Acquisitions vary widely in ambition and scope, ranging from relatively small bolt-on transactions to transformative mergers. Whilst it is true that deals based solely on acquiring a new technology or product can be relatively straightforward to integrate, the majority of transactions require a more sophisticated approach and therefore pose more complex challenges and ultimately risks to the acquirer.

1. 4G M&A Integration
Linking Behaviour to Bottom Line Performance
Merger and Acquisition Integration
Acquisitions vary widely in ambition and scope, ranging from relatively small bolt-on transactions to transformative
mergers. Whilst it is true that deals based solely on acquiring a new technology or product can be relatively straight-
forward to integrate, the majority of transactions require a more sophisticated approach and therefore pose more
complex challenges and ultimately risks to the acquirer.
On the whole, acquirers are adept at executing the technical or process side of the transaction, such as technology, systems
and infrastructure. However, many acquisitions fail to deliver the anticipated benefits because they do not take into account
the more intangible aspects of integration. The difficulties encountered when it comes to integrating two independent enti-
ties can quickly lead to unexpected costs, increased frustration, poor morale and require considerable time and energy from
senior management.
Four Groups has developed a set of simple processes and tools which address some of the potential pitfalls of the integra-
tion process; by identifying where difficulties or problems are likely to emerge and where easy wins can be made, it is pos-
sible to accelerate and smooth post-acquisition integration, reducing the risk of the transaction failing to deliver the antici-
pated benefits. Specifically, these tools address cultural compatibility, assembling the optimum integration team, retaining
and motivating key staff and managing formal and informal communication.
Background careful management of the people technology or in most cases a combina-
involved and other intangible factors tion of factors. Underlying nearly all
Acquisitions vary widely in ambition surrounding the integration. Assuming transactions is the belief that the com-
and scope, ranging from relatively that only motivated employees add bined organisation will be stronger and
small bolt-on transactions to transfor- value, treating each transaction as more profitable than the current entity.
mative mergers. Whilst it is true that unique and understanding the type of
deals predicated solely on acquiring a approach required to optimise the On paper and in financial models, a
new technology or product can be rela- potential of the acquisition lies at the transaction may make sound commer-
tively straightforward to integrate, heart of a successful integration strate- cial sense, however the reality is often
requiring the assimilation of new tech- gy. very different. This is generally because
nology and know-how, the majority of the data used to justify a transaction is
transactions place some value in the There are a number of reasons why the information that is most readily
people and values of the acquired com- companies acquire others. The ration- available and easily quantified. Rarely
pany, requiring that morale and good- ale behind an acquisition may range does one come across a quantitative
will is maintained through what is a from; gaining entry into new markets, comparison of organisational cultures,
period of considerable stress and acquiring new capabilities, diversifying and key internal and external net-
uncertainty. In order to achieve this, product range, boosting market share, works. Numerous studies over the past
acquirers need to pay attention to the accelerating growth, accessing new 40 years, using a variety of criteria sug-

2. Merger and Acquisition Integration
gest that historically only around a third cultural aspects of an acquisition is the relative ease or difficulty with
of all acquisitions deliver the benefits often cited as a cause of a poor or dis- which the two organisations can be
originally envisaged. Given the amount appointing outcome. In this case, integrated. One pertinent question bid-
of time and money put into undertak- acquirers should not only focus on the ders should ask themselves is, “Do our
ing these transactions, this is a statistic strategic or commercial rationale corporate values and culture represent
which should make companies think behind the deal but also take into con- an attractive alternative to those of the
long and hard before executing such sideration how the transaction will target?” If the answer is yes, fully inte-
projects1. impact the identity and values of the grating the target should be a relative-
organisations involved. ly smooth process, if the answer is no,
Whereas the process side of making an alternative scenarios should be consid-
acquisition is well understood, such as Despite thorough due diligence and ered such as letting the target maintain
dealing with IT systems, accounting planning, many acquirers fail to take a higher degree of autonomy and dis-
practices, payroll and benefits, it is the into account the more intangible tinct identity.
