Integration Strategy Is Not A Binary Choice

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Optimize deal values by taking a nuanced approach to integrating acquisitions. Here's how.

Board and executive conversations about integrating an acquisition have long revolved around a binary choice: to integrate or not to integrate. The reality is that there’s a spectrum of integration options to consider, each having trade-offs that will impact the ability to achieve the value creation plan. In some cases, a more hands-off approach to integration helps preserve the innovative culture of the target. In others, full integration is the smartest way to accelerate cultural integration and maximize synergies. And then there are degrees of integration in between. The key to knowing which option works best is having a clear understanding of how the deal connects to your broader corporate strategy. Then you can identify the integration approach that optimizes the deal value—and preserves the deal jewels.

Degrees of Integration

We believe four degrees of integration comprise the continuum of post-acquisition strategy. The decision on how to apply this continuum is done at the functional level, meaning that each function might have a slightly different answer. This framework provides both flexibility and guard-rails. Consider:

1. Mentorship

Mentorship allows the target to retain a high level of autonomy and continue operating as a stand-alone organization. Mentorship focuses on providing strategic guidance with no meaningful structural changes to the target. The overarching mandate here is “do no harm,” and protecting the deal jewels is the highest priority.

2. Cooperation

While the cooperation option encourages more collaboration, there are still relatively few structural changes to the target. This approach makes sense when the target is in an adjacent service or industry but has knowledge of the acquirer’s operations.

3. Targeted integration

With this option, the target often integrates with some of the acquirer’s functions to take out cost or focus on growth, but the approach stops short of full integration. With targeted integration, companies combine certain functions, such as back office, while keeping market-facing functions, such as sales and marketing, separate.

4. Full integration

Full integration is the traditional approach; the target fully integrates into the acquirer’s organizational structure and management processes. It accelerates the path to a “one culture” solution and maximizes the top-line and cost synergies that justified the deal. The rationale is that full integration increases efficiencies and optimizes the companies’ synergies.

Your Integration Path

It’s important to note that the option that works for Day 1 may not be the ultimate end state. A less integrated target could end up more integrated down the road—Day 1 can have one integration plan and can look very different later. Further, it is not onesize- fits-all—choices and trade-offs are made at the functional level. But regardless of which option you pursue, we can take measures to ensure your chosen integration strategy is “right” for the deal, company, and circumstances. Consider:

• Start at the beginning. Develop a clear understanding of the strategic thread you want to pull through the entire process, from the corporate strategy through your integration approach. Consider the deal rationale and the key deal jewels you want to preserve.  

• Act decisively. Make a clear decision on an integration option (by function), get alignment from leadership, and communicate the strategy across both organizations.

• Plan for the long term. In addition to planning for the period immediately following the deal close, create a long-term integration plan with a defined end state. Periodically review that plan to ensure you’re making progress.

A nuanced integration approach sets your company up to realize the full potential of an acquisition. Use this framework to help capture value while protecting the deal jewels that inspired the transaction (see figure below).

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