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Integration agility: what playbooks don’t tell you

While M&A integration playbooks are helpful, a cookie cutter approach can be counterproductive.
Integration agility: what playbooks don’t tell you
Sean O'Connell

Helps international healthcare systems, branded generics in pharmaceuticals, strategy, and corporate finance.

You have done the diligence, negotiated a deal price and signed the merger/acquisition agreement. The regulatory and shareholder approvals are looking good, and you are ready to pat yourself on the back on a deal well executed. However, what you do next and how you approach the integration will critically influence whether you make or break the deal.

Of 638 merger management professionals recently surveyed by McKinsey, only 25 percent reported consistently achieving both their cost and revenue synergy goals. Of these top-performing professionals (those that reported meeting or exceeding both synergy goals), greater than 70 percent attributed their integration agility (i.e., their ability to look at each deal uniquely and tailor their integration approach to deal rationale and sources of value) as a key success factor.

Of 638 merger management professionals recently surveyed by McKinsey, only 25 percent reported consistently achieving both their cost and revenue synergy goals.

Integration agility has become all the more important as companies increase the number and variety of deals they are doing. Many companies with in-house integration professionals have developed “playbooks” to codify their learnings from past integrations in order to jumpstart and accelerate their current integration. However, while these “playbooks” are helpful, there also exists a very real risk that they enable applying a cookie cutter approach to transactions.

Top performers cite the special need for tailoring when:

  • The target's core business is outside of the acquirer’s expertise.
  • Strong cultural differences exist between the two companies.
  • The target is large relative to the acquirer.

While impossible to solve for every possible situation, in our experience, we have found grounding an agility-based approach along three integration philosophies as a helpful starting point:

  1. Co-create NewCo: This applies when you have two comparably sized and comparably performing competitors.

    The deal sources of value typically tend to be:

    • Detailed org design assessment and designing the new operating model to transform NewCo productivity/performance levels.
    • Identifying and capturing operational synergies from combined scale.
    • Re-thinking shared services and realizing synergies from streamlining/transforming top business processes.
  2. Leverage AcquirerCo: This applies when you have a large, well-performing company acquiring a smaller target in its core business area.

    The deal sources of value typically tend to be:

    • Leveraging AcquirerCo scale to improve performance and cost base.
    • Deploying AcquirerCo capabilities and best practices.
    • Enabling access to AcquirerCo sales force and channels (cross-sales).
    • Enhancing product portfolio and improving customer choices (e.g., bundling, integrated products).
  3. Protect TargetCo: This applies when TargetCo is in a space where the AcquirerCo has limited expertise.

    The deal sources of value typically tend to be:

    • Leveraging TargetCo local market knowledge, existing sales force, channels and customer base.
    • Using TargetCo IP in AcquirerCo products.
    • Utilizing AcquirerCo’s R&D and commercialization capabilities to accelerate and scale.
    • Cross-linking and leveraging legacy business with new model to drive growth.
    • Maintaining entrepreneurial culture and retaining key talent.

Each philosophy has several materially different sources of value to which successful integrators carefully pay attention and craft customized approaches for realizing full merger potential. In our next blog post, we will look to showcase the key areas that top performers tailor and how they vary across the integration philosophies above.

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