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Article

Acquisition Integration: A Hindsight Look

By Mike Meyer
Senior Consultant

In last year’s fourth-quarter Nolan Newsletter, Steve Discher discussed the fact that M&A activity is likely to remain a hot topic in the insurance and financial services industry. Steve also shared many valuable lessons learned from our experience in evaluating, selecting, and implementing mergers and acquisitions. Jim Dean’s article in the same Nolan Newsletter cites the most common reasons that acquisitions fail or provide poor returns. Jim also gave an excellent overview of three activities that are critical for a successful integration, the third of which is defining ‘done.’

Each acquisition and integration is unique and has its own set of complexities and challenges. Mistakes will be made along the way, up-front assumptions will turn out to be inaccurate, and cultures and roles will inevitably clash. We all know the old saying, “Hindsight is twenty-twenty.” When it comes to an acquisition and integration effort, a look back can provide great insight into what went well, what didn’t go well, and what should be done differently the next time.

For organizations that intend to remain active in acquisitions, a hindsight look before the acquisition is considered ‘done’ can be extremely beneficial. The effort needn’t be long term; but in order for it to be efficient and effective, it should be structured, focused, and well-organized. When we ask our clients to look retrospectively at an acquisition, we typically take the following approach:

Establish a “hindsight team” made up of representatives from each functional area of both organizations. The representatives should play key management roles and, ideally, have been involved throughout the process, including front-end due diligence and integration implementation.

Establish and define hindsight team roles, responsibilities, and accountabilities.

Establish templates for gathering and summarizing information and lessons learned in such a way that the intelligence can be easily summarized, referenced, and incorporated into plans for the next acquisition.

Define categories under which to gather the information (external/internal communications; financial objectives; system testing and validation; cultural integration; and so on).

Conduct workshops and interviews as needed to gather desired information to determine what went well and should be repeated, what did not go well, and what should be done differently.

Establish a strong linkage between the up-front business case actual impacts.

A critical outcome from this process should be to answer this ultimate question at various stages following integration: “Did this acquisition make sense for us?” This is not to suggest that integration work should linger. Answering this question at some level should be considered part of post-integration “business as usual” and does not need to be a complex, time-consuming effort—it could be as simple as the finance area comparing the financials on the first anniversary of the integration. At the functional level, work volumes, expense savings, and revenue projections can be tracked by functional area so that impacts can be reported. The key is having a process and plan in place to track the short-term and long-term financial effects of the acquisition and then be able to tie everything back to the pre-acquisition business case.

On a smaller scale, system conversions or implementations provide a great example of this. Once the system is in place and the organization gets back to business as usual, there is a tendency to lose sight of whether the projected financial benefits or ROI are actually realized. The same often holds true for acquisitions. It is surprising that acquiring organizations are often unable to confidently answer the ultimate hindsight question because there is no process to measure or monitor the results.

A well-executed hindsight review can be a significant driver of future acquisition success and should be included in the latter stages of any integration plan.