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Integration: The Critical M&A

Success Factor
William H. Venema

plan has been fully

umerous studies
vetted with all the
have concluded
Most mergers and acquisitions (M&As) fail to meet
appropriate parties
that most mergers
the expectations of the purchasers. It is clear that
and the corporaand acquisitions fail to
the due diligence, valuation analysis, and negotiation is prepared to
meet the expectations of
tion that precede the closing of a transaction canexecute the plan
the purchasers. It is clear
not guarantee its success. Instead, the synergies
immediately followthat the due diligence,
and assumptions that supported the decision to
ing the closing.
valuation analysis, and
acquire a target business will be realized only if
Good businegotiation that precede
ness results rarely
the closing of a transacthe purchaser effectively integrates the target.
happen automatition cannot guarantee its
Unfortunately, many purchasers either fail to plan
cally; rather, they
success. Instead, the synthe integration of the target adequately or conduct
are the product of
ergies and assumptions
the integration process too slowly.
good management.
that supported the deciThe author of this article explains how to draw
Integration is no
sion to acquire a business
up a good integration plan that will boost the
different. Integra(a Target) will be realchances of M&A success.
2015 Wiley Periodicals, Inc.
tion plans should
ized only if the purchaser
be aligned with the
effectively integrates the
strategic objectives
Target. Unfortunately,
of the transaction, should conmany purchasers either fail to
in turn, appoint a responsible
sider the organization and culplan the integration of the Tarperson from the business unit
ture of the Target, should proget adequately or conduct the
or corporate department that is
ceed systematically and quickly
integration process too slowly.
most directly involved with the
following the closing, and
A corporation should never
Target (the Integration Liaishould comply with the antitrust
buy a business without a clear
son) who should be involved
laws. The characteristics of a
concept of what it plans to do
throughout the entire acquisiwith the Target following clostion process and who, under the good integration plan are listed
ing. Accordingly, integration
supervision of the steering com- in Exhibit 1.
planning should begin as soon
mittee, should be responsible for
as a Target is identified, by
preparing and refining the inteALIGNMENT WITH CORPORATE
naming a steering committee
gration plan up until the closing. STRATEGY
of relevant senior executives to
The steering committee should
oversee the integration effort.
Integration planning begins
review and approve (or revise)
The steering committee should,
with the strategic justification
the integration plan, so that the

2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI 10.1002/jcaf.22046
This article was originally published in Volume 23, Number 2 of The Journal of Corporate Accounting and Finance.

23

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The Journal of Corporate Accounting & Finance / May/June 2015

Exhibit1

Characteristics of an Integration Plan

Consideration of, and alignment with, the strategic objectives
of the corporation
Determination of, and sensitivity to, the organization and culture
of the Target
Management of the integration process
Compliance with the antitrust laws

Regardless of whether the

synergies result from reductions
in expenses or enhancements
to revenue, the integration
plan should explain how the
corporation is going to realize
them. It should also include a
detailed list of tasks, responsibilities, and deadlines, so that
the plan can be implemented
quickly, without further discussion and review, following the
closing. Time is of the essence
with respect to achieving synergies, particularly with respect to
synergies related to reductions
in the headcount.

for the transaction. In other

corporation, then the success
words: What is the corporation
of the transaction will depend
attempting to accomplish by
upon keeping the relevant memacquiring the Target?
bers of the Targets team. Thus,
ORGANIZATION AND CULTURE
If the goal of the acquisithe focus of the integration plan
It is important for the intetion is to generate economies of
will be on establishing appropriscale, then synergies are likely
ate corporate governance proce- gration plan to be sensitive to
the organization and culture
to be achieved by terminating
dures over the Target, without
of the Target. The corporation
employees who are deemed to
destroying the characteristics
should not attempt to impose
be redundant. This consequence that made the Target attractive
its standards on the Target in
is either understoodor at
in the first place. In addition,
a dogmatic fashion. Instead,
least suspectedby the Tarsince certain members of the
if the Targets organization
gets employees and, possibly,
Targets management team will
and culture are different from
the corporations employees
undoubtedly be critical to the
those of the corporation,
as well. Their uncertainty over
ongoing success of the Target,
then the corporation should
the security of their jobs will
the integration plan should
be the source of considerable
address the retention and incen- remember:
anxiety for them, which could
tive plans for those key players.
It bought the Target for a
have adverse consequences for
As is the case with expenses,
reason.
the corporation if they decide
there are other synergies that are
The Target was attractive,
to look for other employment.
focused on enhancing revenue.
even when it was structured
Accordingly, the integration
Some synergies from revenue
and managed in ways that
plan should proceed quickly, so
enhancements are listed in
were very different from
that the corporation can enjoy
Exhibit 2.
the benefits of the synergies
sooner rather than later and
just as importantany job
reductions related to the synerExhibit2
gies soon become old news.
There are, of course, other
operational expenses that can be
Synergies From Revenue Enhancements
reduced by eliminating redundancies in areas such as R&D,
Cross-selling new products to existing customers
new product development,
Accessing new markets and/or new customers
distribution, manufacturing,
Obtaining access to new distribution channels
and supply chain.
Improving the efficiency of the sales force
Alternatively, if the stra Gaining more bench strength to deliver services to customers
tegic goal of the acquisition is
to add new capabilities to the
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2015 Wiley Periodicals, Inc.

