Scaling After an Acquisition: Strategies That Guarantee Success

By Moira Alexander, Founder of PMWorld 360 Magazine and Lead-Her-Ship Group

The recent acquisition of a business is certainly a cause for celebration, but there is still much work to be done to make sure both companies are integrated into one well-functioning entity in order to secure future success. In this article, we will delve into the key drivers behind mergers and acquisitions, discuss some of the biggest challenges that emerge when bringing two companies together, and show how businesses can go about properly integrating and scaling in a way that ensures continual growth.

5 Key Drivers Behind Acquisitions 

In order to set the right integration strategy for your go-forward business, it is important to understand what goals drive M&A activity in your organization — why does it make sense for your business to make an acquisition now?

While factors like recession fears, rising interest rates, a steep decline in equity valuations, geopolitical tensions, and supply chain disruptions typically put the brakes on mergers and acquisitions, 60% of global CEOs believe mergers and acquisitions are still a good growth strategy, according to PwC. C-suite executives worldwide cite these, among others, as some of the 5 key drivers behind mergers and acquisitions.

1. Mitigating Short-Term Risks and Delivering Long-Term Business Transformation

During times of volatility and uncertainty, savvy investors and executives seek to offset risks by taking a long-term strategic approach through business transformation initiatives.

2. Reaping Benefits From Increased Market Share

Having more customers gives a company greater leverage when it comes to pricing, driving higher revenue. Furthermore, when more people use a company’s products or services, the cost of production is usually lower as well.

3. Increasing Operational Capabilities

Acquisition can be a means to increase operational capabilities, which is a primary focus area for most companies. Accenture believes leaders establish themselves as operations reinventors when they invest in these six capability measures of operations maturity that generate 360° value. 

1. Data analytics and automation
2. Artificial intelligence
3. Leading practices
4. Business tech collaboration
5. Talent strategies
6. Stakeholder experiences

4. Expanding Product Or Service Offerings

When customer expectations change, companies look to acquisitions or mergers to provide the fastest and most practical means for expanding their products or services to meet increasing customer demand.

5. Enabling Geographic Expansion

Expansion isn’t just about offering new products and services to an existing market. A key factor driving M&A activity is often the desire to expand market share and target customers globally by joining forces with entities abroad. 

Tips For First-Time Acquirers

For those just beginning to explore acquisitions, It is important to understand the value of assembling an integration team that includes experts that are knowledgeable and have experience in this area. One must be willing to accept the fact that they may not know everything and should therefore get help to execute their first M&A venture successfully. 

In his Forbes article Five Steps To Take The First 90 Days After An Acquisition, Marius Silvasan says teams must be ready to hit the ground running immediately after an acquisition. This requires alignment on tackling the post-acquisition operating model, stakeholder communications (including customers), risk and change management, performance measurements, and scaling plans. 

The Most Common Merger & Acquisition Challenges 

The integration team must be aware of the issues that may arise during the M&A process. A strong integration team will be aware of and work to address all of the following concerns before they negatively affect the business:

• Process changes
• Outdated or insufficient technology
• Talent management and retention
• Unsatisfied or confused customers
• Tax implications
• Internal or external risks
• Intellectual property issues
• Compliance and legal concerns
• Vendor agreement issues

Virtually every area of business has the potential to encounter post-acquisition challenges that make careful and intentional scaling necessary. Ultimately, the challenge is to remain flexible, alert, and proactive in preparing for any post-acquisition roadblocks that could derail progress. With the right strategies in place, companies are able to identify, plan, and execute effective business transformations for both short and long-term success.

4 Critical Practices for Successful M&A Integration in the Professional Services Industry

Every merger and acquisition (M&A) in the professional services industry comes with its own unique set of challenges and opportunities. Professional services organizations need to adopt post-close best practices to overcome whatever challenges may arise and ensure they are able to successfully integrate two or more businesses and smoothly scale their operations amidst economic and political uncertainty and continuous change. A well-executed integration strategy can lead to sustained growth and increased profitability, while a poorly managed one can leave merged entities scaling in different directions, leading to volatility and, ultimately, attrition of both employees and customers. 

Although many experienced companies have developed their own proven M&A integration strategies, McKinsey shares these four key post-close excellence practices that companies should adopt during integration execution.

1. Maintain Existing Business Momentum

While integrating two or more businesses, avoid disrupting current operations and processes abruptly. Existing business activities and revenue streams should continue without interruption to ensure stability for employees, customers, investors, and other stakeholders. 

2. Accelerate Synergies and Integration

Developing a solid governance model to track synergies from execution to financial statements is essential. This approach provides valuable insights that can drive improvements and sustainable scaling.

3. Dedicate Resources to New Ways of Working

McKinsey estimated that 60% of acquirers expressed regret about not dedicating more resources to culture and change management during the integration process. An accountability system for managing change in critical processes is vital to ensure a smooth transition.