more abstract or intangible issues of aspects of integration, in particular a
the transaction which often cause the thorough understanding of the cultural Retaining, engaging with and moti-
most trouble. Common factors under- differences between bidder and target. vating key personnel
mining the success of acquisitions Culture is often an intangible or
include; abstract concept which is difficult to When executing an acquisition, one of
quantify and compare. In simple terms the key issues facing acquirers is how
• Failure to accurately understand and culture can be summarised as “how we to identify and retain key personnel.
gauge the cultural implications of com- do things here” and represents consid- Considerable value can be destroyed by
bining the two organisations erations such as how information is departures and the subsequent loss of
• Failure to understand the networks communicated, how decisions get knowledge. Many acquirers will look to
and relationships which are key to the made, the working style of the organi- avoid this outcome by identifying key
functioning of the target company sation, attitudes to risk and other vari- individuals and offering them financial
• An inability to identify, retain and ables which define each organisation and other benefits in order to remain
motivate key staff at the target compa- as unique. with the enlarged organisation.
ny Although effective in the short-term,
• Failing to assemble an effective inte- Taking a systematic approach to com- this strategy often turns out to be a
gration team pare organisational cultures and under- divisive and negative influence on
• Poor formal and informal communica- stand areas of compatibility helps morale.
tion between acquirer and target develop a clear and consistent under-
standing of the challenges and poten- In order to understand how best to deal
In summary, many acquirers fail to take tial pitfalls facing the acquirer. with this issue, it is important to bear in
into account the often intangible or hid- Furthermore, understanding how the mind that when making an acquisition,
den aspects of what makes each trans- combined organisation will be different companies buy more than the assets
action unique. Taking a one-size fits all from the current reality is also a rele- and infrastructure of the target compa-
approach or ignoring the personal and vant consideration. This process of ny. Acquisitions also involve a series of
cultural element of the acquisition is “acculturation” is worth investigating, relationships and networks, between
likely to lead to missed opportunities particularly for relatively large transac- individuals, teams, departments, sup-
and an inability to maximise the tions where effects of the transaction pliers and clients. The challenge facing
expected gains from the transaction. will be felt across all areas of the com- the acquirer is to understand the key
bined organisation. relationships which are likely to enable
Cultural Compatibility the fulfilment of all the goals of the
The compatibility or lack of it between acquisition. This means that acquirers
The failure to appreciate or manage the bidder and target is likely to indicate need to do more than identify the

3. Merger and Acquisition Integration
“stars” or key performers, it is also nec- informal day to day aspects of the inte- where individuals are fully aware of the
essary to understand the networks and gration. By aligning the integration culture and values of the target audi-
relationships which allow these individ- team with the senior management at ence and capable of forming a strong
uals to excel. the target company, the acquirer is collaborative relationship with key
maximising the chances of strong rela- executives at the target company, com-
By identifying and prioritising the rela- tionships and understanding develop- munication is likely to be consistent
tionships and networks which allow ing between the organisations. and transparent on all levels.
key staff to perform, acquirers can
identify where the most value lies in Communication Where Four Groups fits in;
terms of people and resources. Efforts
to maintain and develop these net- Communication is another key factor Four Groups has developed a set of pro-
works make the success of the integra- often neglected or mis-managed by prietary tools and processes which shed
tion far more achievable. acquirers. Done well, it can accelerate light on some of the more intangible
and strengthen the links between the aspects of information gathering prior
Assembling the right team to lead two organisations and increase the to and during the integration process;
the integration likelihood of the goals of the transac- in particular providing systematic and
tion being realised. Done badly and it quantitative information comparing
Failing to allocate sufficient resources will have the opposite effect. corporate cultures, assembling the
or assemble an effective team to man- most effective integration team and
age the integration process is a further By delivering a transparent and clear identifying key individuals and relation-
cause of poor post-deal performance. communication programme, acquirers ships necessary to make the acquisition
An integration process that is under- can address a number of key concerns successful.
resourced and lacking commitment and of personnel and avoid widespread
effort from senior management rumour and speculation from spread- Four Groups helps the integration
becomes a burden on both companies. ing. By being consistent and transpar- process on a number of practical levels;
For the target company in particular, ent, it is also likely that the acquirer
this can lead to decreasing morale and will more develop a reputation as Pre-deal Screening and Planning
a poor perception of the acquirer. being credible and trustworthy.
