Integration Teams Need a Smart, Adaptable Merger & Acquisition Assessment Tool Now More Than Ever
From the beginning of the COVID-19 pandemic, mergers and acquisitions (M&As) spiked in prevalence, as businesses looked to navigate the uncertainty of the pandemic. That spike of activity began in the third quarter of 2020 and shows no signs of slowing through 2022.
“During the first quarter of 2021, global mergers and acquisitions activity totaled $1.3 trillion, up 94% compared to Q1 of last year, while also booking the highest year-to-date total since 1980.” – Fortune, 2021
Moving into 2022, M&A activity is looking particularly hot in the tech, media, and telecom industries. The high rate of company acquisitions is exponentially increasing the engagement of M&A integration teams. These teams are often required to work on and deliver acquisitions simultaneously.
# How can integration teams successfully integrate high-volume M&A cases?
Since M&As never follow a universal solution approach, Propeller offers up the following considerations to help teams assess the size and scope of M&As and navigate this terrain with success.
- Each M&A process is different based on the core pieces that are moving.
This includes people, products, and customers, resulting in a different approach that could be a full, stand-alone, or carve-out integration.
- Each acquisition provides size, complexity, risk, and maturity variables.
For example, some considerations may include a target company’s supplier base, the acquisition of a start-up versus an established company, the number of employees involved, and whether it’s an international or local M&A.
# Introducing the Propeller Acquisition Assessment
To determine which action plan to bring to the table, you’ll want to assess the incoming organization ideally during the due diligence phase (or immediately after closure, if you don’t have access during Due Diligence). This includes qualifying risk and mapping out potential integrations for people, policies, platforms, and processes to ultimately ensure a smooth transition for the incoming company. This assessment can be done at a company level or within each business unit, depending on company size.
In a recent engagement, Propeller produced this assessment for a sourcing and procurement business unit. Their core business problem involved the need to standardize the M&A integration process while also allowing for the right plan for each acquisition.
To provide that level of tailoring, we created an acquisition assessment tool—an M&A playbook— that enabled the team to better understand the acquisition’s risk attributes (inputs) and tailor the post-merger integration plan accordingly (outputs).
Our custom tool asks a series of questions to determine the acquisition integration complexity (easy, medium, or hard) for the sourcing and procurement function. This tool, and questions, can be adapted for each business function role.
1. Defining M&A Scope – Size, Complexity, Risk & Maturity
Start by asking questions based on size, complexity, risk, and maturity. The answers help determine what makes an M&A easy, medium, or hard — creating your X axis. While the following example is for procurement, our assessment tool, and questions, can easily be adapted on a team-by-team basis.
# Size
To begin defining the scope of your M&A, you will want to ask the right questions to examine the size of the acquisition.
Example Questions | Why it Matters |
How many contract documents does company have? | Contracts can vary from suppliers based on available active records and whether a supplier has multiple contracts |
How many contract documents does the acquiring company have? | Contracts can vary from suppliers based on available active records and whether a supplier has multiple contracts |
# Complexity
Next, you’ll need to start unraveling the complexity.
Example Questions | Why it Matters |
How many suppliers of the company have contracts totaling more than >$100K? | More high revenue suppliers mean larger likelihood of more contract negotiations |
How many contract documents does the company have?? | Contracts can vary from suppliers based on available active records and whether a supplier has multiple contracts |
# Maturity
When acquiring an organization, you're also taking on their maturity levels. A maturity model measures the ability of an organization to pursue continuous improvement in a particular discipline. Here are some questions to ask when considering organizational maturity
Example Questions | Why it Matters |
How mature is the company's procurement process and team? | # of staff available to support, contract owner knowledge |
Does the company have experience with the acquisition process? | Been through an acquisition before, understand process needs/requirements |
# Risk
In the case of procurement, some acquisitions are riskier than others. For example, acquiring an international company would involve dealing with the organization’s global regulations. Considerations may include liabilities they bring to the table, company records, existing contracts, and customer relationships. Ask yourself—is there good documentation? And if not, are you willing to accept their risk based on trust?
