The Acquisition Integration Approaches model of Philippe Haspeslagh and David Jemison provides insight and guidance in Mergers and Acquisitions (M&A on choosing the optimal integration approach. Each approach describes a process by which a company plans for and implements a successful integration of a newly acquired company.
In Mergers and Acquisitions, the motto often traditionally was: “Make them like us.” Alternately, relatively simple criteria were used to choose an approach (e.g., the size and quality of the acquired firm).
Haspeslagh and Jemison in 1990 stated that in the Acquisition Integration Approaches model, the company takes for the integration should be understood by considering two criteria:
- The need for strategic interdependence.
- The need for organizational autonomy.
Obviously, the goal and central task in any acquisition is to create the value that is enabled when the two organizations are combined. There are four types of value creation:
- Resource sharing. Value is created by combining the companies at the operating level.
- Functional skills transfer. Value is created by moving certain people or sharing information, knowledge and know-how.
- Transfer of general management skills. Value is created through improved insight, coordination or control.
- Combination benefits. Value is created by leveraging cash resources, by borrowing capacity, by increased purchasing power or by greater market power.
Haspeslagh and Jemison warn that managers must not lose sight of the fact that the strategic task of an acquisition is to create value. Furthermore they must not grant autonomy too quickly, although obviously people are important and should be treated fairly and with dignity. The need for organizational autonomy can be answered using three questions:
- Is autonomy essential to preserving the strategic capability we have bought?
- If the answer to question 1 is positive, how much autonomy should be allowed?
- In which specific areas is autonomy important?
The Preferred Mergers and Acquisitions model
Depending on the score on the above two factors (see graph), the preferred Acquisition Integration Approaches are:
- Absorption. Management should be courageous to ensure that this vision for the acquisition is carried out.
- Preservation. Management focus is: to keep the source of the acquired benefits intact, “nurturing”.
- Symbiosis. Management must ensure simultaneous boundary preservation and boundary permeability, gradual process.
- Holding. No intention of integrating and value is created only by financial transfers, risk-sharing or general management capability.
Post-Merger Integration (PMI)
Post-Merger Integration refers to the aspect of an organizational merger that involves combining the original socio-technical systems of the merging organizations into one such newly-combined system. PMI is the process of combining two or more organizations into a single organization involves several organizational systems, such as people, resources and tasks. The process of combining these systems is known as “integration.”
Integration fits within an organizational life-cycle or specific business mergers & acquisitions cycle where businesses buy, integrate then dispose of other businesses:
- Definition of vision & strategy
- Selection of growth method (organic growth vs. inorganic growth)
- Target identification
- Pre-deal evaluation & due diligence
- Negotiation & deal completion
- Post-merger integration
- Acquisition Integration
- Ongoing improvement
M&A Reference Documents
Mergers & Acquisitions Price Multiple Analyzer
Mergers & Acquisitions Strategic Analysis Toolkit
Mergers, Acquisitions & Alliances Approach
Mergers & Acquisitions Training
Key Considerations in Deal Structure
Mergers, Acquisitions Best Practices