M&A Transition: How to Combine Operations, Administration, and Finance
As with a company’s products and services, the level of integration with operations between acquired company and parent company after an M&A deal largely depends on how much autonomy you as a Buyer grant to the acquired company.
In some cases, the level of operational integration may be high because you want to realize savings and streamline operations by eliminating duplicate positions and processes, closing extra offices, and moving employees to one office.
In other cases, you may grant the acquired company a lot of autonomy, sometimes out of necessity: Your executives may not be experts in the acquired company’s industry, so you have to rely on the expertise of the acquired company’s management team.
One of the reasons companies buy other companies is to realize the benefits of cost savings when the two entities are combined. Here are some of the common areas you as a Buyer may look to change and update:
Analyzing the technology and software: You may decide the parent company has more robust IT and software packages than the acquired company and that you want to go with the parent company’s system. Avoiding competing and conflicting technology and software helps streamline operations and should help wrangle out some extra savings.
Changing accountants and improving accounting controls: Parent companies are typically larger than the companies they acquire; as a result, your parent company probably works with a larger accounting firm than the acquired company does, and you’d probably institute stricter and tighter control over all sorts of accounting functions (paying bills, taking inventory, collecting past due accounts, and so on).
Eliminating duplicate staff positions: To cut to the chase, this term means firing people. It’s harsh, but it’s life; trimming excess staff and duplicate positions is probably one of the ways you expect to improve profitability.
Switching up the management team: Immediately following the announcement of the deal, you should internally discuss the role of the acquired company’s management. To replace or not to replace the management team: That is the question. It’s a decision Buyers make on a case-by-case basis.
You may find that you want to replace the Seller’s management team for any number of reasons: the old team isn’t up to snuff or constitutes duplicate positions after mixing in with your management, or you simply have another team you want to run the acquired company.
Banking and financing: Post-closing, the acquired company may find that its banking relationship changes. The acquired company begins to use the parent company’s bank (or a bank of the parent company’s choosing).
The financing may also change because the parent may be able to negotiate better terms on short-term borrowing with the combined assets or cash flow of the parent company and the acquired company. Better terms is synonymous with lower interest rates.
Some PE firms partner with an experienced executive and acquire a company specifically for that executive. In these cases, Buyer may not want or need the management team of the acquired company to be a part of the company after the deal closes.