During the pre-deal evaluation phase,
In addition to allocating sufficient phys- In addition to having a formal commu- using Four Groups’ proprietary Merger
ical resources to the integration nication structure in place, covering Scan system enables acquirers to sys-
process, it is also necessary for the areas such as new employment terms, tematically compare the compatibility
composition of the integration team to redundancies or any future relocation, between corporate cultures. This
reflect the nature and demands of the informal communication is equally enables the potential acquirer to under-
specific acquisition. A team that suc- important in ensuring a smooth inte- stand the cultural gaps or similarities
cessfully completes the integration of gration. Day to day contact with staff, between organisations. The process is
one company may not be exactly the customers and suppliers should reflect quick and simple to undertake and can
same team to successfully work on the the strategy and rationale behind the therefore be used to consider and com-
next project where a different approach transaction. It should also acknowledge pare a number of potential targets.
may be required. Organisations need to the strengths and achievements of the Merger Scan makes the cultural aspects
be aware of the need to combine indi- target company. The quality of informal of integration tangible meaning that
viduals who are process specialists and communication is likely to impact on the process becomes easier to plan and
capable of dealing with the nuts and the speed with which relationships are more manageable. In addition to iden-
bolts of the transaction with managers formed between the two organisations. tifying cultural similarities “merger-
who can execute a communication scan” also highlights areas of incompat-
strategy suited to the target and other By assembling an integration team ibility or likely conflict. For relatively

4. Merger and Acquisition Integration
large scale transactions the use of of the integration team with key indi-
“Merger Scan” will also provide infor- viduals at the target company. By
mation as to how the culture of the ensuring that these key relationships
combined organisation will change are strong and robust, communication
from the existing scenario. between the organisations will be clear
and consistent. Furthermore, strong
Once the culture of a target company is relationships will help develop trust
understood, it is then possible using between the organisations.
Four Groups’ proprietary psychometric
tool, 4G to identify and assemble the Conclusion
optimum integration team to lead the
project. By putting together a team that In conclusion, 4G helps quantify and
understands the target company and optimise the intangible elements of a
has strong levels of internal consistency transaction. Starting with pre-deal
and communication, the likelihood of selection and cultural compatibility,
strong mutual understanding develop- through to retaining key personnel,
ing between both organisations is max- building strong relationships between
imised. both parties and creating the right inte-
gration team, 4G makes new and
unique insights available to those
The integration process charged with realising the value from
mergers and acquisition activity.
Once a deal has been agreed and the
integration process started, 4G provides
significant elements of valuable data to
help acquirers manage the integration
process. In particular, 4G helps the
acquirer understand where the key net-
works and relationships in the target
company exist. This enables a far more
effective approach to identifying key
individuals and the people they rely on
to get the job done.
4G also enables, acquirers to manage
the communication process more effec-
tively, in particular, aligning members
Four Groups Ltd
5 St. Johns Lane
London
EC1M 4BH, United Kingdom
Tel: +44 (0) 20 7250 4779
Email: contact@fourgroups.com
http://www.fourgroups.com
© 2008 Four Groups Ltd, 5 St. Johns Lane London EC1M 4BH, United Kingdom.
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5. Merger and Acquisition Integration
Footnote
1. http://tinyurl.com/69yuvp
About Four Groups
Four Groups has developed a new
approach called 4G to understanding
behaviour, relationships and culture. 4G
provides its users with insight into per-
sonal characteristics, how relationships
develop within teams and groups and
how culture can be best defined and
managed.
4G provides organisations with infor-
mation on how best to deploy and opti-
mise the performance of their people.
It also enables preventative measures
to be taken which prevent the more
negative aspects of interaction and
group dynamics such as minimising
personal friction and reducing misun-
derstanding between colleagues.
4G represents a systematic approach to
managing previously intangible aspects
of organisational life. The methodology
is easily replicable and can be imple-
mented quickly and efficiently.