With changing economic and market conditions over the course of the previous ten years, the Professional Employer Organization (PEO) industry has gone through some significant changes. According to a 2013 IBIS Report on the PEOs in the US, “The industry has recently experienced a period of increased mergers and acquisitions activity, causing the numbers of players to decrease in 2009 and 2010.” While the number of new entrants have been minimal, there is still high competition for market share. Due to the ever increasing challenge of growing sales and retaining customers, it has fostered an environment where mergers and acquisitions have become an important component for growth and driving shareholder value. After completing a merger or multiple acquisitions, active buyers including PEO Companies and Private Equity Firms are then faced with challenging tasks of integrating their new purchase. This blog intends to be a cheat sheet for those who are looking to start or those in the midst of an acquisition integration.
For a company going through its first acquisition or its tenth, each deal represents a calculated decision intended to create a growth in value for the company’s shareholders. While the integration of the company is only one part of the acquisition process, it is the one that typically creates the greatest number of challenges, opportunities and difficulties. Through our experience in working over 400M&A, we have identified 10 of the most commonly encountered challenges businesses face when integrating a new acquisition:
Loss of clients due to integration-related change
Unplanned/unknown negative cash flow impact of changes and acquisition related costs
Identifying efficient ways and timing to implement desired changes
Inability to start or stay on desired timeline
Culture issues creating communication and employee retention problems
Inability to shift focus from acquisition mode to integration mode
Lack of sufficient knowledge about the acquired company
Insufficient funds or funding to fully complete the integration
Identifying operational redundancies and making employee termination decisions
Determining go forward plan for acquired company’s leadership team
What Is Causing these Challenges?
Behind all of the challenges above are operating issues that can be identified and resolved with minimal disruption to the integration process. The more you understand about these items, some of which are listed below, the better suited you are to create a plan addressing these before they result in an obstacles that could potential derail your integration.
Client’s user experience and retention was not made the Number 1 priority
Leadership did not make and communicate the necessary decision(s) at the optimal time(s)
Leadership inexperienced in integrations on behalf of acquirer and/or target
Inconsistent communication and decision making process
Stakeholders and project team did not work together or have complete information before making decision
Existing responsibilities and requirements causing resources to be stretched too thin to be effective
Unrealistic targets, timing, goals, and expectations
Capital or resources unavailable to execute on desired initiatives
Lack of accountability and the eventual decline in energy, focus, and motivation
Relying too much on what has worked in the past and too much on one person
In an attempt to troubleshoot these common obstacles, the recommendations below provide an example of best practices which intend to deliver the solution to your integration needs. In our experience, following these recommendations will provide you the foundation needed for a successful integration.
Review previous acquisitions and deal thesis
Identify and communicate the priorities of the integration to the appropriate personnel
Don’t lose focus of the client and the client’s user experience – remember that they did not ask you to go through a merger/acquisition/sale and need to understand the benefits of retention
Don’t lose focus of why you did the deal
Start the process early and communicate the objectives
Development of stakeholder team to strategically design a unique integration plan
Work with resources at each location who can help create a culture to be adopted across the merged organization
Communicate and document plan to drive awareness, accountability and transparency
Consistent communication around upcoming changes, roles, and responsibilities during and after integration
Create the performance expectation and monitor against actual results
Stick to the timeline and addressing/solving challenges
Be ready for the challenge and be prepared to make difficult decisions
Seek guidance and support from experienced internal staff or outsourced professionals
How Can RVR Help?
Experienced project management teams who can walk you through the process and be a dedicated resource to support your core objectives
Ability to provide additional resources and scale up to complete identified projects that impact the integration in a timely cost-effective process
Ensure integration resources are informed and accountable for designated responsibilities
Create and facilitate consistent communication and reporting
Problem solving and rapid escalation of issues and risks
Financial reporting and modeling to support decision making and goal tracking
Recommendations on ways to enhance potential operational synergies
Complete the due diligence and support deal negotiations
Development of proprietary processes and practices that enhances the ability to go through and manage the integration successfully
RVR professionals are attending the NAPEO conference and we would love to discuss your business and how we can work together to address your needs.
Please contact us at 407-677-0400 or use the form below to set up a meeting during the conference.