Acquisition integration challenges: navigating the complexities and addressing the key cultural and human capital challenges

“Value Creation” remains a key mantra for businesses in the current climate, more simply “Buy, Transform, Build, Sell” for Private Equity or “Invest, Nurture, Exit” for Venture Capital. Acquisitions also remain a common strategy for businesses seeking to expand their market share and consumer base, diversify their portfolio, or access new capabilities and technologies.

After years of cheap money, there are now increased fundraising headwinds in getting the deal done. Additionally, several emerging themes such as ESG, Data Analytics and AI, and the focus on crowded middle-market deals, are reshaping the Private Equity landscape. This underscores the importance of ensuring that acquisitions create value, and the cornerstone of transforming and building can be achieving a successful integration and building momentum to deliver on plans and realise synergies. However, integrating these acquisitions can be a challenging task that requires careful planning and execution.

Acquisition integration requires a strategic approach that addresses both the operational and cultural aspects of the process. Here, capability is key and internal resources often lack the bandwidth and expertise to deliver integration on time and to the right quality. As a specialist, world class M&A diligence and integration consultancy, Global PMI Partners is challenging the existing old-world consultancy model with the combination of M&A, business, function and transformation practitioners in combination with its market leading IP, including playbooks, approaches and toolsets. These can be applied in a client-customisable manner to accelerate results, through significantly reduced timelines and costs, all while massively reducing value delivery risk.

Some of the key topics to consider include:

Leadership
Communication
Retention of Key Staff
Resources: Capacity & Capabilities
Cultural Integration
Sales & Marketing Integration
Operational Integration
Integrating Property & Facilities
Integration of IT systems
Financial integration
Legal and regulatory compliance
Supplier & procurement integration
Resistance to change
Timing
Effective Planning

The full article by Chris Charlton, UK Managing Partner from 30 June 2023 can be found here.

The remainder of this article is focused on a subset of the above topics, those concerning the Cultural and Human Capital acquisition challenges that are the most common across all sectors and geographies. We will now delve into strategies for effectively navigating these complexities.

SLT engagement and critical conversations

Achieving synergy in the integration process is not only essential for reaching key targets post-acquisition, but also critical for business continuity, risk mitigation and value retention. Having said this, synergy is not an easy gain without the active engagement and enthusiasm of the senior leadership team (SLT) — the critical community who will drive and manage the integration from the top. However, it also often comprises the most volatile, flight risk and talent in an organisation. Quickly finding a valued home for these individuals is key to managing this risk, whether in the SLT or alternative projects.

With the help of GPMIP’s expertise and copyright methodology, leading CEOs have recognised this and know that the SLT, with its multitude of choices as well as the potential for being challenging in nature, demands meticulous attention.

Strategy and Operating Model

One of the most important workstreams for leaders to get right is the strategy and operating model workstream, and it should be a goal to complete that work as early in the integration process as possible. This starts in the diligence phase, is further refined from signing to close, and finalised in detailed planning, culminating in the blueprint of the to-be operating model for the combined business. This should align business strategy, deal thesis, value drivers, integration strategy, target operating model (TOM) and prioritised integration workstreams.

Organisational design and Synergy achievement

Aligning two operations into a single efficient entity that has clear accountability at board level is the start of TOM and Organisational Design. Consequently, this translates to well-defined and structured functions and operations, which in turn lead to streamlined processes. This project involves identifying essential skill sets and addressing skills gaps, managing headcount reduction, resolving duplications, and tackling integrational challenges. All of these efforts pave the way for a robust and efficient organisation.

Cultural and Human Capital acquisition challenges

The human element is a critical part of the complex M&A integration process, yet, and perhaps surprisingly, it is often the most overlooked. Acquisitions can bring together diverse cultures across differing geographies, often leading to a greater chance of clashes in work styles and leadership approaches. The importance of navigating this tricky terrain cannot be overstated, but it requires high levels of engagement and a clear structure to succeed.

