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Integrating two companies is often crucial for transformation and the value creation it can generate. But to be clear, this is not sequential — integration is a component of, not a prerequisite to, transformation.
Integration can be a daunting challenge. Just 14% of the respondents in our 2023 M&A Integration Survey indicated achieving significant success, measured by reporting success across strategic, financial and operational areas. These organizations seem to have found the “secret sauce” to achieving substantially better results than competitors.
Our analysis revealed five things companies with successful integrations do differently compared with companies who have yet to realize holistic integration success.
Recognize the importance of more experience and investment
Experience
M&A integration is an enterprise-wide business process with a steep learning curve. Companies with the most institutional and managerial experience — or with advisors who can provide that experience — have the greatest chance for success. Successful M&A organizations are more experienced across many deal types.
Investment
Corporate executives report spending more on M&A integration than ever before, with 56% spending 6% or more of deal value on integration, up from 38% in the prior survey in 2019. This level of investment appears to be even more common for successful M&A organizations, as 78% of these respondents report spending 6% or more of deal value on integration. We see a few possible reasons for this trend, including an uptick in transformational deals, which can be more complex and last longer. Also, executives report being more experienced in integration, which could have helped them realize the importance of sustained investment in integration — especially among top performers.
Plan operating models early
Operating model
Planning a thorough, multifaceted operating model early enables companies to jump-start integration activities. Our survey indicates that long-term operating models were planned during deal screening in 40% of the successful M&A integrations, compared with 27% for others.
Early definition of the operating model enables companies to more effectively develop and execute their integration and communications strategies, technology plan and leadership team assessment.
Cross-functional and functional
Sustained investment is required to execute complicated cross-functional integration workstreams that are required to realize target operating models. Successful M&A integrations were two and a half times more likely to fully integrate these areas.
Successful M&A organizations are also very effective at integrating core functional areas.
Focus on value creation
Value creation plan
Successful dealmakers improve outcomes by developing a holistic value creation plan and sustaining focus on priority value drivers throughout the integration process. Value creation plans are developed early in the deal process and include critical elements to help confirm effective management and execution, including:
- Synergy targets
- Ownership assignment
- Detailed execution plan
- Tracking process and tools
- Program governance
Go-to-market goals
The increase in transformational deals and business model disruption has resulted in an increase in the importance of go-to-market goals. Growth in market share, access to new markets, access to new brands and products, and access to new distribution channels have all grown in importance — though companies commonly report challenges in achieving these goals. Successful M&A integrations were twice as effective at achieving go-to-market goals by leveraging their strength in customer relationship management and deploying enabling technologies. Higher levels of experience and spending that help enable earlier integration planning were also important factors.
Synergy capture
Successful organizations were also found to be better at building the institutional muscle to capture both revenue and cost synergies, and they achieved “very favorable” results at a much higher rate than others.
Commit to change management and talent retention
Change management program
Successful M&A organizations understand that transactions create significant uncertainty for employees in both the acquirer and target companies. They commit to inclusive change management programs early in the deal life cycle, increasing employee understanding and improving the speed and effectiveness of decision-making to bolster workforce confidence.
These robust change management programs include seven critical drivers. All are in sync with the integration strategy and are centrally managed at the executive level. The drivers that help lead to sustained employee engagement are:
- Leadership
- Organization
- Communication
- Culture
- Policies and procedures
- Employee onboarding
- Incentives
Talent retention
Engaging and retaining talent is critical to capturing deal value. We found that successful M&A integrations concentrated more time and resources on people early in the deal cycle. They also resulted in retaining key employees at more than twice the level of others in our survey, all by leveraging effective change management programs and specific incentive strategies.
Use digital capabilities to transform
Digital accelerators enhance integration
Successful M&A organizations are digitizing the M&A integration process to help accelerate integration and transform the combined organization at speed and scale. They’re also leveraging digital accelerators, data analytics and pre-organization configured systems across critical functions and activities at a much higher rate than others.
Systems and process integration
Systems and process integration is a critical enabler to move from transaction to transformation, yet commonly tops survey respondents’ lists in difficulty — and is the least likely to achieve complete integration. Successful M&A integrations were 57% higher than others at fully integrating systems and processes.
Integrating business processes and their related systems is complex and risky but it is at the heart of transformation, particularly in large deals. Integrating disparate applications and their associated business processes enables overall enterprise planning and execution, and it’s often a prerequisite for integrating other key cross-functional areas, including customer and go-to-market, people and organization, and geographies and legal entities.
Put another way, the acceleration of business processes and systems integration (BPSI) through a structured framework is now table stakes for companies to successfully transact to transform. Successful dealmakers commit to the long term by building digital capabilities and equipping employees with leading technology to compete in the market, help drive internal efficiencies and transform.
Bottom line
Integration is a key component to generating value from an acquisition. While the process is challenging, companies can implement important strategies that can increase the likelihood of success while setting a precedent for future transactions. Dealmakers should also keep in mind that M&A is only one part of a company’s long-term strategy to transform. Staying agile, creating value early on and collaborating across teams can aid in longer-term business transformation.
We’ll be exploring additional considerations over the next few months. You can register below to receive insights as they’re published.
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