Budgeting for Post Merger Integration
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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!
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.
There are some basic fixed costs that come along with any acquisition regardless of size: travelling, Legal expenses, townhall. IT is usually where I’ve found the higher costs, not just on equipment, but on Licenses for all the systems and programs. And of course, the bigger the size of the company (nº of employees), higher the costs.
Great question—this resonates deeply with my experience managing smaller PMIs. I’ve also found that small integrations often carry disproportionately high costs per FTE, primarily due to fixed costs that are unavoidable regardless of size. As Joana mentioned, basics like travel, legal fees, and town halls add up quickly. For us, the biggest cost centers have consistently been enterprise tooling, IT infrastructure, and marketing, which seem to remain significant irrespective of the acquisition size.
We approach budgeting by looking at previous acquisitions of similar size or market focus, using them as benchmarks. This isn’t perfect, of course, but it gives leadership a tangible starting point for managing expectations. I really appreciated Dustin’s point about IT fixed costs being tied to “non-negotiables” like risk and security standards—we’ve seen the same challenges with integrating enterprise tools, where aligning systems (e.g., CRM or ERP platforms) requires considerable upfront investment.
One lesson I’ve learned is the importance of framing these fixed costs as foundational investments in long-term value. Even with smaller acquisitions, setting the right baseline helps prevent surprises later and ensures leadership understands the “price of admission.”
We have a dedicated finance person that seeks input from all the integration functional leads to get an estimate for anticipated integration costs. People retention bonus/severance and IT typically drives the bulk of the integration budget so key inputs are #people being retained, facility footprint, and # of IT applications.
Post-merger integration costs typically range from 3% to 10% of a deal’s value, largely depending on the complexity of the integration and the operational differences between the merging entities. As Kristi mentioned, having a dedicated finance person to gather insights from functional leads is essential for estimating those costs. I agree that IT expenses often account for a significant portion of the integration budget, particularly with the need for systems integration, software licenses, and cybersecurity enhancements. I’ve learned that framing fixed integration costs as foundational investments in long-term value is key. Framing it this way helps in securing buy-in from leadership and also sets realistic expectations for the entire integration process. Everyone involved has to understand that these costs are necessary for ensuring a smooth transition and ultimately driving the success of the merger.
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