Nine steps to setting up an M&A integration program

2. Establish an M&A integration program and governance.

Integration leaders will need to work with their general counsel and, if necessary, outside counsel to understand the legal guidelines of the deal, as well as regulatory considerations. While some legal risks and issues may have been raised in the diligence phase, the integration will have its own set of legal guidelines. Approvals from regulators across a number of jurisdictions might be required before a deal can close. Integration leaders should work closely with the legal team to understand these risks and requirements and to establish action plans for various situations.

It is also important to first establish confidentiality expectations with the entire integration team, as well as establish data‑sharing and communication guidelines. A significant amount of data needs to be shared between the organizations, so a clean room or other mechanism will likely be needed for sensitive information, while another mechanism can be established for nonsensitive information. If an organization does not have an effective and secure data-sharing platform, it can procure one. Confidentiality and data-sharing are two key concerns in an integration. Prior to the transaction close, careful consideration may need to be given to prevent the sharing of competitive information and asserting influence on the target, also known as “gun-jumping,” to avoid violating antitrust laws. The integration leader will be responsible for confirming that confidentiality is not violated between companies prior to transaction close.

3. Set up the program, stand up the IMO and kick off the functional workstreams.

Integration leaders and the SteerCo are responsible for standing up a program with a structure to allow the workstream leads to enable integration planning and execution within their functions while having enough flexibility to enable the leader to adjust to the ever-changing obstacles and business imperatives of an integration while still adhering to the guiding principles of the deal. Integration leaders enable this by establishing an integration management office (IMO).

An IMO is the managing body of the integration and is responsible for simultaneously defining the integration strategy with the executives, establishing the program roadmap, communicating and upholding the guiding principles of the integration, and managing and resolving functional or cross-functional issues while diligently working toward achieving the deal’s value drivers.

The integration leader may need to establish a strong governance structure that enables effective decision-making and creates a clear mechanism to escalate risks and issues. Based on our experience, for material transactions, a three-tiered governance structure with an executive SteerCo, IMO and functional workstreams creates the appropriate level of oversight and operational efficiency.

Functional workstreams (Sales & Marketing, Product, HR, IT, etc.) can be clearly defined and limited to 10 or fewer. This limited number will allow management to engage in effective communication, identify leaders for important workstreams and hold them accountable.

While standing up an IMO and functional workstreams, it is important to establish a weekly cadence between IMO teams to promote daily progress, escalate risks and quickly resolve problems. A reliable and consistent touch point with the functional workstreams, as well as the SteerCo, allows the IMO to drive transparency, consistency and accountability throughout the integration.

To properly execute an integration, it is crucial that the integration leader, together with the SteerCo, defines the functional workstreams and recruits strong workstream leaders. To do this, it is important to set the operating norms and clearly communicate how decisions will be made throughout the integration. An integration leader should look to workstream leads to provide deep functional knowledge and turn to the IMO to provide program management support and deep integration experience.

When identifying and working with the functional workstream leaders, the integration leader may need to consider the following:

• Workstream leads can have the functional knowledge and authority to make decisions that may have a significant impact on the business while also taking into consideration dependencies on other functions and parts of the business.
• Integration leaders may need to create a strong working relationship with each of the workstream leads as they will be responsible for executing the milestones and tasks related to the integration.

To confirm that work stream leads are adequately prepared, the integration leader and IMO may need to be in constant communication to discuss progress against the integration plan (e.g., status of the milestones, key risks and issues, cross-functional interdependencies).

4. Develop functional charters and Day One vision.

Once the integration program is defined, the IMO should turn its focus to designing the newly combined company (NewCo) and determining what it will take to get there. While still upholding the deal’s guiding principles, the integration leader will guide the functional teams to determine the workstreams’ charters and the critical requirements that need to be met on, or shortly after, Day One.

The workstreams’ charters clarify the roles and responsibilities of each functional workstream, what is in scope or out of scope as part of the integration, anticipated resource requirements, key interdependencies with other functions and an initial set of Day One milestones to close the transaction. While the workstream leads will develop the charters, the IMO will support the workstreams and challenge their charters to validate that they align to the guiding principles of the deal. The IMO will also verify that each charter includes the critical requirements that need to be met on Day One to close the deal.