4. Make Transformation a Catalyst for Scaling

Leaders must seek transformational synergies that require significant company-wide structural changes. This approach will pave the way for future scaling and growth.

While the transition from two companies with their own practices to one larger whole will take time, approaching this as a long-term scaling process with dedicated steps will result in a stronger and more successful company.

How To Successfully Scale Beyond a Merger or Acquisition

With the hard work and long hours your teams put in throughout the integration, there may be a sense that everything is complete. This couldn’t be farther from the truth. The integration is the foundation for further scaling success, but scaling successfully beyond integration activities requires extreme focus and intentional actions.

The principles Hannah Miller lays out in her “Focus and Scale Method” for developing a scaling strategy apply to businesses that have just been through a merger or acquisition – with the formation of a new joined entity comes the need for an intentional approach to scaling that will secure long-term business success long after integration is complete. Miller recommends the following actions:

• Develop a laser focus on a single major company goal to increase ROI. 
• Identify the primary action the business will take to achieve this objective. 
• Reverse engineer to reach the main company initiative. 
• Start with the end goal in mind and then map out a solid plan.
• Identify the facts that support accomplishing the major goal identified. 
• Detail each milestone and all activities for every stage of growth. 
• Set a stage gate between each phase of the scaling process.

While acquisitions and mergers can be excellent growth accelerators, sustainable growth relies on well-planned and executed integration and scaling.

Technology’s Role in Post-Acquisition Alignment 

Mergers and acquisitions have the immediate effect of exacerbating issues around data silos that may already be hindering global visibility in a business — with two businesses becoming one, decision-makers will need to find a way to make sense of what had been two distinct resource pools, client bases, and technology stacks. 

While it is important to avoid immediate disruptions to essential processes, one of the first tasks the integration team will need to tackle will be outlining which technology investments will be needed to create a truly unified tech stack that can act as the foundation for scaling, and set a timeline for making those investments. Align technology consolidation and investment efforts around the following priorities: 

Increasing Global Visibility of the Workforce

Finding the right resource to take on an upcoming assignment is difficult enough without the added challenge of needing to navigate skills and availability across what had recently been separate workforces. Unlocking the true potential of your company’s post-integration resource pool will require eliminating blind spots that hide available resources with optimal capabilities and experience from resource managers. Increasing global visibility will also have valuable cultural impacts. With mergers and acquisitions also come inevitable workforce changes and growing pains. Some of these pains can be felt in different areas of PS companies. Cultural changes are one of those areas heavily impacted by M&As. According to SHRM’s Sonya Matejko, it’s estimated that 75% of surveyed C-suites believe it has become more critical to properly manage the talent and cultural aspects of an M&A. Your technology stack must include communication and change management solutions that help decision-makers handle resourcing limitations or imbalances effectively and detect and shift overburdened resources where and when needed. 

Achieving Operational Excellence

More companies are embracing holistic enterprise solutions to scale across multiple functions and business units to achieve operational excellence, according to one 2023 report by the Process Excellence Network’s Elizabeth Mixson. Why? Mixson believes that having one centralized system allows users to innovate more quickly and reliably and deliver more business value in terms of direct ROI. Reaching this state of excellence requires intentionally and directionally focusing on an integrated, reimagined tech stack to ensure service success in the future. Apply this reimagined tech stack to standardized processes that make sense for the new business entity you have created. In bringing together two or more businesses, you will encounter teams with many different practices and processes that they believe are essential to driving success. Use your company’s post-integration mission as a north star as you develop standardized best practices and ways of working that will apply across the business and ensure the technology you use to support those processes is able to enforce key workflows and milestones that will make your organization successful. 

Understanding the True Profitability of Clients

As your business diversifies what it sells to your clients, your tech stack will need to be able to support business leaders as they analyze the true profitability of clients. This entails understanding not just the revenue you are generating from products and services you are providing to your clients, but also the costs your business incurs driving success for each client. Be sure that solutions that capture details of client-facing work (such as customer relationship management (CRM) and professional services cloud applications) are integrated to deliver real-time insights on both the billable and non-billable activities you do for each of your clients — including time spent on pre-sales and support — as well as the cost rates of the resources doing the work. This information on which clients are most and least profitable for your business will be critical in informing decisions about how to shape both your client base and your portfolio of offerings going forward.

The key to global workforce visibility, operational excellence, and profitability across clients is ensuring you have a scalable tech stack in place and can see and measure its impact on your business and your clients. 

Accelerate Post-Acquisition Success With Kantata

To facilitate successful business integration and consistent scaling, business leaders need increased visibility across merged operations. A robust software solution like The Kantata Professional Services Cloud is purpose-built to give professional services organizations the insights and control they need for effective scaling and long-term profitability. With Kantata, businesses can navigate the complexities of M&A and streamline their operations for sustained growth and success. Kantata works extensively with businesses navigating their scaling journey, and we’ve authored a new whitepaper collecting more of our tips for successfully growing and scaling in a changing industry.