In my experience in a Fortune 500 company, the excitement around closing a “deal” and the public announcement that followed always created high energy and exciting times at the acquiring company. The flurry of activity ensuing in the Due Diligence phase is the precursor that kicks off the long and often arduous, complex, and sustained effort of the next step, the post-acquisition finance Integration phase.
In my opinion, Business Development has the sexy job of negotiating and closing the deal. The Transaction Support Team, both internal and external, is Business Development’s partner in the high-stakes dance between acquirer and “acquiree.” However, once the thrill of the deal settles, the Integration Team steps in to conduct the complex business of integrating the “acquiree” into the acquirer’s business operations.
Finance integration, in my experience, is fraught with risks and complexity inherent in the process of integrating people, processes, and systems.
Although project scope varies from deal to deal, integration boils down to that triumvirate. In complex acquisitions, more often than not, all three are in scope for integration. On the other hand, a simple integration project could entail just one or two of the triumvirate. With that said, an integration that involves a system implementation (full, partial, or phased) almost always falls in the complex bucket.
Giving the Integration Lead a seat at the table in the Due Diligence phase is best practice.
The Integration Lead, ideally with previous experience in integration, can provide important input to help mitigate project risks and contribute to the efficiency of the due diligence effort. The Integration Lead would have captured “lessons learned” from previous integration efforts and adjust course as needed in the next project.
Forming the Integration Team early in the project is crucial to the success of the integration project.
The Integration Team is typically comprised of Finance, Legal, HR, IT, Commercial & Marketing, Distribution, etc.
Identifying the Executive Sponsor to champion the project is critical. An escalation pathway must be clearly delineated, and “final approver” designated within the Executive Committee. In large organizations where the Integration Team has several functional heads with competing priorities, having a clear path for escalating issues and an Executive Committee that serves as “tie breaker” is a must.
From my experience, the Integration Team members often lose sight of the team perspective and focus on ensuring the best outcome for their functions/departments. When headcount, budget and time are limited, functional heads will jockey for minimizing the impact to their departments and often lose sight of the big picture. The Integration Lead’s job is to intake cross-functional feedback, weigh the options, and steer the Integration Team to the best solution for the project.
As the Finance Integration Lead (same as the Integration Lead’s responsibilities) my role was to intake feedback, weigh the options, and steer the finance Integration Team to the best solution for the project. The Finance Integration Lead pulls together the finance sub-team, typically comprised of Controllership (Fixed Assets, Inventory, Accounts Receivable, Accounts Payable, etc.), FP&A, Tax. The Finance Integration Lead liaises with HR, Legal, IT, Commercial & Marketing, Distribution, etc. as part of the overall project Integration Team.
Establishing an Integration budget is essential to quantify integration costs (requisite proper controls).
But more importantly, the budget is essential for the Finance Integration lead to ensure that the types of costs categorized as integration costs comply with company policy.
Integration costs are non-GAAP expenses that are “adjusted out of earnings,” and therefore impact EBITDA reported on the 10-K to the Securities & Exchange Commission (SEC).
The Finance Integration Lead should act as the police, to ensure only appropriate costs are charged to integration cost. Educating the Integration Team at the onset of the project is important to ensure the team understands and complies with the types of costs that can be charged appropriately to integration.
Saying “no” to Integration Team members who push back and try to classify departmental expense to integration cost should be considered part of the job.
In the Integration Team’s kickoff meeting, recurring status meetings should be scheduled for the duration of the integration phase.
It’s important to get those meetings on team members’ and the Executive Committee members’ calendars. Most Integration Team members have “day jobs” and resources are not typically dedicated 100% solely to the integration project. Committing their time early in the project goes a long way in keeping the integration project on track. Also, in my experience, having to provide recurring updates to the Executive Committee is a rallying point for the team and sometimes serves as the impetus to break decision making stalemates between functions with opposing views.
Setting a face-to-face kickoff meeting within the Integration Team, including the team members from the company being acquired, is very important as well to establish rapport and trust in the beginning of the project. As is often the case in integration projects, disagreements are bound to arise about any number of things (e.g., legal language, contract execution, timelines, budget, scope of deliverables, etc.). When the going gets tough, having a face with the name in the other organization goes a long way in having the difficult discussions. Reaching a solution is easier it seems, after having shared a team dinner or some bonding event with the team.
A bonus or reward system serves as extra incentive to recognize and motivate the Integration Team members.
Typically, the Integration Team members are pulled from various departments and maintain their day to day responsibilities while taking on the integration project. A quarterly bonus or end-of-project bonus based on project-specific performance metrics is a win-win.
Having discussed several best practices above to set the stage, let’s dive into the most critical aspect of any project: delineating project scope.
In my experience, a clearly defined scope of work is the one key predictor of project success. Defining scope, getting “buy in” from the team and executive committee, and establishing metrics against which to measure success is imperative.
The challenge in defining a clear scope lies in the “unknowns” inherent in integration projects. Knowledge of the company, in addition to knowledge of the company being acquired involves meticulous data gathering and verification, before solutions can be proposed to meet the project objective. In integration projects that involve other countries, the challenge is compounded by cultural, language and time zone differences.
The dreaded scope creep is the frightful specter that looms over any project. Scope creep has visited virtually every system implementation project I have experienced. Assiduous research and data gathering at the onset of the project is key. Consultants with pertinent knowledge of the system, and subject matter experts within the company should be part of the scoping process to expedite data gathering and minimize risks of the “unknowns” that could have significant impact to the project scope and timeline.
In the system implementations I have been involved in, accounting/finance consultants were engaged to advise on country-specific financial requirements, government reporting requirements, and complex tax regulations. Even so, in some cases, ferreting out key information is not ensured. (This applies more to system implementations involving other countries.)
The Finance Integration Lead “wears many hats,” “connects the dots,” and “herds the cats” during the data gathering phase and throughout the project. Ever watchful of scope creep and the budget, issues are escalated if new data requires a change in approach. Decisions are made if the new information results in a scope change, or if a “work-around” can be put in place until the scope change can be implemented in a later phase.
The overarching tenet in an integration project is change management. The acquiring company deals with change as it incorporates the acquired company within its staff, processes and systems. To the company being acquired, the acquisition could mean the dissolution of company life as they know it.
The Integration Team should be mindful of change management, to ensure a successful integration.
The hand-off to the business units, departments or various functions marks the end of the integration phase. It signifies the full integration of the acquired asset into the acquiring company, which means people, processes, and systems are back to business as usual” until the next integration project.
Interested in learning more? Get our companion piece.
Our downloadable post-acquisition finance integration infographic offers advice on structuring the Integration Team and also offers best practices for successful integrations. Just click the image below to download a copy:
You can also learn more by downloading our free whitepaper on post-acquisition finance transformation, which details best practices and a simple framework for integration of finance organizations.
About the Author
Chona brings over 25 years of experience in accounting, finance, and project management in her role as a consultant at 8020 Consulting. Prior to consulting, she got her start as an auditor at Ernst & Young, followed by two stints at the Walt Disney Company, where she held accounting and financial reporting roles, culminating as a Director in Corporate Controllership. Chona was Assistant Controller at Virgin Megastores, before returning to Disney, where she became a super-user for 2 out of the 5 ERP implementation waves at the company. At Amgen, she had the opportunity to further expand her super-user role when the company rolled out its ERP implementation in the U.S. In her International Accounting role at Amgen, Chona project managed numerous international expansions in Asia and Latin America. She rotated into Corporate Audit followed by her role in Finance Integration for Amgen acquisitions and organic expansions in several countries.
Categorized in: M&A Due Diligence & Transactions