Target integration, a key element of a build-up

Loss of the target’s specific culture and know-how, arbitrary management, blind copying of working methods, etc., can all lead to shortcomings and a loss of value for the acquired company.

Unfortunately, in all too many build-up strategies, one + one = less than two. The acquirer comes out of this sum with a little more than one and the acquired company with much less than one. This is very damaging because in the end there is a loss of overall value,” analyses Michel Rességuier, President of Prospheres dirigeants, a specialist in the management of companies undergoing major transformations. This is all the more damaging in a Covid context where build-ups are multiplying, driven by the current profusion of liquidity.

The business transformation expert points out that, “the acquiring company often pays too much attention to its own vision to the detriment of the particular characteristics of the acquired companies”. It’s a bit like the acquirer self-idolising in the belief that “what worked for his company must work for the target. Far too many acquirers come in with a world champion mindset.” The consequences can be dire. Both for the target market and for the buyer.

What is integration all about?

A loss of technical expertise and process failures are the consequences of a failed integration. Why? Because poor integration can lead to process failures, be they technical or commercial. “A new commercial policy applied without consultation can lead to the loss of customers. The same applies to technical processes: a process carried out in company A cannot necessarily be identically replicated in company B,” continues Michel Rességuier. And the damage can be even greater on the human resources of the company. The expert from Prospheres dirigeants cites the example of a paper mill that bought another and suddenly moved all the support functions to the parent company. At the same time, the target was transformed into a simple production site, creating value simply through the economies of scale that it allowed. “There was a marked deterioration in performance. The employees of the purchased company felt humiliated, dispossessed, and inevitably a loss of motivation, and therefore a loss of performance, followed.”

This drop in motivation can even lead to the loss of skills, with employees leaving the company. “In companies where human assets prevail, in tech for example or in services, the risk of skills drain is significant”, agrees Lionel Gouget, former financial director, now associate director at Valtus, leader in interim management. “But these failed integrations are far from being a foregone conclusion, many are perfectly executed and generate real additional value for both parties.”

The keys to successful integration.

However, the associate director of Valtus warns that there are no guidelines. But there are essential points that should not be overlooked. Firstly: the preparation of the integration. “You have to know how to give yourself time to properly analyse the needs for centralisation, mutualisation and adaptation of practices, but without waiting too long either. And you have to know where to stop in the integration process. There is an extremely important human element.” The expert therefore recommends that the target group’s own particular rituals (e.g. breakfast on Fridays) should not be disrupted from the outset, while “not allowing economic nonsense to persist for too long”. The aim: strike a delicate balance so that the two sides can develop together. “You have to successfully build a common corporate metaculture that is not created at the expense of the target. A sense of meta pride in belonging to the same group.”

More and more buyers are aware of this human element, observes Guillaume Briant, a partner at Stephensen Harwood. “A few years ago, you could buy a company without worrying too much about the integration process. Now, it has become a major focus.” In this process, it is essential to take into account the future involvement of the seller and his/her management. “Beyond human compatibility, several techniques can be used. For example, incentivising sellers to contribute to the future performance of the company. Sellers will therefore have an interest in facilitating a good integration. A phased acquisition can also be considered.” For employees, this can be profit-sharing or free shares.

Michel Rességuier advises setting up an external manager, appointed specifically and temporarily for this integration mission, who will have to ensure that the target’s interests are well preserved, without being overly ambitious, since he or she will have to leave the group. They will have to co-construct the integration in any case, regardless of the scenario chosen. For Clotilde Billat, a partner at Stephenson Harwood, “the subject of future governance and its role in the integration must be raised very early in the negotiation process.”