Why invest in planning your integration strategy for an add-on acquisition?
You only have one chance (and limited time) to get it right – the longer you wait, the harder it will be to integrate your company and achieve the desired benefit. It’s difficult to land the plane if you haven’t planned out all the pieces.
What are the different “types” of add-on acquisitions, and how does each influence integration strategy?
Strategic goals inform your integration plan – the strategic goals you have for the add-on acquisition will dictate how you approach the integration. That influences how you think about everything from acculturation, to the product roadmap, to organizational structure.
If the goal is to acquire customers, determine the organizational structure and, in particular, the most effective sales motion post-close – if you’re doing an acquisition to drive share within the current market, or to support geographic or vertical expansion, you may consider keeping the add-on as a separate division, or integrating it more fully into your company. In the most extreme case, you may be acquiring customer lists, and ceasing to operate the old company. You might also have separate business units, and not actually integrate the technology or org structure.
If the goal is to acquire revenue/scale or EBITDA, consider how you’ll integrate operations at the new scale – if you have a growth plan that factors in multiple expansion from inorganic growth from roll-ups, M&A will be essential. Lowering blended costs is a big driver too, e.g. merging sales teams together to eliminate duplicate management, consolidating down two CFOs, and other cost reduction levers that will boost EBITDA for the combined company.
If the goal is to acquire a product, have a tight plan for your technical integration – acquiring technology could allow you to deepen your product offering, or create an immediate product expansion opportunity that enables you to sell to new customers or cross-sell and or upsell for your existing customers. If you’re integrating a new technology, that’s going to affect your engineering and product teams and will likely have a lengthy lead time.
How should you think about the level to which the target will be integrated?
Ask yourself why you’re doing this acquisition – what is the purpose of the transaction? What is your model underwriting to – e.g. if it’s G&A cost reduction, then you really don’t have a choice but to fully integrate, but if it’s cross-selling you have more leeway. If it’s operational efficiencies, then you’ll at least need to integrate the business systems and the infrastructure. Another part is, what do you want the company to look like when you sell? What factors will make the company valuable to an exit partner? Examine your company’s exit strategy on a regular basis (yearly, at a minimum) and make sure it aligns with the other strategic moves you are making.
Option 1: operate the add-on as a separate entity – maybe you capture some synergies at the top by acquiring add ons as part of a larger group. Maybe there’s a brand change, maybe there’s no brand change and you just rolled them up into the financials. This type of integration is often more about multiple expansion than cost reduction or technical integration.
Option 2: integrate the add-on fully into the company – i.e. you acquire a widget and rebrand it, absorbing it completely into the platform company. The product and technical integration may or may not be integrated as part of this, but usually, there is a light integration at a minimum.
Option 3: the merger of equals blending both companies – the toughest integration to accomplish because you’re starting completely from scratch. This tends to be complex and could be blending two or more companies into one brand.
Who should be responsible for integration project management?
If you’ve never done an integration before, third-party help can be a lifesaver – someone who is a generalist that can help in setting up an overall plan, strategy, timeline, which can have a steep learning curve. A lot of strange things can happen during this process, so it’s good to have an expert who can see around corners.
Someone needs to own it (not the CEO) – the main key is that someone owns it. You need someone who’s an athlete and a generalist. They can work in conjunction with the outside party to handle the learning curve, and then take it over. There’s a lot to be learned, but they should be able to learn it pretty quickly.
Involve the executive team – your CEO, CFO, and Controller will be key players. You may also involve your PE sponsor, HR, and operations, depending on what the integration plan is and who will be affected.
What should the pre-and post-close timeline look like?
- Making a plan to integrate and/or migrate business systems – you’re always going to be behind and it’s a critical part of a successful integration, so you want to start as early as possible.
- Determine go-forward org structure. Track any employees that may be at risk of leaving due to the acquisition (usually at the selling company) and make a plan to retain key people. Create robust and thoughtful transition plans for any team members that won’t be part of the go-forward org structure.
- Begin recruiting for new roles – if you need to fill new roles as a part of this acquisition, that will also take time.
