Integration is rarely easy but getting it right is key
There is a widely held view that the majority of acquisitions do not deliver long-term value to the acquirer. The Institute of Directors reckons this figure could be as high as 70 per cent, though it varies between market sectors. Here, I want to look at the process that should take place once one advice firm buys another, and why effective integration is the key to acquisition success.
It is important to be clear what integration is. I would define it not only as the amalgamation of systems and processes, but also of people, some of whom will be asked to change their roles and how they have worked in the past.
Planning is key. It should be clearly agreed and documented as part of the sale and purchase agreement what will happen in the period following the acquisition and who is responsible for its delivery.
Plan for success
The following aspects are a checklist for any acquirer to think about. They are equally important for a would-be seller as a means of evaluating the ability of the acquirer to successfully execute the deal and deliver value. This matters to a seller as there is usually deferred consideration and effective integration will assist in ensuring that has the best chance to be paid at the levels budgeted for.
The right level of resource needs to be made available from both the buyer and seller. It needs to be both budgeted for and the impact on the business going forward considered. The issue that often arises is that those responsible for the integration have “day jobs” and without planning, output and effectiveness elsewhere in the business suffers.
Integration is a skill, so the people carrying it out need to have the appropriate level of experience and expertise. They also need to have the right attitude and temperament. Re-assigning individuals who are simply available or not performing effectively in their existing roles is rarely a good solution.
The culture in any business has a direct impact on its success. It is not only what happens in the immediate period after the transaction that makes a difference but what is done to reinforce the culture on an ongoing basis.
At the risk of stating the obvious, people are the most important part of any business and each person needs to be consulted, kept informed and their future role considered and agreed. All this takes time, which is why having the right level of resource is so important.
Advice firms tend to use a relatively small number of back office suppliers. If it is the same one, theoretically, the integration process should be straightforward. However, the same software system can be used in different ways, so mapping the advice process used by seller against that of acquirer is vital. If the systems in use differ there is clearly a greater integration challenge and the necessary time needs to be built in.
Processes may need to be adapted or changed completely. They need to be planned for, tested and then trained in. They do not happen of their own accord.
What gets measured gets done. Regular measurement and reporting ensures focus as the information to make decisions is used to improve results. This information will translate into key performance indicators and/or dashboards.
For there to be higher likelihood of successful integration, there needs to be assigned accountability at board level and allocated responsibility at manager level. If the accountable board member or responsible managers do not deliver, there should be consequences.
While there is often an integration template used by firms that make multiple acquisitions, there will always be some differences or challenges that arise after the sale. The success of the subsequent integration will reflect how these challenges are addressed. This is where experience and expertise count in terms of being able to apply solutions gained in other situations.
This is not the same as in measurement in point seven, but a recognition to review what has and has not gone well in the integration process and to make changes accordingly.
Integration is rarely easy but it is a fundamental part of any successful acquisition. Those companies who invest the time in people and in systems are more likely to build greater strength, sustainability and therefore value into their businesses.
Roderic Rennison is director of Rennison Consulting