The Journal of Corporate Accounting & Finance / May/June 2015

25

the ways in which the corporation is structured and

Exhibit3
managed.
In planning how it will
integrate the Target, the
corporation should ensure
McKinsey 7S Framework
that the plan sustains the
Strategythe way in which competitive advantage will be achieved
culture that enabled the
Structurethe way the organization is structured and who reports to
Target to become attractive
whom
in the first place.

If the corporation starts

imposing new people, new
requirements, and new values
on the Target, then it might
soon discover that the Target is
very different from the company
the corporation thought it had
purchased. Corporations often
begin the integration process
with those aspects of the integration plan that pose the least
amount of disruption to the Target and leave the more controversial aspects of the plan until after
the corporation better understands the business operations
and personnel of the Target.
A tool that corporations
can use to determine whether
the organization and culture of
the Target are going to mesh
with those of the corporation
is the McKinsey 7S Framework (see Exhibit 3), which was
developed in the early 1980s by
Tom Peters and Robert Waterman. The basic premise of the
model is that seven internal
aspects of an organization must
be aligned and mutually reinforcing if the organization is to
be successful. If these internal
aspects of the Target fail to
align with those of the corporation, then the integration plan
should address how they will
be reconciled. Thus, the tool
can be used to identify what
issues need to be addressed in
the integration plan in order
to ensure that the corporation
will realize all of the benefits of
acquiring the Target.

2015 Wiley Periodicals, Inc.

Systemsprocesses and procedures used to manage the organization, including management control systems; performance measurement and reward systems; planning, budgeting, and resource-allocation systems; information systems; and distribution systems
Shared Valuescore set of values that are widely shared in the
organization and serve as guiding principles of what is important
Styleleadership style of top management and the overall operating
style of the organization
Staffemployees and their backgrounds and competencies
Skillsdistinctive competencies that reside in the organization

MANAGEMENT OF THE
INTEGRATION PROCESS
For significant transactions,
directors should ask to review
the integration plan and should
ensure that an Integration Liaison with appropriate qualifications and sufficient authority
to implement the plan has been
appointed. For smaller transactions, the board can delegate
this responsibility to the steering
committee mentioned earlier.
A well-written integration plan should cover, at a
minimum, three principal areas.
First, it should address those
actions that must be accomplished immediately following
the closing of the transaction to
transition the Target to its new
owner, both legally and operationally. This portion of the plan
is essentially a list of the administrative tasks to be accomplished, such as ensuring that
the payroll and benefits of the
Targets employees are not interrupted. Each task should have

a deadline (so that the tasks are

accomplished in a coordinated
manner) and a party responsible
for its accomplishment.
The second principal area
that the integration plan should
address concerns communications. Effective communications
can relieve a significant part
of the anxiety experienced by
various parties as a result of the
transfer of the Target to a new
owner. The plan should include
short-term communications that
are designed to reassure customers, vendors, and employees
that they have nothing to fear.
It should also include ongoing communications that will
address the concerns of key
stakeholders as the integration
process unfolds. These ongoing communications should be
based on feedback that is solicited as part of the communication plan.
The final part of the
integration plan is the most
important. In general, it should
address how the benefits of

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The Journal of Corporate Accounting & Finance / May/June 2015

