How to Guide a Medtech M&A Integration to Achieve its Long-Term Benefits

Companies often begin achieving some business benefits of a merger or acquisition as soon as the two entities become one. And forward-looking organizations are eager to gain the long-term benefits of the transaction. Throughout the integration, other opportunities will emerge as well.

But you can’t chase every opportunity—at least not at once.

In a successful integration, you establish and communicate key value drivers—or the initial objectives of the M&A deal. You decide what needs to be done first to gain operational control and start working together. As you collaborate and learn about each other, you’ll discover other potential opportunities. But it’s important not to get distracted from the integration. If you don’t identify your priorities and set boundaries in advance, the integration will never end. However, if you define the conclusion at the outset and carefully weigh the potential opportunities that emerge against intended value you planned to gain from the merger or acquisition, you’ll increase the chances of achieving those long-term benefits. Here’s how.

For tips on navigating all the key milestones of an M&A integration, read Capture the Full Value from Your M&A Deal →

Define the Finish Line at the Outset

As with any major effort, you must define success criteria. Determine what the end of the integration will look like. What will you have in place? The finish line doesn’t have to mean that all the work is done, but rather that you’ve achieved the primary integration goals. Afterward, the business can focus on additional opportunities through continuous improvement efforts. It is important to move the organization from integration to operational mode.

The same key value drivers that served as your North Star through the mutual discovery process will inform the end of the integration as well. If the intention of the deal was to quickly expand the company’s geographic footprint, your objectives will be much different than if the purpose was to consolidate operations due to excess capacity, for example.

Define exactly what needs to be accomplished for the integration to achieve the goal. Examples include having key departments working together and implementing the new reporting structure. Determine which systems, operations, regulatory, and infrastructure changes must be complete for the integration to be successful.

It’s worth noting that if there is a transition services agreement (TSA) with the acquired company’s former owner, you must address those elements⁠—for example, transferring registrations or rebranding products⁠—by the defined deadlines or you may incur penalties.

Whether there is a TSA or not, it’s important to set a timeline for the integration. Integrations are disruptive and stressful, and employees, customers, and other stakeholders want to know when it will end. The duration of an integration will vary due to its size, complexity, and other factors. But if you establish milestones and a clear endpoint, and communicate regularly as part of your change management plan, people will know what to watch for.

IPM recently worked with a company that acquired a similarly sized organization. They installed an Integration Management Office (IMO) to lead the integration and determine its goals and milestones. An IMO is much like a project management office (PMO). A PMO is the group that oversees the project and program management for an organization or functional area. The key difference is that an IMO is temporary and focused on the integration. At IPM’s client, the IMO prioritized restructuring the organization, getting onto one ERP system, and ensuring each team had access to its counterpart’s network. Timing-wise, they scheduled the integration to wrap up in time for the company’s annual budget planning. That way, the ongoing work would be rolled into its regular strategic planning cycle.

Avoid Scope Creep Throughout the Integration

The company mentioned above followed a best practice when it installed the IMO to lead the projects related to the integration. An IMO helps an organization stay focused on integration objectives and prioritize opportunities that create long-term value. It typically reports to an integration steering committee of executives.

All too often, people view an integration as a chance to get a pet project funded. To avoid “scope creep,” or adding work that doesn’t support the key value drivers, it’s important to evaluate and prioritize the projects. There are many methods to do so. One method that IPM has had success with is to determine the criteria and weigh projects based on their importance to accomplishing the integration objectives. When IPM helped a recent M&A client to prioritize its integration activities, they rated each project by its complexity (including resource demands and change management required), criticality (such as quality and regulatory compliance and business continuity), investment (both one-time costs and ongoing expenses), and benefits (like increased sales or FTE reductions). A weighted criteria formula generated a ranked list, and the IMO applied its experience and expertise to adjust it. The IMO then took the recommendations to the steering committee, which quickly approved them because their connection to the integration’s key value drivers was substantiated.

Importantly, once the priorities and scope are set, any proposed changes or ideas can be objectively assessed. If the IMO believes something is worth adding to the portfolio of projects, they can recommend it to the steering committee. For example, while IPM was leading a manufacturer’s IMO, the company identified the need to select a new supplier. The current partner’s quality had declined. Having a well-defined evaluation and approval process made it easy to incorporate the new project into the integration scope.

To maintain focus and avoid overtaxing resources, the requirements for adding work to the IMO should be strict. Kicking off new projects during an integration adds more disruption to an already stressful and demanding environment and will likely extend the length of the integration. If it drags on, integration fatigue will kick in. Employees who are anxious about the changes will only get more anxious. Those who were excited about the possibilities can lose enthusiasm.

At the same company, a distribution center recommended that if they changed the pallet configuration, they could save money. The IMO decided not to take that on, but to add it to the list of opportunities to pursue post-integration, as it wasn’t critical to achieving the stated integration objectives.

Integrations are breeding grounds for new ideas. Rather than viewing them as a distraction, if you create an intake process for all the value-generating ideas—large and small—you will be prepared to transition them to the business operating teams at the end of the integration.

Transition to the Business When the Integration is Complete

When the projects that accomplish the integration are winding down, it’s time to transition the work to the business. In companies that have a project management office, the projects and ideas for adding value to the organization typically get added to the PMO’s portfolio management process or the continuous improvement process, depending on the magnitude of the undertaking. If there is not a PMO, ideas can go to the relevant functional departments. (However, in IPM’s experience, if a company doesn’t have a PMO or governance over a strategic portfolio, odds are low that it accomplishes strategic and other critical initiatives.)

This transition is not a “drop and run” situation. The IMO’s close-out should be intentional and thorough. Make sure you’ve addressed all the objectives of the integration and measured any key performance indicators you set. If there is still work under way—for example, closing bank accounts used for client billing or ongoing IT infrastructure efficiencies—be sure to provide the PMO with the work plan, status, and any risk management documentation.

Capture and report on lessons learned throughout the integration. If you have an integration playbook, update it with those lessons. If not, take some time to document how you organized and managed the integration to create a basic playbook for future integrations.

It’s a good time to do a pulse check on the culture and how well people are working together. Doing so will help assess your change management and communication plans. If necessary, recommend a plan for the company to continue those efforts. Be sure to communicate the end of the integration and recognize all the people who helped make it possible. Many IMO leaders host a pizza party or other celebration. Sometimes, integration teams receive a thank you gift, which may be anything from a logoed jacket to a bonus.

Finally, turn over the keys to the PMO. The opportunities for long-term value generation and optimization are now the responsibility of the ongoing organization and structure.

Conclusion

In the excitement of a merger or integration, it’s tempting to pursue every idea for improving efficiency, growth, or innovation. However, if you focus on the key value drivers of the integration first, while you evaluate and keep track of those other interesting opportunities, you’ll better position the combined organization to achieve long-term benefits.

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.

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Authors:
Neil Domonkos, Director, M&A Integration
Zack Fijal, Principal Consultant, M&A Integration
Integrated Project Management Company, Inc.

Services: Mergers and Acquisitions
Industries: Medical Technology