Budgeting for Post Merger Integration

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  • #52179
    Peggie Chan
    Participant

    I’m curious if your organizations use a formula to identify an appropriate cost to integrate an acquired company, tied to the business case. I’m finding the smaller integrations are more costly per FTE acquired, as there are some basic fixed costs that come along with any acquisition regardless of size. This has created some budgeting challenges in managing leadership expectations for the cost to integrate. Thank you!

    #52902
    Dustin Delewski
    Participant

    For us, the IT infrastructure space has the highest fixed cost regardless of deal size. Our IT team has created a robust estimating model. Its main inputs are number of employees, locations, current infrastructure components (devices, servers, circuits, etc.), and tech debt. We’ve made IT risk, security, network, and device standards non-negotiables in all our deals. Applying the inputs against the costs of the non-negotiables results in our integration budget. Part of our role in the IMO is educating deal sponsors on the ‘price of admission’ if they plan to grow their business unit inorganically. It’s definitely a challenging conversation, because the cost of IT infrastructure is more around risk mitigation (e.g., cyber-attacks, stolen data, etc.) versus a higher performing device. We frequently call in the IT Risk and Security leaders to explain to the business leaders why we’re not willing to be flexible with the non-negotiables (they have all the lessons learned and scars to show from them). It’s the world we live in, and executives need to get on board if they truly value protecting assets and customer/shareholder interests and value.

    In the IT application space, executives need to understand that whichever enterprise solutions they align with, will indicate how expensive it will be to integrate an acquisition. I.e, if the enterprise solution is SAP, it’s very expensive to integrate into especially if the new business requires new functionality or configurations that aren’t currently activated, on the other hand, if you have a smaller, more nimble solution like QuickBooks, then the integration costs may be negligible.

    I think a major lesson learned is that if a company revamps a process, goes through a transformation, or implements a new IT system AND the company’s growth strategy involves M&A, leaders need to think through how the two converge down the road and be prepared for how these decisions impact the cost of future M&A.

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