Although identifying and finalizing an M&A deal can be challenging in emerging markets, the subsequent integration of the acquisition is extremely vital to the success of the entire process. As interest in M&A in emerging markets heats back up, former FSG expert advisor, who has just become the CFO of an Italian Fashion Group based in NYC, Alberto Elli recently joined SVP of Global Research Joel Whitaker and AVP of FSG’s Strategic Research Dan Kornfield to discuss post-merger integration – both its perils and potential. You can download the podcast by clicking here, or read further for key takeaways from the conversation. You may also access the FSG iTunes podcast library here.
Post-merger integrations can fail for many reasons. M&A deals often look great at the target phase but if they lack the proper ability to execute they will end up failing. M&A by definition is a growth strategy, the basis for acquisitions. It doesn’t matter how little was paid for a new business, subsidy, or division because if you lack a proper integration strategy the investment will not pay off. According to Alberto, if the proper time and resources are not allocated to properly build an integration strategy, the entire M&A deal becomes a value-destroyer. Therefore, it’s important to note the following four building blocks of a successful post-merger integration strategy:
1) Nature of the Transaction
One of the most important determinations to make is whether or not the acquired business unit or subsidiary is structured to assist the integration process. Resource strapped business units are often left to deal with the integration on their own which is a pain point that many FSG clients express. It’s important to assess the local competency and bandwidth of newly acquired staff and ascertain whether or not to send in additional change management staff.
2) Complexity Upfront
As a natural progression from the first building block, it’s vital to know and identify any complexities upfront. If local staff are deemed unable to handle the integration on their own then it’s evident ahead of time that additional staff is needed, either internal staffing from other locations, new hires or external consultants.
3) Customer-facing or front office
Post-merger integration has a large impact on top line projections thus it’s vital to immediately adjust the forecasting and projections from a regional perspective. Are there current agreements or distribution contracts in place that the company can no longer deliver upon? Ensure to extract any verbal agreements from local sales, marketing, and management during the due diligence process to identify which customers are retainable and which customers are not.
4) Back office
Back office includes supply chain, or essentially the delivery mechanism for products and services to customers. It’s important to decide how to serve your customers. Know whether or not CRM integration or any IT services are required to keep the business running.
Again, none of these building blocks matter without the proper people in place. It’s vital to compile the best teams to assist during post-merger integration. In many cases, especially for larger multinationals that are executing upon more than 5 M&A transactions annually, building an internal M&A team will likely pay off and give current employees great opportunities.
Alternatively, leaving the integration process to the local staff can be viable, but be sure to properly allocate resources to empower local teams to execute. And lastly, regardless if local staff, relocated staff, or even external consultants are assigned to the integration process, passion and ability is fundamental for a successful integration.
Alberto Elli is CFO of an Italian Fashion Group based in NYC and also President and Founder of Pever LLC, a consultancy firm specialized in post-acquisition integration. Alberto was formerly a member of FSG’s expert advisory network advising clients on post-merger integration strategy. Prior to founding Pever LLC, Alberto was Vice President and Controller of Sherwin-Williams Global Finishes Group from 2008 to 2013 and was responsible for nearly $5bb in sales. Since inception, the group grew sales 70% both organic and with several acquisitions. Alberto has held various senior financial positions throughout his career including Vice President of Schering-Plough’s international division and SCA, a Swedish multinational in paper and packaging. Mr. Elli holds his degree of Dottore in Economia e Commercio from the Universita’ L.Bocconi, Milano, Italy.