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Earn more from existing acquisitions

Extract value and avoid 4 common temptations

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Businessman holding laptop and working When businesses face uncertainty, the priority becomes getting more from their current resources. Companies that have sought new acquisitions can refocus their efforts on their current portfolio of companies, looking for ways to further integrate them to achieve greater synergies, efficiencies and value.

While the inward analysis is the logical priority, portfolio integrations often present hidden complexities and risks.

To ensure a successful effort, one should develop a comprehensively structured integration plan that is informed by past successes and leverages lessons learned from previous failures.

Grant Thornton’s experience has identified four integration risks that should be avoided:

Temptation 1: Just do something! The more the pressure on profitability, the more the sense of urgency. With that urgency comes the temptation to “just do something”—to act quickly, go for the obvious, look for the apparent low-hanging fruit.

Ed Kleinguetl“All too often companies are tempted by the low-hanging fruit of easy actions and quick returns that often undermine the integration's larger value and long-term success.”

– Edward Kleinguetl
Grant Thornton Strategy and Transactions Partner
But what seems obvious might not be what is right. The pursuit of short-term gains can have long-term adverse consequences.

Case study: Performance improvement through standardization, a comprehensive approach The challenge

A transportation and logistics company had acquired more than 25 other entities over a five-year period. Typically, the acquired organizations were allowed to remain autonomous and make decisions on their own. Profitability and the internal control environment suffered from this strategy. Board members became focused on the different number of IT systems across the organization and saw that as an immediate opportunity for improvement. The plan was to migrate three lower-performing companies to the IT system of another acquired company. No consideration was given to whether the chosen IT platform would fit the needs of the entire corporation or whether it would achieve meaningful impact. That path would have been the wrong approach.

The solution

While it is true that unifying and standardizing IT systems can eliminate the cost and complexity of maintaining separate systems, this plan would have created a limited solution that would have fallen short of reducing costs and increasing control across the organization.

A better approach would be to establish a comprehensive system strategy, aligned around key processes and procedures, that would address the needs of the whole corporation. After identifying the best long-term system solution, whether new or existing, the company can begin to carefully plan the convergence process to avoid business disruptions, which could result from multiple migrations for subsequent system initiatives.

Case study: Develop a long-term strategy The challenge

Another company had acquired a number of businesses and, similarly, allowed each one to remain autonomous, some even completing their own acquisitions without a need for approval. No efforts were made to integrate functions, even treasury and IT. Companies within the group were bidding for the same client opportunities without one another’s knowledge; many business opportunities were lost due to a lack of coordination. The company wanted to improve collaboration between business units, leveraging combined capabilities to be able to compete successfully for larger sales opportunities. Each company operated on different IT platforms that were not linked together. Information could not be consolidated and distributed, cooperation was not supported by systems and decision-making lacked the necessary level of information across the organization. The quick answer was to merge all operations onto a common enterprise resource planning (ERP) platform, one that the largest unit had adopted.

Assessing the situation, it became clear that there was a need for greater collaboration, but the choice of the one system was not based on sound diligence. The system of choice was admittedly not going to be the long-term platform for the consolidated organization, and the decision was not driven by underlying business and organizational requirements. The proposed path would have resulted in a system that would have failed to support some of the companies and would require extensive customization. Additionally, the company knew it would eventually have to migrate to a completely different platform, as the one chosen was not the best solution for the industry. The choice was really a matter of perceived convenience — good on paper, yet limiting the organization in the future.

The solution

Grant Thornton helped the client revise its transformational approach to focus on developing a market-facing strategy first, then developing a back-office functional strategy. The IT function became an integrated component of the solution in support of the business needs.

The bottom line

A carefully crafted, comprehensive transformation process is what yields long-term sustainable results. Taking action just to show activity will at best result in sub-optimal solutions. More often than not, it will fail to achieve the very objectives sought. A planned approach reduces costly rework and keeps an organization focused on the highest priorities.

Temptation 2: Drive everything top-down Jennifer Morelli“Change happens through all levels of the organization with an emphasis on engaging and empowering middle management. Vision that is not shared and actively supported is rarely achieved.”

