Integration Acceleration

Why successful M&A now depends on getting your ducks in a row as early as possible.

“You might see that the combined purchasing volume of the two companies is $1 billion, and know from history that a typical benchmark for procurement savings is 2% to, say, 5%,” explains Steve Miller, leader of KPMG’s U.S. integration and separation practice. “But whether you’re going to get 2% or 1% or 6% on that particular transaction is something you won’t know until you build that synergy from the bottom up in an operational fashion.”

Miller’s advice: Find out exactly how you are going to get those savings before you start talking about them. Understand the risks involved, the assumptions on which your estimates are predicated, when the savings are likely to be realized, the key things that must happen before those savings can be realized, and the probability of all those things working out.

“As a CFO, you do not want to start sharing big synergy numbers with the outside world that are only driven by top-down analysis,” Miller says. “You want the comfort of having them validated from the bottom up.” — R.M.



Cisco Systems’s Tandberg Acquisition: Ready on Day One

Cisco Systems has long been renowned for both the breadth and the efficiency of its mergers-and-acquisitions activity, so it comes as little surprise that it was among the first companies to begin to focus on postmerger-integration issues very early in the deal-making process.

The catalyst may have been its $7 billion acquisition of Scientific-Atlanta, a maker of set-top boxes and related technology, in 2006. The value driver was clear enough, says Susan McDonough, senior director of acquisition integration for Cisco: “Take a product and sell it to a lot of customers.” But the integration was marked by “eye-opening complexity,” she says, and it taught Cisco that what really matters is “knowing at a high level of detail how you’re going to enable” the value drivers that inspire an acquisition.

Five years and 37 deals later, McDonough stresses that efficiency hinges not on a checklist or standard playbook approach, in which “you start at the beginning and end at the end.” Instead, Cisco works backward, figuring out where it wants to go and then developing what it calls a “plan of record” for capturing the deal’s promised value.

In the Tandberg acquisition, Cisco concluded that a key value driver would be to maintain Tandberg’s relationships with its business partners in the videoconferencing industry. “Engaging them early and effectively was critical to continuing the rapid growth in this business,” McDonough says. “Partner briefings began as soon as the deal closed, and partners with no prior relationship with Cisco were introduced to the company through executive briefings and open-house events.”

Cisco may also have learned a useful lesson from a natural disaster. On the date of the closing, a volcanic eruption in Iceland shut down air travel across much of Europe, stranding a team of Tandberg employees in the United States. Unable to get home, they made their way instead to Cisco headquarters in San Jose, California. They received their new employee badges on the spot and participated in a videocast of closing festivities that was being transmitted to Cisco and Tandberg locations around the globe.

“They kept walking around and showing everyone their badges,” McDonough says. “I think that in that moment they became very committed to Cisco and felt very much a part of the Cisco team.” — R.M.


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