Failure to integrate a business brings buyer’s remorse
14th November 2019
As I have frequently said in previous articles in Money Marketing, it is a statistical fact that most financial intermediary acquisitions fail to deliver the value that was expected at the outset of the deal. A commonly quoted percentage is 70 per cent.
For the buyer, that means a shortfall in the increase in the value that the acquisition brings to their business and profits; for the seller, that can often mean a shortfall in the deferred payments i.e. they receive less for their business than they accepted at the outset.
I find a good way of helping my clients visualise what is required is to use the iceberg analogy. The sale process is what can be seen above the water, while the part of the iceberg that lies beneath the water is the integration – but, just because it cannot be seen, it does not mean it is any less important.
With better planning and resource, the likelihood of this outcome can be significantly reduced, so what are the key aspects and actions that should be considered and implemented? Here are my top five:
Define, agree and communicate what constitutes ‘success’
This should be agreed between the buyer and seller and arguably appear in the Heads of Agreement and the subsequent Sale and Purchase Agreement and be capable of measurement. Some obvious measures will be:
- Client transfer and retention;
- Adviser retention;
- Staff retention;
- Transfer of data;
- Adoption of the buyer’s back office and other systems; and
- Accessing, and winning business from, the seller’s professional connections.
It is important that the buyer and seller both have individuals to deliver the integration requirements. That commonly means:
- Having dedicated people with the requisite skills assigned to the integration from both the buyer’s and seller’s respective businesses;
- Providing the appropriate software to manage the process;
- Ensuring that there is effective oversight of the integration process; and
- Having an escalation process in place when there are issues so that they can be quickly and effectively resolved.
Facilitate adoption of culture and integration of people
Enough time and effort should be devoted to helping the employees of the acquired business understand the culture and ethos of their new employer. That means that training processes that have been thought through must be in place, as well as review mechanisms that can measure progress and address shortfalls.
Set budgets and targets and monitor outcomes
There is an adage: what gets measured, gets done. Realistic targets need to be set, some of which may be financial and others activity-based – for example, the percentage of clients set up on the buyer’s back-office system.
Management and measurement are also key, so again time and effort are required, and this is in turn more likely to yield the right results if those put in charge of the integration are accountable and remunerated (or in some cases penalised) accordingly.
Effective communication is needed to ensure all those affected in both the buyer’s and seller’s respective businesses are involved, and the communication needs to be both regular and relevant to specific groups of employees. Some will require different and more or less detailed information than others.
There are no shortcuts to effective integration; if meetings are skipped or fall by the wayside, or if there is infrequent or incomplete reporting, then the planned outcomes may not be met.
Ownership by all parties is key, as are consequences for shortfalls in delivery. Yet, conversely, it may be appropriate to reward good outcomes if they can be measured and if those rewards are factored in to budgets.
This article was originally published on Money Marketing