You could equate acquiring a business to someone buying something that’s inside a box:
- You look at the description on the outside and
assess if it is the right thing for you
- This is market research and target identification
- You ask questions about what is inside the box
- This is discussion
- You give the box a gentle shake to get some clues as to what’s inside
- This is Due Diligence
- You agree a price and purchase the box
- This is where you agree the purchase terms
When at last you complete the acquisition, you can open the box and discover exactly what is inside.
It isn’t always what you expected.
While the description on the outside of the box and the answers got to your questions may be legally correct, there is likely to be some “marketing spin” involved.
Budget for the Unexpected
Those who run an integration should expect the unexpected, and this should be reflected in your integration budget. Integration costs will always be larger than expected
Integration scope will increase, extra projects and work will be required to address the unforseens. Time schedules will be hard to meet. To achieve the schedule you were initially hoping for, you will require extra resources – and this will increase costs further.
In their 2014 report “The right combination Managing integration for deal success” EY found that the majority of businesses were spending between 10% and 20% of the deal cost on integrations, with an average of 14%. Many them found that this was not enough – 38% of those surveyed would have increased their budget by 5%, in hindsight. This thorough and inciteful report analyzed mid and large size integrations.
In addition to the budget for the integration, from my experience in this field, I recommend a minimum contingency of 10% to be added to your integration budgets.
Integration costs can be broken down into three categories
- Planned tangible costs
- Unplanned tangible costs
- Intangible costs
Acquisition Integration Managers rely heavily upon experts within each workstream to estimate their part of the cost of the integration ahead. Nevertheless, it is the Integration Manager who must submit the estimated total budget to the Steering Committee and he/she is responsible for ensuring that the workstreams don’t go over budget, scope or time. It is important that the Integration Manager submits a realistic budget that balances the need for cost efficiencies against not having to ask for more money later.
In the next blog we’ll look a little deeper into what some of these costs of integration are and have some suggestions on how to contain your post-merger integration costs.
How often have you acquired something and not got what you were expecting?
If you are just about to acquire a small or mid-size business, we train the staff within your business to run and manage the integration ahead. Here are our current courses https://intista.com//training/online
Our Certified Acquisition Integration Manager program is designed for the people that will set up, manage and report the integration of acquired small and mid-size businesses.
Image credit: Jesse Ramirez https://unsplash.com/@jesseramirezla