Big Pharma, Leadership, and the Startup M&A Outlook
By Monroe Hatch, Senior Director and Pharmaceuticals and Biotech Industry Lead, Integrated Project Management Company, Inc. Will Big Pharma embark on an accelerated buying spree…
What do successful mergers and acquisitions (M&A) integrations have in common? Timely and thorough planning.
Companies often either wait too long to begin planning or they try to plan too far. Those who make too many assumptions and decisions will have to significantly readjust their plan after the deal is done and they learn more about the acquired company.
Integrated Project Management Co. (IPM) recently worked with a food manufacturer that acquired a division of another company, its first. The company communicated and celebrated the definitive agreement, but with their focus on finalizing the deal, it wasn’t until a week before close that the executive team could think about the next step. Recognizing the work and planning involved with the upcoming integration, they reached out for help. IPM helped the team triage the situation and align the organization on the most critical activities. We then worked with executives to prepare a complete integration plan.
For tips on navigating each key stage of an M&A integration, read Capture the Full Value from Your M&A Deal →
1. Define the Business Strategy Before Shopping for an Acquisition
You’ll be more likely to benefit from an M&A deal if you start with a solid business strategy and ensure the organization is equipped to handle an integration. We’ve seen instances where a private equity parent or enthusiastic CEO saw an opportunistic buy and snapped it up quickly. With the food manufacturer example above, its PE owner drove the acquisition without considering whether the company’s business processes and systems were stable enough to absorb it. The integration was rocky, and it impacted customer orders. Executives learned from the experience. When the company made a later acquisition, it considered both ongoing operations and long-term benefits at the outset and throughout planning, resulting in a smooth integration.
Before bidding on another company, ensure the organization has time to plan, prioritize, and resource the work to execute a smooth integration. And define the long-term objective of the acquisition. Doing so will validate that it’s the correct strategic decision and help secure buy-in among the different stakeholders.
2. Start Integration Planning Early
If you start early, you will have time to identify what has to be done and who’s going to do it. Mobilize an integration team about 30 days prior to reaching a definitive agreement. By the time you announce the agreement to shareholders and the FTC, the integration team will have a rough plan that enables them to answer questions, communicate effectively, and avoid confusion and concern within the organization.
On the other hand, don’t jump the gun and make major organization or business model decisions. You learn a lot about the acquired business after the deal closes. Some M&A consultants stress speed and push to “hit the ground running” on Day One—including naming the management team—before closing. In our experience, that’s a mistake. First, if the acquirer controls all the decision-making, it can set up an “us vs. them” perception among the acquired company. Also, it’s impossible to know everything about the acquired company until after the deal closes.
There is also the risk that the close date will be delayed or that the deal will fall apart. We saw this firsthand with a client that announced major organizational changes before the deal was finalized. Closing was significantly delayed before the acquisition fell apart entirely. Managers who had been promoted to new roles were in limbo. Employees who felt overlooked became disgruntled, and some left for new jobs. The devil is in the details and without knowing the details, everything looks easy. Setting arbitrary deadlines on high-level information and assumptions leads to missed expectations about synergies, implementation costs, effort levels, and timelines.
3. Challenge Assumptions
At 30,000 feet, two businesses can look a lot alike. But until you have visibility into the inner workings and culture, you have no idea how another company operates. Similarly, challenge the assumption that you as the acquiring company have the better structure, processes, or systems. You have an opportunity to see and learn from the effective operation of another organization firsthand.
This is a common misstep larger companies make when acquiring smaller companies. The executive team on one of IPM’s engagements started down this path in a desire to quickly migrate a newly acquired company onto their ERP system. After mapping out the acquired company’s processes, we discovered major differences and were able to convince them they needed to address the variances first. Failing to do so would have caused a major customer disruption. Bottom line, an integration will be more likely to succeed if all the parties have the right level of information, input, and engagement.
4. Communicate Honestly and Transparently
Communicate only what is confirmed. For example, it’s risky to announce changes to organizational structure or priorities before the deal closes. Closing dates move, executives accept jobs elsewhere, and markets respond. And, again, company peculiarities will be revealed. It’s important to have a communication plan in place to share news often and at the appropriate times as part of proactive change management. IPM worked with a CPG company whose integration office announced decisions, but the executive team changed the strategy mid-stream and was informally communicating something different. Both organizations were confused and anxious.
Remember that communication isn’t all about memos and townhall meetings. People can see who is in whose office and will speculate. A common adage says that communication is less about the words you say than the action you take. Be as transparent, honest, and empathetic as possible. Keep in mind that you also need to inform customers to maintain their confidence and avoid losing their business.
5. Focus on Basic Operations First
There are surely long-term strategic benefits to the acquisition, and you need to keep those in mind. However, in the first period after the deal closes, a well-defined plan will focus on the activities that will avoid business disruption.
A hospital system that IPM advised admitted that their integration plan overlooked many important day-to-day operations activities, leading to disruption that put the system into an all-hands-on-deck crisis. An M&A integration should not impact customers, whether they are patients, consumers, or other businesses. Once you put the foundation in place and the business is stable, you’ll be in a better place to capitalize on the synergies and other benefits of the combined organization.
M&A success depends on well-timed planning, strategically aligned objectives, and laser-focused execution through the key stages of an integration. Learn how to capture the full value of your merger or acquisition.
Authors:
Neil Domonkos, Director, M&A Integration
Zack Fijal, Principal Consultant, M&A Integration
Integrated Project Management Company, Inc.
Services: Mergers and Acquisitions
Industries: Life Sciences | Healthcare | Consumer Products | Industrial Products