- Plan out your communications timeline with employees, customers, and the market. Script out and iterate on the messages you want to deliver to each group about the transaction.
- Create onboarding and acculturation processes for new team members.
- Know who is leading what parts of the company and what’s the org structure for who’s doing what. Also, be clear on anyone who’s transitioning out of the organization.
- Have day-of announcements prepared (see later question) for all stakeholders.
- Kick off the onboarding and acculturation process for new team members immediately.
- Finance, HR (including any transitions), payroll integration
- Product roadmap alignment
- Cultural and strategic planning – over the first 90 days, expose the new employees to the strategic planning cadence. After the first quarter, everyone should be aligned on the same cadence
- Sales traction – depending on the length of your sales cycle and the integration work that needs to be done, you should be cross-selling products by this point and/or have gone to market with your integrated solution
Your integration should be largely complete by day 90, or day 180 in the case of a heavier lift with technical integration– products should be fully integrated and no one should remember what the old organization looked like.
What are key steps and considerations when it comes to communicating with employees (of both companies)?
- Who do you need to get the deal done? – this will dictate who you bring in at the LOI stage, when only a small handful of people know about the deal.
- Who do you need to retain? – bring them in earlier, and maybe offer them an employee agreement to retain them if needed. Consider bringing in people who could be a single point of failure in the organization (e.g. someone with a specialized skill set that no one else at the company knows how to do – if they left the other org tomorrow, you’d be in huge trouble).
After the deal closes, make a minute-by-minute morning announcement plan – don’t leave anything to chance, because miscommunicating a big announcement could cause you to lose\ a lot of trust from employees very quickly. This is more important for the employees of the acquired company but still applies to the acquiring company employees as well. Make employees feel like you’re shooting straight with them from the very beginning. Same for key customers – make them feel included and use the announcement to get them excited about what you are building.
You might start by telling the company that’s being bought that they’re being bought. Have the principal leader(s) of that selling company come on and say some words, along with the new owner and leadership, and have them give their full confidence. Then you probably go to the new acquiring company and do a similar announcement. Then you notify the customers and market as appropriate.
- How does this acquisition impact my job?
- How does this acquisition impact my pay?
- How does this acquisition impact my benefits?
Plan additional announcements and events for later in the week – later in the week, have something where you bring both teams together. After announcing to employees, typically send an email to customers and then issue a press release. Depending on the size of the acquisition, hiring a PR firm and engaging in media relations may be worthwhile.
What are key steps and considerations when it comes to integrating financials?
Make sure you have a skilled Controller – if you’re operating any kind of M&A strategy, you need the best controller you can find. Financially, merging the GL’s and rolling up the financials is going to be the toughest part.
Get on the same platform – some ERPs are better at rolling up financials for distinct entities than others. The right one to choose may be based on the situation and what software the entities are running.
Report separately for as short a time as possible – when possible, do the acquisition on a convenient cut-over date on the first of the month, quarter, or reporting year. Your CFO and your controller will thank you for that. Create pro formas that reflect the historicals combined and go forward combined.
What are key steps and considerations when it comes to communicating with customers (of both companies)?
For customers of the buyer, don’t make too big of a deal of it – get them excited and make them feel included. There’s really no downside for them.
Be overly responsive to key customers of the seller – you have to be more careful in this scenario because they might be really invested in this product. Tell them before the general public, focus on new investment and planned enhancements, and make them feel valued. They just want to know that they’ll be heard by the new leadership and that they’ll still be given attention. They might also use this as an opportunity to bring up contract issues or past issues they’ve had with the product, so come prepared.
- Is the product changing?
- Is my contract changing?
- Will I get attention from the new leadership?
What are key steps and considerations when it comes to integrating product teams and product roadmaps?
Find ways to cross-pollinate across engineering teams – get everyone in the same cycle, and the sooner the better. Bring leadership together and display both roadmaps to figure out how to combine them.
Figure out the product vision during diligence – then communicate the vision repeatedly, so it’s clear that there is a go-forward plan. Ideally, this is known before day zero.
If you’re acquiring a product, product and engineering could be the secret sauce at the company you’re acquiring – don’t ruin that, instead, spend time setting the vision and enabling everyone to collaborate and work together.
