Pre-Acquisition Planning for Post-Acquisition Integration

By Andrew Levitch

As all CEOs and management teams know, there are many challenges to successfully completing an acquisition. These range from identifying the right acquisition target through complex target-acquirer negotiations and ultimately to finalizing terms and closing the deal.  But one of the challenges of M&A that often doesn’t get enough attention until after an acquisition is complete is the plan for post-acquisition integration.

This plan is as important (if not more important) than the many activities that went into completing the deal. Planning in advance for the myriad choices which a management team will need to make to successfully execute the merger, both strategic and tactical, is critical. Why? Because only by planning these moves ahead of time can the acquiring company be most effective in integrating the acquisition into the parent company’s strategy, operations, marketing, financial structure, etc., thereby enabling it to realize the maximum value of the acquisition, in a timely manner.

A 90-Day Post Acquisition Plan: Proactive Decision-making

Having assisted with several acquisition integrations on behalf of Life Sciences clients over the course of my career, I highly recommend that the acquiring company’s management team develop a 90-day post-acquisition integration plan. This 7-point plan should incorporate a number of key strategic and tactical elements. Each of these require careful and thoughtful choices by the C-suite as they can greatly impact the success (or lack thereof) of the acquisition integration.

#1: Effectively Communicate the Rationale for the Acquisition Across Stakeholder Constituencies

Any time there is an acquisition the level of uncertainty across the entire enterprise increases, from the acquired to the acquirer.  The goal of the communication plan must be to minimize this uncertainty and begin to align the new organization around a common vision. The rationale, value and benefits of the acquisition are valuable strategic assets which can be harnessed by the acquirer’s management team to educate and enlist the support of both teams involved in integration.  Preparing a well-articulated strategic overview for communication, internally and externally, within a 90-day window is important to make sure that the entire organization understands and is aligned around the vision, mission, and objectives of the combined entity.

#2: Decide Who Stays on the Team

One of the most important elements before any acquisition integration plan can be initiated is who will be part of the integration planning process and who will help execute and champion it. Key hires at the acquired company must be evaluated. Often this can be done for some of the key leadership entities in advance of the deal closing.  For other positions, the plan to perform the evaluations and make decisions should be clearly defined prior to closing.

#3: Adjust Product Roadmaps as Necessary

Especially in Life Sciences, all acquisitions shift the landscape when it comes to product development. Adjusting product roadmaps (potentially at both companies) so that they represent the best path forward so the combined entity can jump start decisions in Research & Development and expedite the new products and/or product enhancements that the combined entity wants to bring to market, post-merger.

#4: Define How “Go-to-Market” Strategies Will Change Post-Acquisition

In acquisitions where new products and or enhancements to existing ones (of the acquirer) is the primary driver for the acquisition, the post-acquisition go-to market strategy should be developed in advance.  The quicker that new products and or enhancements to existing ones can be effectively marketed, the faster the acquirer will begin to realize the value behind the acquisition.

#5: Choose the Appropriate Accounting Basis for the Integration

As all experienced CFOs know, acquisitions can be financed in myriad ways and similarly, there are several ways that an acquired company can be treated from an accounting perspective.  On one end of the spectrum, the acquired company can be treated as a wholly owned subsidiary of the acquirer and continue to operate as a separate entity from an accounting perspective.  On the other end of the spectrum, the acquired company can be fully merged with the acquiring company. Choosing the appropriate accounting strategy will depend on many factors ranging from the strategic intent of the acquisition (vertical integration, horizontal integration, diversification, etc.) to tax strategies, among others.

#6: Review Existing Physical and IT Infrastructure

The final cost structure (and associated need for maintenance, upgrades, and improvements) for the post-acquisition entity cannot be fully developed without a thorough understanding of both physical and hard system assets. Physical infrastructure should be inventoried, and determinations should be made regarding locations, buildings, equipment, and facilities.  As an example, the acquisition may result in excess manufacturing capacity so decisions may be needed about which sites to exit. An inventory of all IT systems should also be prepared in advance of the acquisition and decisions can be made regarding everything from HR systems to accounting systems.  These decisions should identify not only which systems will survive, but also an appropriate timeline for the integration.

#7: Review Third-Party Relationships for Consolidation Opportunities

Another area of opportunity from a finance perspective associated with many acquisitions is vendor consolidation.  In some instances, each of the companies may be using the same or similar vendors, suppliers, and contractual partners to support their products and/or services.  Analysis, consolidation, and potential elimination of this network where appropriate may simplify ongoing operations across both entities and enable the acquiring company to renegotiate pricing.  A thorough analysis should examine vendors ranging from those in the supply chain to service providers like banks, accounting firms, legal experts, etc.

The above list of recommended post-acquisition planning initiatives is certainly not all-inclusive, but my hope is that it is thought evoking for management teams involved in M&A.  If you need an experienced financial partner to help you through an acquisition process, reach out to FLG. Our partners have significant experience managing through acquisitions over last 2 decades and we are happy to assist.