Part three of a five part series discussing how understanding integrations helps dealmakers. Negotiate with authority when discussing integration costs.
When negotiating an acquisition, there are many considerations. One of them is the cost of integrating the acquired business into the acquirer. An EY survey* found the average budget for an integration is 14% of the deal price. Hence the cost of integration is a consideration when valuing a purchase.
Understanding the integration process, and the problems that can hinder an integration empowers Deal Makers to talk with authority about integration costs. This puts you in a stronger negotiating position when adjusting purchase prices.
Revenues affect the valuation, which should affect the terms of the deal. If you understand what aspects of a proposed integration can affect revenues, you should use this during your negotiations. For example,
- The target business has a separate marketing team for each product, and the acquirer needs the integration to create a single marketing team
- The time needed for the marketing teams’ integration will prolong the integration, as you bring together their separate org. charts, processes, and technologies
- There will probably be resistance to change from the people in the acquired marketing teams
- This prolonged integration will affect the Go To Market plan and hence the revenues
*The right combination. Managing integration for deal success, published by EY in 2014