What are key steps and considerations when it comes to integrating sales teams?
One of the biggest mistakes you can make is distracting your sales team during the integration process – don’t lose a quarter of growth because your salesperson is trying to carry weight on diligence or integration. Even worse if you waste sales time on a deal that doesn’t ultimately go through.
When you do integrate, draw really clear lines on what people are going after – is the whole team selling everything? This can depend on the complexity of the product and the sort of sales cycle. If you acquired a high-touch product, consider keeping specialists who can sell it. Make sure everyone knows what they are doing, how they are being compensated, and how their bonuses work in the go-forward org.
How should you think about public communications?
Plan ahead for future potential partnerships – post things that speak to people that might want to partner with you in some way, like strategic partners or future investors.
- Broad media, e.g. press releases, earned and paid news articles, podcasts, and blog posts (for the public, partners, customers)
- Direct media, e.g. email (for customers, employees)
- Conversational media, e.g. town halls, webinars (for customers, employees)
How should you evaluate and plan around areas of synergy and redundancy?
This is time-consuming and important – if cost reduction is part of your model (it’s less important if you’re operating as a separate business unit). The larger and more intensive the integration, the longer it will take. This is also the toughest part of any integration – approach with empathy and commitment to do right by your employees wherever you can.
Get into the weeds on every employee – do this carefully, with lots of prep and interviewing employees to find out the role they fill, and if their level of compensation works within the larger company. The sooner you do this, the better–if you can have this on Day 0, that’d be ideal. I think there is very little you’ll gain from continuing to work with people for a few months while you figure it out
Be mindful of cutting revenue-generating roles – base those decisions around what you want revenue to look like at exit, and what you perceive as an acceptable level of growth. It may be okay to eliminate salespeople to achieve better profitability as long as you still have an acceptable level of growth.
Culture and values of the organization – determine if people fit with the culture you want moving forward. Oftentimes the leadership roles will be the easiest to determine. Diving deeper into the organization gets tougher.
How do you think about making an integration plan? What resources can be useful in planning your integration strategy?
Unless you are executing add-ons at a very high velocity (e.g. a roll-up doing 10+ deals a year), you don’t need fancy tools. You just need to map the businesses to each other – for org charts, you just need an excel with a few columns that detail the previous org structures and the combined plan going forward. For product roadmaps, you need to put them up next to each other and find ways to combine and streamline them. This may include ruthless prioritization and eliminating ongoing projects.
You do need a project manager – someone who can segment a long list of things that need to be done and sorted into key areas of focus and track them daily.
What are tricky logistical things to keep in mind?
Aligning incentives – if employees were formerly owners of the acquired company, how do you keep them motivated if they no longer have equity? This can often be solved with deal structuring for major shareholders, but you may want a plan if not.
Changing over benefits – be mindful of enrollment periods, and figure out when that switch-over should happen. PTO carryover and PTO policies are also important-don’t underestimate how much people care about their PTO policies.
Offer a new employment agreement – on day one. Part of it is IP provisions, NDAs, and things like that that you will want to have standardized for all employees.
Think about meeting culture – what are the expectations now that this company is a part of another company. What is the meeting culture? What are people expected to attend and contribute?
Combining offices is tough – people can be scared of losing their offices. How will you embrace remote or virtual employees if you haven’t had many previously?
What are the most important pieces to get right?
Communicate clearly – ensure that you communicate clearly with employees and customers and that you’re answering the questions that are important to them.
Plan your business systems integration early and thoughtfully – if you have any synergies in your model, this is the heavy-lift of integration and it’s critical to the deal.
Get the right people in the right seats (org structure) as quickly as possible – get the right people and figure out people’s new roles in the new organization.
What are the common pitfalls?
Don’t distract your growth engine – don’t distract your sales team and have them be focused on the integrations too early before the deal happens.
Avoid inconsistent vision – there’s nothing worse for an integration than not knowing where you’re going, or not being able to communicate it clearly.
Don’t under-invest in planning – allocate plenty of resources to the integration effort within your company (and consider working with a third-party consultant) to avoid moving slowly.