We are at the cusp of acquisition season with potentially lower interest rates, quite a few undervalued targets coupled with the urgency to ramp growth and access new revenue streams. Acquisitions are difficult … Harvard Business Review calls it a mug’s game with 70% to 90% being abysmal failures.  We distilled a few observations from our vantage of working with multiple M&A transactions (and having been a part of few ourselves) 

In short: 

  • Integration success hinges on leveraging and harmonizing the respective strengths of the combined entities.
  • Swift collaboration paves the way for a seamless transition.
  • Treat the integration as a journey, not a sudden shift, encompassing models, talent, processes, and systems.
  • Agility and open communication are paramount to successful synergy.
  • Technological heterogeneity presents a hurdle, often exacerbated by the pre- and post-acquisition underinvestment in technology by the acquired entity.
  • Implementing cost-efficient domain-specific technology solutions demonstrably establishes a bedrock for success.

The details 

The challenge is that many acquisitions fall prey to a “take” mentality, aiming to exploit target strengths without recognizing the years of effort, delicate operating mechanisms, and relationships, invested in their creation. The true value lies not in takeover but in integration.  
Integration requires market agility, capability transition, and providing the leadership with the right metrics to drive considered decisions. In our flawed wisdom, we ignore the fact that you can’t photoshop a competitive advantage in real-life business scenarios.  

For acquisitions to be successful, the merged entity has to demonstrate 1 + 1 = 4 multiplier outcomes, and in most cases, we drop the ball 

  • Some merged entities manage the transition well, but the glacial pace, often years, erodes the potential synergies and capabilities. 
  • On the other hand, most acquiring companies try to accelerate the pace by force-fitting their systems and processes on the target entity – and end up tearing the delicate fabric that made the target successful 
  • Once the acquisition goes through the focus is performance enhancement – and most times the measures are those of the acquiring entity’s business case, a summary of one-sided optimistic financial projections, that rarely pans out. 

We start constrained with the clean room input that is focused on past financials and potential future growth, based on single-dimensional financial projections. Most targets stage manage their performance, by cutting down on key foundational needs of technology and digital transformation. So, the information/ inputs evaluated in the due diligence is shallow, at best. 

Case to Point – Google’s acquisition of Motorola’s handset business did not detail the marginal cost of manufacturing handsets in Texas and the defect cost. Motorola, in good faith, had opened its books up – but the books of record don’t provide the metrics that matter. And though Google had records after the acquisition, its ability to harmonize the data with the overall business and draw insights to drive interventions was extremely diluted.  
In most cases, enterprises don’t publicize the integration failure… they just let it slide. 

The two Levers differentiating successful integration and growth of the right acquisitions are: 

  • providing managerial support with access to the right inputs for integration and  
  • rapidly embracing and expanding the capabilities of the acquired organization – and doing it from Day One.  

This optimal lies between a homogenized organization and a federated business model. 

The constraint for both levers is the varying systems and processes of acquired entities. In the resultant data, tech, and process sprawl, decisions are made on a prayer. To add to this, compliance and regulatory lapses, crisis is a given. 

The Solution that delivers. Imagine a world where the entities can work cohesively together to drive exponential outcomes and gradually transition to a streamlined organization.  

Acquisitive conglomerates and Private Equity, that have successfully managed to expand and enhance their competitive advantage, partner first without disrupting either business. The pivotal strategy is to loosely couple the business models and then follow through with realigning the enterprise businesses, functions, and technology. This mosaic model is counter to the forced homogenization approach that results in value erosion.  

Describing success is possible without large technology investments. These entities use data as the lever and business contextual analytics to conserve the competitive advantage with rapid upsell, and cross-sell to expand the business.  

Business contextual data platforms with embedded smart analytics and automation provide the ability to collaborate between entities while ensuring that the fragile target entity ecosystem is allowed to strengthen and contribute to better-than-expected synergy outcomes. 

Domain-led data products harmonize the operational and financial data without changing processes, giving the integrated entity’s leadership or the PE Operating Partner contextual insights to drive actions.  

For the most part, the information is real-time, with minimal technology costs, without large-scale disruption or foundational changes to realize synergy cost benefits and enable automation. 

Case to Point – One of the largest global auto parts and service enterprises, with its rapid acquisition of 8 to 10 majors in the industry (PE-Owned), used data and frugal technology to harmonize the operations while aligning the processes after successful integration.  
Similarly, the company that builds power equipment that generates a 3rd of the global electricity supply, quickly pivoted to adopt the data and insights first approach to manage and grow their business rather than immediately focusing on expensive, long-tail technology and process alignment. 

Ensuring success needs access to relevant data across both enterprises, and a single pane of glass that provides metrics that matter, and accelerating visibility with non-invasive, non-disruptive methods prevents unplanned costs or value destruction. This approach requires shoring up the underinvestment in the target by cost-effective tech enablers, that work across the merged entity enabling insights, agility and collaboration. 

At Midoffice Data we curated the M&A integration needs from our experiences to build astRai™, a plug-and-play business operations enabling platform, a virtual ERP/EPM,  that is a combined Insights and Automation engine, anchored on domain.  

astRai™ helps enterprises grow revenues and control costs, without expensive tech intervention or incremental tech debt and minimizes the need for upfront process transformation.  

astRai™’s Cohort, the secure collaboration hub acts as a bridge across entities and is extensible to external business partners, to drive intuitive business actions, with zero disruption.  

Enterprises can use astRai™ from the pre-deal phase through the initial years to maximize enterprise value capture while using the relevant insights for rationalizing the tech and organizational structures.  

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