We all know the value of good communication but in this era, we need to think outside the box to establish a regular drumbeat that keeps the organisation marching together toward the same goal. In this regard, technology, particularly videoconferencing apps, has become essential, however, face-to-face interactions still hold significant engagement value when it comes to fostering a sense of community, encouraging involvement, providing insight, and assuaging job security and value concerns.

The lifeblood of any organisation is its employees but to keep that blood pumping, we need to build engagement from top to bottom and ensure the vision is aligned and that leadership is as effective as possible. This has become more challenging in the new reality of remote and hybrid working which has tested how we all do business. Innovative thinking is thus more important than ever to establish a sense of workplace community in the way we communicate and listen to our staff.

HR Systems integration

Of course, these days it’s not just about people — it’s about the software, too. Over the past few years, it has been critical in our large engagements to integrate the proliferation of embedded Human Resources Information Systems (HRIS) for a robust operation of the newly single business. If left unmanaged, this can become a real point of failure and synergy gains may not be maximised. This is a multifaceted and often daunting task to oversee, requiring coordination among numerous stakeholders, including audit, IT, HR, and payroll. When we examine the factors contributing to the success of these challenging integrations, a common thread emerges. Not only does this common thread revolve around strong project management and inclusive stakeholders, but also decisive decision-making, quick escalation management and break out teams to focus and eliminate obstacles swiftly.

Resistance to Change

Resistance to change is a common challenge when integrating acquisitions. People are naturally resistant to change, and when two companies merge, there can be a lot of uncertainty and anxiety among employees. This can lead to disengagement and slow adoption of new processes, systems, and even new leaders.

Much can be achieved to overcome this challenge with a proactive approach to managing change. This can include providing training to employees on new processes and systems, involving them in the integration process, and communicating the benefits of the transaction. It is also important to have a change management strategy as well as a plan in place that addresses potential resistance and provides strategies for addressing it. Integration projects can change everything about an employee’s day job — the organisation into which he or she reports, business or customer objectives, the processes and technology used, even the office or location from which they work, so appreciating this dynamic and proactively managing it is essential.

If you think of the difference between effective project and business change management as two sides of the same coin: the first, project management, is about ‘send’, or making it happen. The second is business change management, which is about ‘receive’, or how the organisation understands and embeds the changes that projects are delivering to them. These two essential integration activities need to be managed effectively to deliver the value of your deals.

Resourcing: Capacity and Capabilities

In addition to the challenges mentioned above, resourcing, skills, and capabilities can also be a major hurdle when integrating acquisitions. Companies may face a shortage of skilled resources or a mismatch in capabilities, which can impact the success of the integration process.

To address this challenge, companies would benefit from conducting a capacity, skills, and capabilities assessment to identify any gaps, appropriate to the level of complexity inherent in the integration process. This can help them to determine the resources needed for successful integration and to develop a plan for filling any gaps, and/or the provision of training. It is also important to involve key personnel from both companies in the integration process to ensure that the necessary skills and capabilities are in place. By investing in their M&A playbooks and employees, companies can build a stronger and more capable team that can handle the challenges of integrating acquisitions.

Conclusion

As outlined above, acquisition integration can be a complex and challenging process, but with the right approach, it can also be a transformative opportunity for businesses seeking to grow and diversify. In turn, this successfully delivers desired deal value and further builds capabilities and platforms for future organic and inorganic growth. By proactively addressing key challenges and placing a strong emphasis on Culture and Human Capital, the most successful acquirers are adept at navigating the intricacies of acquisition integration, ultimately leading to value creation.

If you found this article insightful and would like to find out more information, please visit our website www.gpmip.com where you will be able to find out more about the services we offer to help businesses overcome these complexities surrounding M&A integration, as well as in-detail articles encompassing this topic.

Authored by Chris Tatham, Lesley-Ann Kenrick and Chris Charlton
Global PMI Partners