By the time Cisco Systems announced its acquisition of Norwegian videoconferencing company Tandberg last April, company executives had spent the better part of a year traveling to, working in, and thinking very hard about the Oslo-based technology firm it was about to buy for $3 billion.
That work went far beyond the due diligence needed to determine whether to make an offer, and for how much. As Susan McDonough, senior director of acquisition integration for Cisco, explains, her company now addresses many facets of what is typically labeled “postmerger integration” well before the deal actually takes place. That is essential, she says, to foster “the very tight link between business strategy and operational strategy” that will determine the ultimate success of a deal.
For best-practice acquirers such as $40 billion Cisco, postmerger integration now begins at the very earliest stages of negotiations. Even as they begin their integration work much sooner than they once did, these companies are also becoming more flexible about which systems and operations they choose to integrate, and when. They’re communicating earlier with stakeholders about their integration plans, even if that means doing it so early that they can say only that more information will be forthcoming soon. And they are conducting rigorous postmortems to identify ways to make subsequent integrations more efficient and effective.
In part, these companies are building on lessons from the past. But the new approach is also a sign of the times.
“Capital is still scarce for many organizations, and during times of scarce capital companies are more diligent about how they raise, invest, optimize, or preserve it,” says Jeff Perry, Americas transaction integration practice leader for Ernst & Young. “We have found that the whole focus on integration has been elevated throughout the C-suite in order to drive better results.”
That has enormous implications for CFOs and their finance teams, as they now focus not only on identifying the savings that can result from merging redundant operations, but also on benchmarking their own systems and procedures against those of the acquired company and looking for opportunities to apply the best of what each has to offer.
They also are developing metrics to track the integration process itself and its real-time impact on the business so that problems can be spotted and stopped before proving fatal. Put another way, they are increasingly helping to identify and track the synergies that deals offer, and holding the organization accountable for achieving them.
That’s a tall order, and while the increased responsibilities are welcome, they come at a price: this new emphasis on early-start integration means that companies will inevitably spend time prepping for deals that never get done.
“It’s all part of the investment,” says Bryon Rubin, senior vice president of corporate development for $13 billion media conglomerate CBS Corp. “For all the deals we’ve done — 50 or 60 since our separation from Viacom at the beginning of 2006 — we’ve walked away from twice as many. But you learn from those, and apply what you’ve learned to future deals.” And, as some experts note, it’s cheaper in the long run than the alternative.