– Jennifer Morelli
Grant Thornton Transformation Principal
The fastest route to transformation and value extraction might seem like a top-down approach that outlines a clear vision and a plan for execution. However, if the broader organization’s impacts are not taken into consideration and its required behavior and attitude shifts are not addressed up front, there is a risk that the plan might miss important details. Furthermore, buy-in and commitment from those called to execute and those affected is critical to success.

Example: Start with the end in mind The challenge

One acquisitive engineering consultancy organization wanted to increase its revenue by transforming from a group of separate vertical entities into a series of horizontal market-driven competencies across geographies. The strategy was sound. But while this was the stated goal, leadership began with a focus on back-office initiatives (such as aligning closing and financial reporting processes, evaluating IT platforms, and aligning policies and procedures), ignoring the individual business leaders. This approach did not find simple answers, nor did it address the desire for greater revenue pull-through from the combined group. Further, the business leaders of the vertical entities, which still had a high degree of autonomy, were vocally resistant to the initiative. Many would nod their agreement at leadership meetings, while resources beneath them created roadblocks to changes.

The solution

To overcome resistance to the initiative, Grant Thornton proposed that it be started from the opposite end — recommending that the company establish market-facing teams to inform analysis and recommendations and then build the supporting organization involving every vertical business unit at an operational level. One team identified offerings and geographies with the greatest opportunities for growth; one team focused on sales for “white space” opportunities; and another team defined protocols for how the companies would actually work together, share resources, align offerings, leverage required licenses and more; and yet another team was in charge of developing the marketing and communication framework to support the strategy.

The company asked each business unit leader to name three next-level executives who could be committed to the teams forming the analysis and recommendations. The teams included people across geographies and vertical organizations. They had never met or worked together, but they were motivated by the need for a future operating model that was critical to long-term success. The teams regularly communicated to the entire organization to ensure that everyone was informed and incorporated the feedback they received. The motivated teams impressed the ownership by quickly crafting solid recommendations that sometimes validated the leadership’s original vision and sometimes identified better alternatives. Business unit leaders felt heard and included, and they embraced the team recommendations because their chosen executives were involved. The strategy supported and informed the transformation and alignment of the back-office functions like information technology, finance and accounting, HR, legal and compliance, and real estate.

The bottom line

While company leadership should clearly articulate a vision and communicate a plan for transformation, that’s only the first step. To ensure that the plan is understood, refined and executable, cross company teams need to be enabled. These teams need to include the people that are recognized within the organization as thought leaders with the necessary market knowledge and functional competence. This approach results in rapid identification of opportunities and risks, validation of the vision, buy-in at the appropriate levels, mitigation of resistance to change and execution ownership and accountability, greatly improving the probability of success.

Temptation 3: Allowing exceptions In companies that have grown through acquisition, some acquired organizations retain exceptional pride and individuality. There are many reasons why corporations allow varying degrees of independence or autonomy and, in many cases, this can be beneficial. Often though, this approach, when not justified by true strategic reasons, can become a barrier to necessary change and standardization, where the costs outweigh the benefits and impedes growth. One or more organizations might refuse to accept changes that do not conform to their established practices, arguing that “we are different.” When exceptions are granted, the transformation process is usually diluted, and the greater value is compromised. So, variations should be analyzed and, if warranted, planned up front.

Example: Warranted differentiated ERP strategy The challenge

One management consulting and technology business had a two-system strategy. When the practice acquired companies that supported federal government contracts, they converted those companies to a Deltek ERP platform (a leading government-preferred platform that meets federal reporting requirements. When the practice acquired other companies, it migrated them to an Oracle platform.

The solution

In this case, the analysis validated that a two-system strategy was justified and still allowed standardization across similar businesses. Are there reasons for some exceptions? The answer may be yes, but the approach needs to be validated through a thorough process review. Management should realize that there are few reasons that variations should be planned, or exceptions granted.

The bottom line

There is never a “one-size-fits-all” textbook solution. The business strategy, cost structure, control environment, and other factors must all be considered in developing the right solution for a given situation.

Example: Justifying different billing systems The challenge

A retail utility provider had 14 legacy IT systems inherited through acquisitions over time. Management wanted to reduce the number of systems and adopt a standardized approach. The business model, though, was based on two different billing practices. In some instances, the companies billed end-users of the participating utility, and in other cases the companies billed the utility.

