Refining the M&A Playbook: Interview with Marco Sguazzin
Perspectives on corporate development
The importance of effective integration
Effectively integrating business operations and aligning integration strategy with the value drivers of a transaction are arguably as big a determinant in value creation as anything in the M&A life cycle.
If you don’t understand the optimal level of integration, the speed of integration required, and how to achieve this efficiently, you can severely limit the creation of value, or worse yet destroy value, in today’s fast moving business cycles. If you look at the last two years in the technology sector, where there’s a higher concentration of M&A deals, many companies have made a conscious effort to build integration capabilities in their Corporate Development groups – to make them more accountable for ultimate deal success.
When I consider the Corporate Development function and how it relates to ultimate M&A success, I often see a disconnect between the original deal strategy/hypothesis and the subsequent integration and orientation on the exact value drivers for the deal, i.e., deals are conceived and justified based on a certain set of beliefs and value drivers, but once the long and arduous path of integration is complete there is a risk that the value drivers have been diluted along the way and the integrated state does not fully enable the originally intended value drivers.
One of the biggest problems is when Corporate Development teams responsible for identifying and getting the deal done hand it off to others in the business to get the integration done, and in that handoff process you can all too easily lose continuity in fulfilling the deal strategy. When that happens, deals can fail to deliver on their expected value.
How do you measure the value created by a deal, i.e., its contribution to your company?
One of the simplest ways is to define a set of business performance metrics that are reflective of the original value drivers – in fact define them at the same time.
Deals predicated on...
- Expansion will need to home in on metrics such as revenue, margin and market share increases
- Consolidation might focus more on operational efficiency and cost take out
- Acquiring specific technologies might include additional metrics focused on launching new products with the acquired technologies
Additionally, there are many other common metrics to choose from that may include unwanted employee churn, specific customer successes, etc. These measures link to integration. Was the deal integrated appropriately and efficiently to enable the benefits? Did the company launch new products based on the acquisition? Corporate Development will need to focus more on these questions going forward.
Companies also need to identify who will be accountable across the entire deal process.
This can help create the important link between strategy and integration execution.
Without continued accountability, the Corporate Development team can lose interest and influence in the way an organization is integrated and value is realized. And the inverse is also true, in that an acquiring business unit needs to be a part of forming the original deal strategy and hypothesis before being asked to integrate a business.
If different people are forming strategy and executing an integration, it’s easier for someone to make the argument that the strategy is no longer valid, or that certain practicalities make the original intention too risky or costly and that a different path must be followed.
When the Corporate Development team has some accountability for the whole deal lifecycle, they can help avoid that kind of problem.
Those who understand this are changing the way they do acquisitions.
Boards are becoming more skeptical as deals become more complex and more global in nature, and are now asking for a credible integration strategy to be defined up front and that the entire organization be aligned on the path of value creation. This is what’s going to make the board buy in.
I think Corporate Development will take an increasingly larger responsibility for helping companies achieve results. They will also play a bigger role in the integration process from the get-go of the deal.
We’re going to see a much tighter alignment between Corporate Development and the lines of business.