Ever had an M&A deal stretch over a year due to integration issues? I learned a few lessons from such an experience.

Despite the simplicity of the transaction, negotiations were protracted, driven by approvals needed from various departments within the corporate buyer. The acquisition involved a larger corporation acquiring a stake in a smaller company. Although integration was discussed several times, no consensus was achieved. When parties finally addressed cost allocation and other integration aspects, they realised that their expectations are not aligned. This led to additional months of negotiation to finalise the sale and purchase agreement.

In M&A transactions, it’s crucial to consider post-completion integration early in the process. Key considerations include:

• Transitional Services: Will the seller provide services such as HR, payroll, or IT to the target until full integration of the target into the corporate buyer’s group of companies?
• Shared Services: Will the buyer or its group provide shared services to the target for efficiency and alignment with the buyer’s operations?
• Cost Allocation: How will costs be allocated between the parties?
• Agreements: Are separate agreements needed for transitional or shared services? Some parties include these in the main sale and purchase agreement to lock in terms.
• Profitability Impact: If the target is charged for shared services, how will this affect its profitability and any earnout provisions for the seller?

Considering these aspects early can save time and ensure a smoother transition for all parties involved.

Do you have any stories to share about post-completion integration in M&A deals?

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This post first posted on LinkedIn on 1 August 2024.