Manufacturing companies are increasingly leading with their integration strategy as they begin the M&A process. The reason for this is simple, and important: integration failures are common, and if you wait until the merger to plan for integration, integration very well may fail. While there are many different ways to integrate, building a holding company and fully integrating an acquisition are the two different extremes. Let’s explore each.
Building a Holding Company
The holding company model relies on using management to improve companies that already have good brands or products. The goal is not to gain value via cost synergies or revenues. Instead, the acquired business continues to operate autonomously. Holding companies can help parent businesses hedge against market conditions over time.
With a full integration, one company gradually sheds its identity as the companies merge into a single entity. This can save money on software and hardware, while streamlining business activities. While every acquisition should be focused on the deal thesis, the most successful deals are closely fixated on the factors that improve deal success, including:
- Management: An exceptional management team can ensure you hit key benchmarks, while adding value to the deal. Just make sure you have managers from both sides of the deal who are prepared to embrace the new culture of the shared entity.
- Financial: Set clear benchmarks for growth, margins, working capital, and ROI.
- People: People make your business. So treat your key people well, and incentivize them to remain on after the deal closes.
- Revenue growth: You must identify your plan for increasing market share and pricing power, pushing products through existing and new distribution channels, and investing in innovation.
- Renegotiation: You may need to renegotiate terms with customers and suppliers to improve your cash conversion cycle.
These two distinct integration strategies can each generate immense value. But it’s important to clearly identify goals at the outset of the deal, so you can assess which strategy is likely to work best and devise a plan for pushing forward with that strategy.