Rightsizing your mergers and acquisitions (M&A) integration capabilities

Mergers and acquisitions (M&A) are pivotal business growth and diversification strategies. However, M&A selection and integration models aren’t one-size-fits-all. They are highly dependent on the scale, scope, nature and frequency of your M&A targets and activities. The degree to which the organization can predictably realize the target benefits of M&A is often a function of how effectively business disruption is minimized and controlled, integration costs are contained and rigor is applied to the selection and integration activities. Interestingly, the maturity of the organization directly impacts not just the predictability of the integration activities but also the quality of the decisions made throughout the process. Having a stable and well-documented enterprise architecture and everything that entails – business capabilities, processes, resources and technology alignment – is key.

Understanding the different types of M&A and your strategy for M&A is crucial for companies looking to expand their market presence or streamline their operations. Let’s start by exploring a few common types of mergers and acquisitions.

The type of M&A dictates the response in terms of scope, scale and complexity

While CGI recognizes more than 25 different categories of mergers, today, we’ll focus on the most common types. Each has an impact that ranges from affecting every person, system, process, customer and partner in the organization to perhaps impacting a single product line and related functions.

1. Horizontal merger: The combination of companies in the same industry and value chain stage. In 2009, Merck horizontally merged with Schering-Plough, another pharmaceutical company, to sustainably expand its global reach and position it to compete with other large competitors in the pharmaceutical industry, like Pfizer.
2. Vertical merger: Merger of companies at different stages of the same industry's value chain. eBay’s 2002 vertical merger with PayPal exemplifies how integrating a payment processing service directly into an online marketplace can streamline transactions and enhance user experience.
3. Conglomerate merger: The merger of companies in unrelated business activities. An example of a conglomerate merger is General Electric’s (GE) diverse portfolio, which covers kitchen appliances, finance, and aircraft engines. GE has created a strategic advantage by spreading risk across unrelated industries.
4. Congeneric merger: Acquiring a company with the same customer base but different products. The 1998 merger of Citicorp and Travelers Group illustrates a congeneric merger, where companies with the same customer base but different products can create a more comprehensive service offering.
5. Market extension merger: A merger of companies selling the same products in different markets. Procter & Gamble’s 2005 acquisition of Gillette is a prime example of a market extension merger, allowing the company to expand its product reach into new geographical markets.
6. Product extension merger: A merger of companies selling different but related products in the same market. PepsiCo’s acquisition of Pizza Hut in 1977 demonstrates a product extension merger in which the company diversified its product offerings within the same market to attract a broader customer base.

The scale, scope, nature and frequency of M&A activities inform the target selection and integration approach

How an organization builds its response strategy and structure to mergers and acquisitions depends on the scale, nature and frequency with which acquisitions are completed. Fundamentally, if M&A is an infrequent exercise, an organization will not benefit from building, funding and maintaining a dedicated M&A function. Conversely, an organization that acquires on a frequent basis can benefit by building a strong M&A selection and integration capabilities. In either case, partnering with industry experts is key to bringing to bear the skills and scale necessary to supplement the organization’s teams. 

Infrequent: <1 M&A activity per 2 or more years

Team knowledge and documented processes are essential for a successful M&A. Still, with the infrequency of use, those items quickly become outdated, and investing in their maintenance may not deliver a reasonable ROI. In these cases, the best approach is to engage a consulting partner to guide the process, implement the required governance and provide the resources necessary to execute the integration, calling on organizational subject matter experts (SME) across both the acquirer and the acquiree as needed and integrating with corporate functions such as human resources and finance to ensure organizational alignment and corporate financial rigor.

Periodic: 1-2 M&A activities per 2 or more years

With this frequency, documenting M&A processes and formalizing a leadership team and SMEs will deliver ROI and reduce the risk of integration execution. It also reduces the potential disruption of steady-state operations through advance preparation for backfilling, team load-balancing and a clear decision model for potentially competing priorities. In this case, the team's readiness and mobilization, well-documented enterprise architecture and M&A tools and templates that accelerate the process are paramount. The use of a consulting partner, in this case, can be more targeted based on specific needs and/or gaps in skills and/or scale.

Frequent: 1+ M&A activity per year

Organizations with this frequency of M&A activities clearly have a growth strategy defined by not just organic growth but also by M&A. This provides an accelerated approach to growth and a way to effectively deploy capital. In this scenario, it is essential to industrialize the M&A selection and integration processes. This includes having a dedicated M&A function that evangelizes the function, develops and maintains M&A processes and tools, ensures the appropriate team members and SMEs are trained and ready for mobilization and that partners are in place to add the necessary skills and scale to match the M&A activities, and account for overlapping integrations that may occur.

Building the right M&A capability

A comprehensive assessment is the most effective way to understand current M&A capabilities and requirements and to develop the ideal solution and implementation plan. However, the following activities provide a basic outline of the key activities:

1. Assess existing capabilities: Evaluate skills, artifacts from prior acquisitions and lessons learned to inform future M&A activity.
2. Integrate with current operations: Build the structure and codify the new construct aligned to information technology, human resources, finance and senior leadership goals and objectives.
3. Build the teams: Identify and onboard the SMEs and team members who form and/or support the selection and integration activities.
4. Establish continuous improvement: Implement a knowledge repository and process improvement to foster ongoing learning and adaptation.
5. Partner with the right experts: Accelerate readiness by collaborating with experienced M&A professionals like CGI to navigate challenges effectively.

Ready to learn more? Our M&A advisory services are part of our business strategy services under our business consulting practice. We help you define and execute a purpose-driven strategy to respond to change and build long-term financial, customer, human and societal value. Partner with our industry experts on a pragmatic, action-oriented approach to building adaptable and client-centered business strategy.