Some interesting M&A Stats

I just took a look at a news item that arrived in my daily  PEHub Wire news roundup: Gotham Consulting Partners’ private equity survey on value creation.  While I’ve only had time for a quick read, three things jumped out at me immediately.

  • 6% of the time spent on due diligence is spent on IT systems. This seems low, especially in light of what the rest of the survey says about value creation. A figure of at least 10% would make much more sense for PE firms that are serious about driving operational value creation initiatives.
  • Post-merger integration does yield greater than expected results, according to survey respondents. A logical extension of this thought would be to begin integration planning early, to achieve those results as quickly as possible after the close.
  • Most firms are relying on standard financial and operational reporting as tools for managing their portfolios.  However, among the more active methods of portfolio management cited, shared purchasing /shared services is the least used among the respondents.  However, a followup question listed shared purchasing/shared services as one of the two active management techniques that yielded better than expected results.

There is a lot of great information in this survey, but at a high level, it points to the need for further changes in approach both before and after deals close. More time spent vetting out risks at a deep level within operations and IT, rapid integration, and new approaches to active portfolio company management could drive these results in a different direction when the 2010 survey rolls around.

“The Trouble with the Future…

fortune_teller…Is that it arrives before we are ready for it.”  A bit of plainspoken wisdom from American humorist Arnold H. Glasow. Thanks to the miracle of google, it becomes our intro quote for today’s topic of acquisition integration readiness.

In an earlier post, we talked about data integration readiness, but that’s only one task on a list of things you should be doing now if you plan to acquire a company in 09. Readiness is the word of the day, and the best way to sum it up is you have to have a documented platform to integrate with across the board, or you will lose time during your integration period. Lost time means revenue drag–you won’t hit your projections.

So, let’s make a list.

1. Data integration readiness, already covered in detail here.

2. Process readiness – are your procedures for key business areas up to date? You will need to walk through them with business team leads on the acquisition side to rapidly understand the gaps between the way they do business and the way you do business. Can you rapidly train the influx of people you will be onboarding with the acquisition? An effective training plan is a solid way to minimize post-close chaos.

3. Collaboration readiness – don’t underestimate the amount of time those new employees will take up with endless “How do I?” questions. Hopefully, you have a corporate knowledge portal in place already and you can give them access and a navigation walkthrough on Day 1. Make sure it includes discussion groups, so that the answers to their common questions can be searchable and institutionalized. There was a great post on this recently describing how IBM is using collaboration tools to help with acquisitions, and Edgewater’s Ori Fishler and Peter Mularien have posted extensively on Web 2.0 tools for corporate collaboration.

While we are on the subject of collaboration tools, let me tip you off to an important secondary benefit. The people that use them and participate actively in discussions are your change agents, the people that can help lead the rest of the acquired workforce through the integration. The people that don’t participate, well, they are your change resistors. They need to be watched, because they may have emotionally detached from this whole acquisition thing. If they are key employees, you want to make sure they don’t have one foot out the door.

4. System integration readiness – It’s oh-so-much-more-challenging (meaning time consuming and costly) to integrate into an undocumented or underdocumented architecture. Get your data flow diagrams and infrastructure diagrams, as well as your hardware and software inventories up to date before you close.

That first quarter after you close will still be a wild ride, but you can be sure you’ve cut the stress level down significantly if you make these readiness tasks a priority before closing day.

Is this the end of M&A as we know it?


Part of me says, “Oh please, let’s hope so!” — for more than a decade we’ve heard constant complaints about deals that don’t reach their full potential, and watched the same sort of mistakes being made over and over:

  • the hoped-for synergies that are never really defined
  • the integration or transition plan that’s 3000 lines long but gives no one a clue about where the effort actually stands
  • no coordination of business and technology plans during integration or transition
  • the blanket assumption that a move of the acquiree’s business to the acquirer’s systems and processes are always the right choice

There’s no doubt about it—deal volume and total deal value is down year over year from 2007. Credit market woes are pushing buyers to move away from senior debt toward riskier mezzanine capital. Common sense would tell you that if you’re taking on more risk, you’d better be vetting out risks earlier in the deal timeline, yes? Valuations are coming into line due to market conditions, so there’s not so much need to use due diligence to position for negotiating advantage during valuation discussions (but hey, it never hurts to strengthen your position during negotiations, right?) But, given the additional risk you’re taking on with the mezz financing, you’d better have a clear idea about what your IT spend needs to be in year 1. Pre-close is the time to ferret out those orphaned releases, costly overly-customized environments and low-productivity in-house custom IT development shops. Find them, redefine them, and build a tight cost model so you don’t take on any more risky debt than necessary.

dagr_by_arboGloom and doom, we can’t shake it these days—it feels a little like we’re living through Ragnarok or at least Fimbulvetr, the winter of winters that precedes that Destruction of the Powers, doesn’t it? Many assets are being put on the block these days as part of a vast global deleveraging battle. Who couldn’t use a few valkyries on the team, to help choose among these slain assets the most worthy and heroic and carry them off to the Valhalla of value creation?

Difficult days for all of us, these. Let’s remember the great Norse legend does end on an up-note, though — after the great battle, the world resurfaces anew, fertile, with a bright future. Even in these uncertain times, there’s much you can do to either position the assets you plan to put on the block, or to prepare for the success of future acquisitions. More about both topics in future posts.

M&A Data Integration Readiness

In a comment on our first blog post, Mark Farrell raised an excellent point about data assumptions and their impact on the integration timeline.  He started our list of best practices by pointing out that clear ownership of the master and transactional data is important. Here are some additional data readiness tasks that can shorten the integration timeline if they are undertaken before the deal closes:

  1. Make sure all data models and data dictionaries are up to date. This will make it easier to map data from your acquisition’s systems into your (target) systems.
  2. Spot check data quality in your target systems. If you notice a lot of duplicate records, missing fields, or fields used for purposes other than what is defined in the data model/dictionary, your data migration will be more difficult. 
  3. Begin defining your detailed plan for data cleansing and migration early, and specify the tests you will perform to make sure the migration is successful. Establish clear business ownership/sign-off authority for the test results.  Budget time into your data migration plan for several test data loads to minimize risk on the final cutover day.

Effective M&A Technology Plans

The best M&A technology plan isn’t really a technology plan at all. It’s a comprehensive business integration plan, owned and driven by a seasoned integration program manager with experience in systems integration, data conversion, and organizational change management. Failure to pull the technology, data, business process and organization integration workstreams into a single plan is a surefire recipe for integration delay or failure.

The benefits of a unified business integration plan include:

  • Easier recognition of schedule and resource conflicts that cut across the workstreams. 
  • More agility in replanning the entire body of work when milestones in any single area are missed.
  • Better insight into interdependencies in the plan.
  • More effective use of team time, since there is a single status meeting to cover all workstreams.

A key to success with the unified plan is to write this master plan at the correct level of detail. The unified plan should not contain detailed tasks and action items, but it needs to provide enough detail for meaningful tracking. Supporting tools, such as detailed project plans and Excel tracking workbooks can and should be used within a particular working group to manage all the moving parts.