Inarticulate ramblings of a management consultant

the day to day experiences of a consultant operating in weird and wonderful client situations

The big myth in post acquisition integration

If there’s one consistent message that I’ve heard over the last 15 years of doing post acquisition integration, it’s this:

 Big deals are more difficult to integrate than small ones

 Whether it’s the investment bankers / accountants / lawyers / consultants or Heads of Corporate Strategy, this message is probably the one thing that everyone agrees on. Complexity is directly correlated with size…for the following reasons:

  • More people requiring more effort around alignment, retention, communication…greater potential loss of productivity
  • More moving parts in the form of operational complexity, leading to greater opportunity for process variance and divergence
  • Wider product range which needs operational / support services
  • More customers with differing demands and expectations
  • Within support services, more complexity around financial reporting and financial management, broader and deeper technology requirements leading to greater service challenges, for HR talent management, training and development, organisational structure issues.
  • In the context of reputational risk and compliance, more potential for non-conformity etc.
  • Potential cross border and geographical diversity

All of these are good reasons for the perception of complexity and integration difficulty. Let us now look at where complexity arises in the acquisition of smaller businesses:

  • Inconsistency of process and a lack of policies. Often a business environment which is focused on good practice, most of which is held in people’s heads.
  • Leadership based on relationships rather than delegated authority. In family owned businesses which tend to the small these days than the larger (certainly in a Western context), the influence of the shareholder which is hard to articulate and even harder to replicate.
  • Chronic under-investment in technology and operational support systems. These are typically added through necessity rather than through good business practice. Decisions about technology are often based on price rather than capability and then made so bespoke so as to represent a significant ‘key man’ risk with the ‘owner’ of the system.
  • Highly personal customer and supplier relationships where the relationship owner also represents a ‘key man’ risk. No data about the nature of the relationship and where / if at all, money gets made.
  • Employees who are bound into the culture through longevity and choice, such that any change is regarded with suspicion.
  • Service level standards which are subtle, undocumented and therefore hard to replicate.
  • An instinctive customer focus with none of the ‘distractions’ (in the eyes of the current owner) around Health, Safety, BCP, Environment etc.
  • No spare resources in a lean corporate environment.

Let’s not let size and scale dominate our thinking and pre-determine our effort with regard to integration. Deal value destruction happens in large and small transactions…and what might appear small from a corporate head office perspective, could be enormous at the country level. For an elephant, the cat looks very small…but for a country based mouse?

 

 Elephant 2 Cat and mouse

 

Categories: Change management, Complex transformation, Functional Leadership, human behaviour, Human Capital, Mergers & acquisitions, Post merger integration, Transformation

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8 replies

  1. Ben, An illuminating scale categorisation of perceived integration challenges. However, by nature, some large Financial Service organisations are remarkebly relationship driven between say broker to client ( and who really controls that relationship) and broker to market. Hence even though the organisation may have scale, such is the level of relationship intimacy it is as vulnerable as the small business with regard to “highly personal customer/market relationships representing a key man or key team risk”. Elephants by nature, noisy though they may be, can sometimes be easier to herd than cats!

    A belated Happy Easter to you & your family,

    Alastair

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  2. Hi Ben,

    Another interesting blog. It does cause me to reflect over the merger integration initiatives I’ve worked on over the past 15 years.

    As a general rule it’s true. What makes M&A integration initiatives particularly hard is situations where Governance and it’s various manifestations (people, processes, technology etc) is absent in way or another.

    With big deals the necessary governance frameworks (teams, processes, budgets, PMOs etc) are created so the integration can run as a discrete function. But for smaller deals time is not given to this because it’s felt unnecessary or ‘overkill’. In a sense it’s counter-cultural.

    So back to your blog the complexity of smaller businesses in the ways described does make the M&A integration effort particularly hard.

    I could go on but will stop otherwise my reply will be bigger than the blog itself!

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  3. Thanks Toby…the other thing that strikes me about big transactions is the distraction from non-material elements which often seem to dominate the agenda. What may have been drawn up as a simple, well articulated and clear strategic intent becomes confused as a result of well meaning but ultimately irrelevant considerations that take time and energy…the reputational risk element is more obvious in those kind of deals.

    Anyway, glad you liked it. If you feel it’s relevant to your network, please share.

    Thanks

    Like

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