6. Coordinate business and functional integration.

Once the workstream integration charters are defined and the target operating model is designed, the integration leader will coordinate the creation of a holistic integration workplan, which is a planning document created by each function with integration milestones, tasks, due dates, owners and interdependencies with other functions. The integration workplan articulates the who, what, when, where and how of the integration in order to maximize the value drivers upon which the deal is based.

To determine the major milestones and tasks needed to complete the integration, it is the IMO’s responsibility to bring together functional leaders from both organizations to create a similar understanding of interdependencies, align expectations of each function and resolve competing program priorities. The starting point for this is the integration charters.

At the early phase of the integration (pre-close), the focus is entirely on closing the transaction and getting to Day One:

• Each workstream develops detailed Day One integration plans that define tasks that are required to enable a successful Day One.
• Day One readiness sessions and simulations are performed in the weeks leading up to the close of the transaction.
• Shortly before Day One, the IMO will typically start working with the workstream leads to define post-close integration plans. The focus of these plans is on adhering to guiding principles, capturing synergies and factoring in everything that was not accomplished by Day One.

7. Set plans to capture M&A value creation and synergies.

A major requirement for deal success is delivering upon the value drivers of the transaction and hitting synergy targets, which typically takes many months to years to achieve. This can best be accomplished by building the synergy capture targets into the performance goals of the executives and by validating that the goals are embedded into the annual budgeting process vs. an offline tracking mechanism.

In addition, the executives may need to validate that the integration goals and targets can be turned into actionable responsibilities for the relevant workstream leads. For instance, during the target-setting and planning stages of the transaction, the leader can consider setting “top down” targets that can be broken down into functional goals and developing a prioritized set of initiatives to drive tactical execution toward those targets. Then, during the tracking and reporting stages of the integration, the leader can continue to confirm that value is being captured by aligning and linking value capture reporting with overall integration management reporting. Solutions, such as EY Capital Edge can facilitate synergy tracking and realization with target-setting, action plans, transparency and team accountability across the entire transaction lifecycle.

Driving financial rigor on an enterprise basis will enable accountability within the organization and help articulate value creation to the board and the Street.

8. Drive M&A integration execution and maintain momentum.

To operationalize and execute upon the guiding principles and strategy set forth for the combined company, integration leaders will leverage the integration work plans and the other previously discussed documents (e.g., workstream charters, operating model and organization structure). The integration workplans will establish the major milestones of the program and allow the functional leads, IMO and executives to track against the status of the program.

Dashboards and executive summaries are among the tools that can help achieve these tasks and modulate the pace of the integration while obtaining a view of how the program is progressing. Depending on the size and speed of the transaction, these tools can vary from being simply graphs and charts managed manually to automated, integrated solutions, such as EY Capital Edge, a real-time data analytics platform that provides a full suite of capabilities required to help manage a transaction and capture deal value.

It is critical that the IMO constantly coordinates workstreams and drives momentum throughout the integration. Stagnancy during an integration can rapidly deplete value. Financial markets often expect early signs of value capture from the deal, and employees who are already facing heightened levels of change and uncertainty can interpret integration holdups as a sign of instability. It is imperative for the IMO to move the organization as quickly as possible through the integration milestones to meet deadlines and capture value while guiding the team through uncertainty, facilitating decisions and breaking down roadblocks.

9. Focus on culture, change management and communications.

Successful deals that capitalize on value drivers and satisfy investors have usually placed a proper focus on cultural integration. Protecting and retaining talent, adherence to guiding principles and avoiding potential pitfalls that may undermine the most well-planned deals can be seen as intangible by some. Nevertheless, these factors are of high importance. For the IMO, here are a few key points to remember:

• Merging cultures is challenging but, if done well, can create an amazing company by leveraging the key aspects of each organization to drive a powerfully aligned end state.
• Creating an environment that inspires and motivates employees has the additional benefit of spreading to the experience of your customers.

An M&A integration will encompass a diverse set of stakeholders. The integration leader is the SteerCo’s eyes and ears, acting as both the executives’ window into the integration and the functional leads’ primary source of access to upper management. It is essential for the IMO to confidently and tactically manage upward, knowing when to escalate issues and potential risks to the executive level, when to delegate authority down and when to make decisions as an executive proxy.

Further, the IMO will need to focus on change management and communication to motivate the core integration team and to confirm that the broader organization is supportive and ready for the pace of change. A significant number of changes could occur throughout the integration that may affect people, processes or technology. The IMO may need to reduce uncertainty, provide clear leadership and effectively communicate the rationale for the decisions to all stakeholders, as applicable.