Alpha M&A Insights: Driving Integration Success

Key actions, considerations, and pitfalls for managing the integration of operational support functions.

 

Introduction

Many clients cite that following an M&A event, the integration of operational functions can be more challenging, complex, and political than initially anticipated. Often this is driven by ingrained, historic, and complex processes or the involvement and influence of multiple, incumbent Third-Party Administrators (TPAs).

The business cases underpinning M&A deals can heavily rely on delivering operational cost savings and removing internal inefficiencies within the newly integrated organisation. Delays in achieving these synergies can reduce the expected value of the deal, increase the cost of integration, and have substantial impact to the combined company’s performance, staff, and culture.

Having worked with clients on some of the most complex operational integrations, we’ve collected a range of important insights that we see as critical to the integration process. These aim to help companies be aware of key considerations, common pitfalls, and priority actions to ensure that the process is successful.

Key Considerations

Significant internal and external apprehension – Managing people and relationships is critical to a successful integration. Internally, across each organisation, functions will be aware that jobs are undoubtedly at risk. Externally, any TPAs responsible for outsourced functions will likely be apprehensive of the potential for rationalisation.

The hidden ways of doing things – Depending on an organisation’s complexity, there will likely be a range of bespoke operational processes that have evolved over time, which only a few people truly understand. If documentation is lacking on these processes, this can lead to key person risk. As an example, an organisation may have various Transitional Service Agreements in place to support their infrastructure, or bespoke agreements with providers, partners, and clients – all of which add to the overall operational complexity and threaten to extend integration timelines.

Tight timeframes and resourcing crunches – Tight project timeframes can create resourcing crunches at various stages of acute activity for all workstreams, which will be exacerbated by pressures on resources to perform their regular duties. This will often cause a need for greater support and/or intervention from senior management, creating additional pressure on the project.

Responses to the regulatory challenge – Each organisation will have differences in process and data management structures which can lead to complexity when responding to regulation. For example, in considering GDPR and SMCR, there will likely be differences in the data policies and senior management responsibilities across each company which Compliance and control functions will need to align, e.g. client data held by each company may be monitored or controlled by partner firms in a different way.

Common Pitfalls

Lack of agreed, consistent communication – Lack of communication with functional heads and TPAs on key decisions can make them feel isolated and uninvolved. This can lead to apprehension as to their place in the future organisation. A lack of consistency in communications between global offices during the project can also result in confusion and offline conversations, which can harm the progress of a unified integration process.

Slow mobilisation and the wrong leadership – Given the tendency to often focus on front office functions first, operational project teams are sometimes slow to mobilise, delaying the focus on important tasks. Poor project managers will fail to establish a detailed project plan and gain buy-in from key stakeholders at the outset. As such, evolving resourcing profiles across the lifecycle of the project will not be considered in sufficient depth. This will likely cause a need to reactively recruit later in the process which, in turn, may further impact timescales.

Rushed and unclear Target Operating Models – Lack of involvement from operations experts in the development of the Target Operating Model and buy-in from key stakeholders, are common issues seen following M&A activity. In a fast-moving integration, the Target Operating Model design phase can sometimes be rushed and does not always go into sufficient detail to act as an accurate tool for functions to deliver to.

Rationalising with more heart than head – TPA rationalisation can be a political minefield with incumbents and new suitors offering the world to win the business. Final decision making can often be ruled by emotion rather than important facts, such as the details of a TPA’s service coverage. Suboptimal selection will occur when a company rushes the process and fails to perform in depth, fact-based due diligence and analysis on the TPAs in question.

Priority Actions

With the deal made, there are now many important, initial activities to consider, as listed below. Each may require some form of analysis to ensure that the best outcomes are achieved, we recommend that this analysis be expedited so as not to hold up the integration process.

 

How Can Alpha Help?

Pre-implementation mobilisation – Alpha supports clients through the challenging stages of pre-implementation mobilisation, bringing clear and structured planning to help programmes scale up quickly and set up effective governance structures to support rapid integration and delivery of defined business cases.

Integration programme management – Alpha have led some of the most complex operations integration programmes in the industry. Our experts have deep knowledge of each function and operational processes so can quickly grasp the design of bespoke processes and coordinate the work required to deliver integration.

Target Operating Model design – Alpha has designed and implemented Target Operating Models across many different firms following M&A activity. We bring a range of accelerators specific to operational processes, meaning that we rapidly deliver models that will underpin the target state integrated organisation.

TPA rationalisation – Alpha have led many of the largest outsourcing projects in the industry, which have often followed M&A activity. We have longstanding relationships with, and a deep understanding of, all major TPAs. Combining this experience with our methodologies for running a selection, we ensure that clients partner with the best TPAs the market has to offer.