Example Questions | Why it Matters |
How many international suppliers does the company have? | Data privacy, do we have an entity in the country we are doing business |
What levels of risk/liabilities do the target company and its suppliers carry? | Subjective ranking of riskiness w/ target company's supplier base |
Once the answers to these questions are input, our tool provides an aggregated score by considering all the factors that make an acquisition easy, medium, or hard. The tool allows you to adjust which of these matter most, by weighting certain categories differently.
Transaction Type | M&A Score | Difficulty |
Stand-alone | 10-16 | Easy |
Stand-alone | 17-23 | Easy |
Stand-alone | 24-31 | Moderate |
Tuck-in/Acqui-Hire | 10-16 | Easy |
Tuck-in/Acqui-Hire | 17-23 | Moderate |
Tuck-in/Acqui-Hire | 24-31 | Difficult |
Full Integration | 10-16 | Easy |
Full Integration | 17-23 | Difficult |
Full Integration | 24-31 | Difficult |
Once we determined the level of difficulty (X-axis), the next set of questions help formulate what type the acquisition will be—the Y-axis.
2. Determining Acquisition Types
When determining your acquisition there is a continuum of types, from standalone (no integration) to full integration between companies. These provide various complexities and give credence to the fact that “no merger or acquisition is like another”.
The definition table below provides a quick glimpse into how acquisitions were defined within the sourcing and procurement organization, which can be similarly done across different functions:
Standalone: | Acqui-Hire | Tuck-in | Full integration | |
Goal | To acquire a complimentary company that will operate as standalone organization | To acquire a company for talent acquisition purposes | To acquire and absorb a smaller company’s key products, technologies, or talent | To fully integrate the acquired company to form one combined company |
Contracts | Suppliers are retained |
Non-essential suppliers (e.g. shared or similar suppliers) will be terminated pre-close |
Non-essential suppliers will be terminated pre-close | Integrate essential suppliers by Day 1, and non-essential suppliers pending their contract terms |
Relationship Management | Maintain separate customer base and processes | Collaborate to close remaining accounts and agreements | Integrate existing customer base and processes | Integrate existing customer base and processes |
Talent | Talent remains at acquired organization | Key talent is hired and retained | Key talent is hired and retained | Key talent is hired, retained, and integrated |
Product | Product is "standalone" | Product is not retained | Product is integrated | Product is integrated |
With those questions answered, we can have necessary discussions upfront about resourcing, time allocations, budget, schedule, and senior leadership involvement (outputs). This helps the merger and acquisition team understand early on the needed initial investments, rather than an escalation of needs mid-stream.
Merger & Acquisition Framework - Your M&A Strategy Guide to Successful Integration
This intentional approach is needed for performing due diligence, assessing risk, and integrating people, policies, and processes that are uniquely tailored to each company.
When your merger and acquisition integration strategy allows teams to think deeper into the company unit level, as well as beyond the legal framework of the merger, you’re enabling a smoother transition for the new company. This will have an early and positive cascading impact on employee engagement, culture, customer satisfaction, and the integration of business processes.
The upfront assessment of people, processes, policies, and systems is one element of successful M&A integrations that we have touched upon here. With acquisitions, there are many change management elements we have not addressed that are needed upon reaching Day 1 readiness.
Depending on the acquisition type, talent strategy/planning, culture assessments, resource alignment, customer/supplier engagement, degree of control, learning and development, and organization restructuring could all be factors to incorporate into the plan.
In other words, the first day for new employees after an acquisition is just the beginning of the many changes that will unfold.
Mergers and acquisitions drive significant organizational change. In our latest Change Management Survey, we found M&As were prompting investments in large-scale tech transformations and significant personal reorganizations. Learn more about the emerging change management trends in our 2022 Survey Insights eBook.
RELATED CONTENT: Your Guide for Navigating Cascading Change in 2022
To learn more about how Propeller approaches and successfully delivers M&A consulting across all aspects of organizational change, including related work in organizational realignment and change management, reach out to us today.
