5. M&A In the USA for foreign enterprises: Post-Acquisition Integration Plan

Issue 05-2023

This blog post continues our Foreign Direct Investment series  for Italian enterprises seeking to enter the US marketplace via an acquisition of or merger with an existing US business. In this post, we discuss the strategy concerning planning for the post-acquisition integration of Target’s operations into the Italian enterprise.

During due diligence phase, the Italian acquiror  was provided an in-depth view into the day-to-day operations of the Target. This examination serves as basis for the Italian company to formulate prior to closing,  a post-acquisition integration plan which seeks to effectively assimilate the Target’s operations (the “Plan”). Needless to say, the success of this Plan will be largely determinative as to whether Target ‘s operations are effectively integrated. There is no set pattern of formula for crafting a successful Plan, yet any Plan will invariably cover the following areas of operational  integration;

 

Human Resources.  There is a saying  in military jargon that “no battle plan survives first contact with the enemy”. This  absolutely holds true for any Plan as no greater impediment to successful post-acquisition integration is the Target’s workforce. Whether they assimilate into the new culture thrust upon them in an open and understanding manner or whether they “go kicking and screaming into the night” and resist assimilation will be decisive in the success of any Plan.  The Target’s workforce does not want to be left in the dark as to employment matters important to them, such as who they report to,  planned layoffs and reduction in force, their respective salary and employment benefits, etc,. Most importantly, they want to know the reason for the acquisition, the new strategy going forward  and their future role in the new organization. Quite simply, this requires adroit human resource skills, particularly in instances where the U.S. based workforce is being assimilated into a foreign enterprise, where language barriers and profound culture differences exist.

We have seen this scenario play-out repeatedly when representing Italian enterprises assimilating a US workforce as profound cultural and social- economic  expectations exist between compensation practices in Italy and the U.S. We have found US workforces, particularly its upper management, expect to be liberally paid and  eligible for  meaningful incentive-based compensation based upon performance of the Company, whereas Italian employers often resort to overlaying its domestic compensation scheme onto a US workforce. This does generally go well and leads to a disgruntled U.S. workforce. Moreover, the quality of executive management of the acquired Target’s operations comes into play. The Italian enterprise will need to decide whether to send an expat to oversee U.S. operations or appoint an executive from the acquired workforce to assume operational management. There is no easy answer here and the outcome depends upon the facts on the ground and the intercultural skills as well as business acumen of the executive in charge.  The goal is to Introduce new executive management into the US operations who are skilled in cross cultural assimilation of disparate workforces combined with adroit business acumen. Not an easy task to fulfill.

 

Manufacturing and Supply Chain. Here, the Plan should address and identify fide  synergies between the Target and the Italian enterprise as realizing bona fide synergies are key to successful Plan implementation and more importantly to the Italian enterprise’s return on investment. For example, efficiencies need to be identified in the manufacturing and supply chain between the two companies. Are there cost savings to be achieved in combing these functions or eliminating one or the other?  Are there redundancies in the supply chains between the two companies? Again, the Plan needs to sort where real and not illusory synergies exist and exploit same. Warning here, many an acquisition has failed due to either not realizing and taking advantage of existing synergies or they never materialized and were illusory from the start.

 

Product Lines / Sales and Marketing.  The Plan should address synergies as well or overlap in the product lines  of both companies as well as their respective sales channels and marketing organizations.  The Plan should  identify the specific product lines of both companies which  need to be combined, enhanced or eliminated as well.  This in turn will be determinative of the manner in which the Plan addresses the sales channel and marketing organizations of both companies.

 

Finance & Control. Obviously, the Italian enterprise will want to ensure its Plan effectively ensures all necessary financial controls and reporting procedures are in place immediately following closing. This in turn may require help from the Italian organization seconding a controller into the acquired organization to assist with implementing the proper financial and reporting controls. Disparate accounting and financial systems need to be sorted as well.

 

Information Systems. Effective control of the acquired operations depends on the information flow and data reporting between the organizations. The Plan should  address an effective roadmap to ensure IT systems are compatible and allow for effective reporting and control of the Target operations. This may require capital investment in new IT systems and software.

In sum, a comprehensive and well-conceived post acquisition integration plan is vital to the efficient and timely operational assimilation of the Targets operations.

 

Our next post will address the Cross-Border Equity Joint Venture.