Integration Due Diligence: Setting the Stage for Value Creation

Abstract

Successful acquirers plan PMI prior to closing, conducting due diligence on the many elements that must be combined, adopted, changed or eliminated as part of the post-merger value-capture activities. Integration due diligence includes strategy, architecture, plumbing-and-wiring, and culture. Post merger integration action items fall into one or more of these categories. In strategy, the acquirer must decide on a target based on corporate strategy, capabilities, financial valuation, and cultural fit. The basic questions are, 'Why are we doing this?' and, 'What is our vision for the combined entity?' Architecture is the actions taken to design the new company, to staff the new positions, and to communicate the changes to staff. In the optimum case, the architectural decisions are derived using detailed knowledge of the overall strategy, and these blueprints are transmitted to the teams responsible for the plumbing and wiring (next paragraph). The basic questions here are, 'What is the new organization structure?' 'Who is in charge of what?' 'How much of the new organization should be absorbed versus held intact?' and, 'What messages do we communicate to which stakeholders, how, and when?' Plumbing & Wiring consist of the physical changes needed to connect two companies into a new single entity. This includes combining IT systems, HR benefits, real estate, and supply chains. The questions here are, 'How do we connect the pipes and wires?' 'How do we manage the details of this project?' and, 'How fast do we move?' The final element, central to the other three, is culture, values, traditions, security, and identity. Cultural issues can add enormous significance to issues that might otherwise seem insignificant. To the extent that values, identity, or personal security are threatened, it is natural that potentially destructive political behavior raises its head and can jeopardize the successful integration of any acquisition.