Tag Archives: integration

What’s Your M&A End-State Vision?

Having a shared vision of the end-state of an merger or acquisition is required for the successful realization of the original deal thesis and value to be gained from the business combination – a Critical Success Factor. In our work, what we find is the end-state vision can be portrayed by a simple picture. This picture drives alignment among senior executives, investors, and the numerous stakeholders in the transaction and integration of two enterprises.

Below is an illustration of the alternate end-states two firms can adopt and use for various purposes inclusive of integration planning and execution.

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Standalone Model

  • Holding company
  • Decentralized governance
  • Loosely coupled coordination
  • Few shared resources and capabilities
  • Synergy Model

Strategic business units

  • Cross-selling
  • Cost reduction
  • Shared services
  • Balance sheet combination

Consumption Model

  • Combined product lines, market segments, and channels
  • Integrated technologies and intellectual assets
  • Single operations and infrastructure
  • One entity and governance structure

Transformation Model

  • New lines of combined business
  • New value propositions
  • New industries
  • Integrated core competencies
  • Step beyond the obvious

In the most extreme end-state, a transformed business combination, the new enterprise need not undertake all integration challenges in one move. A direct line between the pre-transaction firms and transformation does not have to be the only pathway. Senior executives and governing boards might select a progression of strategic integration moves. For example, the transformation can be achieved through a roadmap such as:

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Multiple paths exist for achieving the end-state vision of new business combinations. Whether moving directly from the pre-transaction state to the ultimate business structure or selecting a series of strategic integration moves depends on the optimization of several variables such as:

  1. Financial goal
  2. Value drivers
  3. Market opportunities
  4. Speed requirements
  5. Risk tolerance
  6. Cultural differences
  7. Change capability
  8. And others

When considering potential mergers and acquisitions, what is your end-state vision? What are your strategic integration moves to realize that vision? Will these moves realize your deal thesis for value creation?

Acquisition Investment Thesis Decomposition

Buy Sell

Many reasons exist for a firm to execute a strategic acquisition. Investment theses vary from deal to deal but a general framework such as the one shown below effectively sets expectations for buyers, sellers, financial backers, and stakeholders chartered to integrate an acquired company.

3 to the 3rd works with strategic acquirers to clearly define the specifics of a deal and leverages the following eight component framework throughout an acquisition’s lifecycle.

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A deal thesis decomposes to eight elements:

  1. Growth with new markets and new products or services
  2. Marketshare gains in existing theaters or product categories
  3. Innovation usually enabled by disruptive technologies
  4. Portfolio of offerings expansion into adjacent or step-out spaces
  5. Combined valuation of the integrated firm
  6. Talent acquisition to add capabilities
  7. Culture shifts to evolve or transformation legacy organizational behaviors
  8. Process, new business models, and new infrastructure capabilities

Different Industries Weigh Thesis Components Differently

Each deal will have different relative weights for each thesis component. Through hands-on experience and research, we have found a generalizable pattern based on industry sector.

Modeled below are deals in technology, consumer products, and financial services. The orange components receive heavier weighting in each industry example shown.

Technology firms include acquisitive companies such as Cisco, Google, and Yahoo.

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Consumer product companies include PepsiCo, InBev, and Heinz.

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Financial services companies include Capital One, TD Ameritrade, and Charles Schwab.

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Not surprising, common across the industries is an emphasis on growth and the valuation of the combination.

What we find in acquisition integration is the value of clearly articulating the strategic intent of the deal and using the decomposition framework to align deal makers, executives for buyers and sellers. and post-acquisition integration stakeholders.

Things to Consider

When you undertake your strategic acquisition which investment thesis components do you emphasize most? Does the seller agree? How will you communicate your investment thesis and gain alignment from all stakeholders pre- and post-transaction?

3 to the 3rd Acquisition Integration Method: Manage the Transformation

Strategic buyers. Private equity. Venture capital. Banks. Foreign concerns. All manner of players participate in the current acquisition frenzy. Dealogic predicts that 2015 will see a record level of acquisitions – $4.6 trillion worldwide. 3 to the 3rd’s work in this space is focused on post-acquisition integration with a smattering of work in pre-transaction financial analysis, operational due diligence, and acquisition integration planning.

Acquisition integration methods abound. Many are focused on the what – the business operations and financial aspects of absorbing the acquired into the acquirer. Best practices highlight the importance of the human capital factor in the integration process, also known as change management. Unfortunately, change management often receives no more than lip service and often includes no more than communications.

In our experience, successful acquisition integrations weave change management throughout all activities and actions. Change management spans executive alignment, stakeholder alignment, communications, training, business case development, managing resistance, and coaching & counseling.

With this in mind, we use a 5-stage Acquisition Integration approach with an overarching theme of Transformation. These post-transaction 5 stages are depicted below.


3TT3 Acquisition Integration Slide


Stage 1: Mobilize: Engage all stakeholders in the acquired and the acquirer’s organizations from the front-line to the executive team; gain alignment with integration vision, strategies, and plans

Stage 2: Launch: Flawlessly execute first 90 day plans; retain key employees; retain customers; retain channel partners; develop product and technology roadmaps; re-think go-to-market actions

Stage 3: Transform: Integrate strategies, operating processes, systems, organizations, financial reporting; and G&A functions

Stage 4: Remediate: Monitor against acquisition integration critical success factors; proactively course correct and re-align integration; stabilize operations

Stage 5: Harmonize: Optimize the combined business; grow the top-line; drive out avoidable costs; realize the original deal thesis

In future 3 to the 3rd Knowledge Transfer pieces, we will further explore various aspects of acquisition integration.

For acquisitive firms, we hope the 3 to the 3rd method, with its emphasis on Transformation and its human factors, helps you as you plan and execute your acquisition integrations.