Exhibit4

Components of an Integration Plan

Short-term administrative actions
Communication plans (immediate and ongoing)
Management of the process for achieving the benefits
of the acquisition

competition; and the Hart-ScottRodino Antitrust Improvements

Act of 1976 (HSR) requires that
certain acquisitions be reviewed
by the government prior to completion. These laws require that
parties refrain from:

the acquisition of the Target

are going to be realized and,
specifically, describe each step
that must be accomplished in
order to achieve that goal. The
plan should include a timetable
for accomplishing the steps and
should assign responsibility
for accomplishing each of
them. Coordination is especially important with respect
to Targets that the corporation
acquired with the intention of
leveraging benefits across several of the corporations business units. A summary of the
components of an integration
plan is listed in Exhibit 4.
Overall responsibility for
the integration will rest with
the Integration Liaison. The
front-line managers selected
to be Integration Liaisons
normally come from one of
the business units and, therefore, are usually supervised by
an executive in that business
unit. With respect to his or her
performance as Integration
Liaison, however, the executive should understand that
he or she reports to the steering committee. This reporting
structure is especially important when the integration plan
relates to an acquisition that
involves several of the corporations business units, since
no single business unit will be

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responsible for the success of

the integration.
The primary reason the
Integration Liaison is involved
throughout the M&A process
is to ensure that the integration plan incorporates all that
is learned during due diligence,
the negotiation of the purchase
agreement and other transaction documents, and the closing
of the transaction. The goal for
each transaction should be to
have, at closing, a fully developed integration plan that has
been refined throughout the
course of the transaction and
will enable the corporation to
commence the integration process immediately following the
closing.

COMPLIANCE WITH ANTITRUST

LAWS
When preparing the integration plan, the Integration
Liaison should keep in mind
that, until the acquisition
transaction is closed, the parties remain independent entities that are subject to antitrust
laws. Specifically, Section 1 of
the Sherman Antitrust Act (the
Sherman Act) prohibits agreements that unreasonably restrain
trade; the Federal Trade Commission Act of 1914 (the FTC
Act) prohibits unfair methods of

exchanging confidential,
commercially sensitive
information that could
violate the Sherman Act or
the FTC Act and
integrating their businesses
before receiving antitrust
clearances.

The parties would violate

the Sherman Act and HSR
if the acquiring corporation
obtained beneficial ownership
of the Target before the necessary waiting periods expired.
Such action is referred to as
gun jumping and can result
in the imposition of substantial
fines. Parties can violate HSR
by taking actions that are short
of actually closing the deal but
equivalent to deal closure. For
example, potential liability under
HSR can arise if a corporation
engages in actions that control
or affect the decisions of its Target regarding price, output, or
other competitive metrics.
Although the parties remain
independent competitors during
the antitrust approval process
and cannot coordinate their
behavior in any way of competitive significance, substantial
integration planning can, nevertheless, occur. Such planning
must be conducted, however,
under guidelines that prevent
the improper exchange of competitively sensitive information
and the premature integration
of the Target. Needless to say,
integration planning should be
coordinated with qualified legal
counsel to ensure compliance
with the antitrust laws.

2015 Wiley Periodicals, Inc.

The Journal of Corporate Accounting & Finance / May/June 2015

CONCLUSION
Given the substantial commitment of financial and human
resources to the task of corporate development, corporations
should do everything they can

to ensure their transactions are

successful. If corporations give
due regard to the important role
of integration planning, then
they will greatly increase the likelihood that their transactions will
be successful. Integration plans

27

should be aligned with the strategic objectives of the corporation,

should consider the organization
and culture of the Target, should
proceed quickly, and should
ensure that the parties comply
with the antitrust laws.

William H. Venema is deputy general counsel at Computer Sciences Corporation in Falls Church, Virginia.
Previously, he was in private practice for over 20 years with national firms, where he focused on mergers and acquisitions, IT contracts, outsourcing, licensing, joint ventures, and private equity. Venema is a
contributing author to two business law books, as well as the author of The Strategic Guide to Selling Your
Software Company: Essential Advice from a Veteran Deal Warrior and numerous articles on a variety of
business law topics. Before attending law school, he served as an Army officer and is a graduate of the US
Armys Airborne and Ranger Schools and the Command and General Staff College.

2015 Wiley Periodicals, Inc.

DOI 10.1002/jcaf

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