Sign up for expert insights, industry trends, and key updates—delivered straight to you.
It’s natural for the shape of a business to change over time. That can happen through acquiring another business as part of overall growth plans and then integrating it into your own or through the carve out or separation of a business unit destined for sale or closure.
When you carry out a strategic acquisition, it’s crucial to consider ahead of time how you will amalgamate that entity into your existing business. Each situation is unique, but the ultimate goal in any transaction is to maximise and protect value.
Unfortunately, transactions often fail because the integration isn’t considered early enough in the transaction. In fact, the wheels need to start turning on integration plans as much as a year ahead of time, as you do your due diligence.
While buyers expect to conduct due diligence across areas such as finance, tax, commercial, operations and legal, for integration, areas such as HR and IT are almost as important.
For example, how are you going to integrate the IT system of the business you've acquired into your IT system? Are financial reporting processes, periods and systems aligned? How will you align cybersecurity systems? Have you considered the people element of the business – culture, roles, responsibilities, remuneration? It’s vital to have a comprehensive plan of how you're going to navigate these issues and communicate around them.
From our experience, we see integration is likely to work out well when there is a clear strategic vision and approach, clear control of the core businesses, strong leadership and people management, and a sharp focus on value capture and protection.
Being well prepared and organised is crucial to integrating an acquired business. We typically work with our clients across five critical areas during this process to ensure it is successful.
To achieve successful integration, you need to be armed with detailed background information, a solid plan for execution and a clear vision of the end goal. With our clients, for example, we support with pre-transaction diligence, integration blueprinting, transition services agreements (TSAs) and the target operating model development.
We often call this synergy identification, but it’s important to assess what is realistic rather than aspirational when it comes to the timelines of this critical aspect of integration planning. Successful deals make the most of both revenue synergies and cost savings.
For example, the company being acquired may no longer need to rent its office, which would lead to a cost saving. Revenue synergies can be gained through areas such as cross-selling or increased pricing power.
At the heart of all business operations is technology, an essential integration consideration (in terms of both business operations and regulation) across:
Being able to assess financial performance accurately, as and when needed, can drive both performance evaluation and decision-making post-deal, as well as ensuring reporting obligations are satisfied. We make sure our clients consider:
People are the cornerstone of any business, so you must prioritise retaining and attracting a motivated and capable workforce during and after the integration. When we advise clients on protecting people and culture, we emphasise
To achieve maximum value from integrating the new company, you need to seize the window of opportunity. The first 100 days are critical when it comes to capturing maximum value from a transaction and supporting long-term growth.
To that end, it’s vital to have a clear implementation plan post-deal, including clearly delineated roles and responsibilities. Who is going to put the plan into practice, manage the project and make sure the integration is successful?
CEOs and managing directors are typically too busy to work on the nitty-gritty of integrating people and IT systems, but they do need to lead and buy-in to the process. Many integration tasks may fall to finance, others to IT and more to operations, with companies often looking to external advisors to support and manage the project.
Poor due diligence can lead to poor integration. Before inking a deal, it’s crucial to be confident that there are no skeletons lurking in corporate cupboards. Mitigating any chance of unpleasant surprises is all part of integration planning.
As they say, ‘culture eats strategy for breakfast’ - make sure the management teams of both companies meet early and often in the process, not just to hammer out details of the deal, but also to check for a good cultural fit.
Other integration pitfalls to watch out for can include:
While similar factors need to be considered for separating businesses, the emphasis is of course different to that in an integration.
The need to separate a business into two or more parts can arise in the context of an M&A deal, where a company is selling part of its operations to a buyer, or in the course of normal business, where it wants to separate into different entities for reporting purposes or other commercial or operational reasons.
Sometimes, separation is about streamlining business operations and refocusing on core competencies. On that front, spin-offs, carve-outs and divestures have risen notably in the past two to three years, with a shift towards an M&A focus on non-core assets and strategic portfolio adjustments – a trend amplified by increased private equity interest in divested assets.
As with integration, it’s critical to drive value and cut through complexity when it comes to carving one business or business division out from another. The five pillars of successful integration (planning; value protection and creation; technology; finance; and people) also hold when it comes to separation, as do the related pitfalls.
Naturally, these are all viewed through the lens of successfully separating out the businesses. When it comes to protecting value, for example, those overseeing a separation need to be on the lookout for any potential ‘stranded’ costs. When the time comes to split costs in general across the separating entities, it’s vital to divide those equitably.
In fact, one key reason for an unsuccessful carve-out is failure to properly design and implement an adequate separation plan, particularly in relation to finance functions. This may result in working capital and cash shortfalls, and unreliable financial information impeding strategic decision-making, among other issues.
Due to its complexity, separating IT systems is typically the biggest cost incurred in a separation, both in terms of time and money.
Effectively disentangling IT systems, infrastructure, business processes and digital platforms is crucial to maintaining seamless operations, ensuring data integrity and minimising disruptions. We work with our clients to ensure both the parent company, and the divested entity can function independently and preserve value.
It’s also worth bearing in mind that separation risks such as operational disruption, employee retention and excessive use of TSAs can erode the overall value of the non-core entity or asset. That can have a knock-on effect on the deal value for both parties.
Employee retention and morale post-deal are key success factors in creating and protecting value. Your people must be a key consideration across the process. When we work with clients on separation projects, we deep dive into organisation design and talent, culture and engagement, labour relations, HR operations, and HR due diligence., drawing on our HR and people solutions expertise.
Grant Thornton’s integration and separation capabilities draw on the experience and expertise of a multi-disciplinary advisory practice, with a skill set tailored to support the planning and delivery of successful transactions. Talk to us today to ensure your deal unfolds smoothly.
Recognised as Ireland’s #1 Deal Advisor for 2024 by Experian and PitchBook league tables, Grant Thornton continues to deliver trusted guidance across the transaction lifecycle. To find out more about how we can support your business, talk to our Deal Advisory team.