The solution

An analysis determined that there were legitimate business reasons for two discrete billing approaches that supported a two-system strategy. A plan was developed to migrate companies to one of the two selected systems, as appropriate. Further acquisitions would be handled similarly. By adopting a two-system strategy, the retailer was able to establish a single set of accounting and closing processes for each of the acquired entities, a common benefits plan and other standardization to achieve the transformation’s benefits, while maintaining a differentiated approach with their client base.

The bottom line

For successful transformation and standardization, companies need diligence up front to select the appropriate strategy, be deliberate about choices and exceptions, and be responsive to true market needs. The right technology platform, the right monthly closing and reporting processes, alignment on compensation strategies and benefits, and definition of other standards can be achieved even while maintaining independent market-facing approaches. A careful diligence and evaluation process minimizes variations and maximizes value attainment.

Temptation 4: Ignore communication needs Paolo Castelli“Human nature fills communications voids with worst-case scenarios. Bad decisions are made on that basis.”

– Paolo Castelli
Grant Thornton Strategy & Transactions Director
It’s easy for companies to think of internal and external communications as a second-level priority in their transformation and change management initiatives. But, if a company does not have a compelling vision statement with an explicit and well-planned communication and change management program to enable the vision, informal networks will take over.

Example: Negative narratives The challenge

Many organizations underestimate the availability of information across the enterprise. People naturally fill the gaps in knowledge with negative scenarios. The lack of a clear vision for the change, supported by clear, exhaustive, and periodic information, will increase resistance to change due to a “fear of the unknown.” Change is inherently difficult and must be guided with clear intent and timely employee engagement. Rule of thumb: If one wishes to have people proactively resist and campaign against change, keep them uninformed and in the dark.

The solution

From the initial vision statement at the top to the ongoing communications via intranet, company bulletins, town-hall meetings, and any other vehicle a company uses, the communication effort needs to be sustained or increased throughout the period of change, regardless of its length. It’s important to keep the organization energized about what is happening and why. Regular and relevant communication also needs to convey lessons learned, process changes and quick wins. Identify influencers among important audiences and stakeholder groups, and use an organic network of trusted employees to capture the hearts and minds of the people who ultimately will be impacted.

The key is to rally people and, in some cases, it is not a rosy picture of a bright future. It might be a story of gaining support for corporate survival. In the latter case, some senior leaders might be hesitant to communicate the situation and rationale for decisions. However, in our experience, those who are out front in such scenarios generally have the greatest success in their desired transformational efforts.

The bottom line

Effective transformation begins with a clear vision for the change, and communications and other change efforts must support that vision. Beyond sharing this vision, successful communications answer questions about why the change needs to happen, what happens if the change is not made and what is in it for the employees. In uncertain times, the answer can be as simple as creating a sustainable future.

Conclusion Many organizations find themselves in situations where they have not truly integrated past acquisitions. Perhaps the economy was better and the cost savings less relevant. Today, the organization might find itself in a difficult situation, needing to gain greater leverage from acquired operations or simply get the cost savings that were originally anticipated. It is tempting, particularly in challenging times, to act quickly and narrowly, with cursory buy-in, generous exceptions for business units and minimal communications. However, our experience has shown that companies that have grown through acquisitions and have not fully realized the benefits of the portfolio acquired can greatly benefit from sound transformation planning. This includes a careful assessment, developed by the right resources, shared and communicated throughout the organization, and realized in a detailed execution plan. Such a process results in greater bottom line performance, increased market share, greater leverage of the underlying infrastructure and a highly engaged work force. By enhancing the ability of the organization to embrace change, successful transformations achieve greater value and drive the company to a successful future.

“Action may be your first impulse,” Kleinguetl said. “But planning is invariably your best strategy.”

Contacts:

Ed KleinguetlEdward Kleinguetl
Partner, Strategy and Transactions
T +1 832 476 3760


Paolo CastelliPaolo Castelli
Director, Strategy and Transactions
T +1 404 747 3450


Jennifer MorelliJennifer Morelli
Principal, Transformation
T +1 215 701 8899