – Step 2: Confirming your Integration Objectives and Benefits

Back to Basics – Demystifying Integration Design, Planning & Execution

M&A integration: Challenging to deliver, yet not complicated to understand. Success comes down to a few basics. Often missed or mis-applied, they are easy to spot in hindsight. To succeed, you must keep them in sight throughout the tumult of the deal. Over 20 years, on over 100 engagements, Beyond the Deal has fine-tuned its approach to integration design, planning and execution. Sharing this knowledge has created a learning dynamic. If you are preparing for your first integration, or looking to improve your own approach, this series of blogs will outline BTD’s thoughts and learnings on the basic steps. You can access the entire set of posts and podcasts in this ‘back to basics’ series here.

 

Step 2: Confirming your Integration Objectives and Benefits

So it’s now been a week or two since kick-off of the design and planning phase of integration (as we described in our first post), and you’ve spent that time wisely learning about the deal and building your relationships with the key players in the exercise, those who will be responsible for running the post-close business and delivering the benefits. But what are those benefits exactly? “Easy!” I hear you say, “They’re all here, nicely laid out in the deal business case.” If this is true, then that’s a great start, but the purpose of this step in the process is not to review or revalidate the deal benefits and synergies (unless you need to), but rather to understand what post-close integration objectives will be required to deliver them.

While the end result can take many forms (one of which we’ll discuss below), the aim is to generate a set of SMART[1] objectives for integration that:

  • Fully connect back to the deal synergies and benefits
  • Are at a level of ‘project’ and ‘operational’ detail that is concrete and understandable
  • Are agreed by everyone in your design group

 

To develop these, we at BTD believe that, whenever possible, an inclusive approach is best:

  1. Take whatever available data you have from the deal documentation and start to construct a ‘benefits tree’, clearly defining each independent benefit or synergy (eg ‘increase overall revenue by 10% above combined but standalone business projections within the second year post-close’; you’re likely to have no more than 3-5 of these at this level of detail. If you are able to do so, start to decompose each benefit or synergy into the next lower level of objectives, effectively defining what will need to be achieved to realise the upper-level goal (eg “increase volume sold of product ‘x’ by 20% within the second year post-close”). But don’t go too far: In our experience, even this level of analysis is not generally possible without your functional leadership deeply involved, which brings us to…
  2. Bring the key players together to co-develop the ‘lower branches’ of your benefits tree in a workshop setting. You may be tempted to pull the data from each of them individually and do this ‘off-line’, but try to avoid this: getting them all together in a room to discuss, debate, understand inter-relationships and ultimately agree on the final benefits structure is crucial to buy-in. If facilitated well, their agreement with the results of this exercise will also deliver their commitment to delivering it.
  3. Spend time considering non-financial benefits: At its best, M&A is about new capabilities, and – while ultimately most benefits should eventually deliver increased profit – some might not (e.g. new market perception, increased community involvement). Others may hit the bottom line but simply be impractical to model in purely financial terms with any degree of accuracy (eg increased NPD rates, market share, improved customer satisfaction). This doesn’t mean these objectives aren’t important or can’t be SMARTly defined, it just means you measure their achievement differently.
  4. While workshopping these benefits is key, some work off-line is still going to be necessary before and afterwards to, eg, confirm specific targets and timings, analyse specific benefit areas (eg product overlap, distribution networks etc.), confirm assumptions and resolve unknowns.

The end result of this step is simple but very powerful and incredibly important. Use your benefits tree as the ‘north star’ from which everything else in your integration is driven. Assumptions raised during this exercise should be tested in due diligence. Detailed ‘branches’ in the tree should become parameters in your deal financial model. Benefits defined will inform what elements of the business you decide to integrate, when and how. Selected ‘big impact’ elements of the tree will define your judgement of overall deal performance, and so become measures on your M&A and integration dashboard. It will inform your communications around the ‘why’ of the deal…and the process of developing this tree will have brought your management team together around a single vision of success. It won’t be completely correct, so be prepared to iterate and adjust as you proceed and learn more.

Having now defined what the deal and integration is designed to achieve, you now need to develop the second piece in the puzzle: What the business (combined or not) needs to look like, how it will operate, and therefore what needs to change post-close – processes, systems, organisational structures, capabilities, culture and more. In my next post in the series, I’ll discuss the third step: Designing your post-close Operating Model.

 

 

As a specialist firm with a senior team and over 20 years of experience, BTD is providing the new thinking, advice, resources and tools to help businesses get the most out of their M&A, divestment and alliance activities. If you think we can help you achieve your goals, give us a call.

[1] SMART: Specific, measurable, achievable, relevant and time-bound