‘You’ve got to be careful if you don’t know where you’re going, otherwise you might not get there.’

These words, although spoken by frequently quoted American baseball player Yogi Berra, are particularly fitting given the considerations that need to be taken into account pre-acquisition in order to ensure a successful integration.

While a seemingly conflicting quote, the process that a business undergoes in the pre-deal stage has a big impact on how smoothly the acquired business is integrated with existing operations on completion. It needs to know not only where it wants to go, but also have a comprehensive but flexible plan of how to execute that strategy.

Research from accountancy firm PKF shows that there has been a 63.4 per cent increase in deal value in the first quarter of 2011 compared with the same period of 2010. However, this finding is tapered by the comparatively small rise of 3.3 per cent in deal volume (see chart 1 below).

Chart 1: UK M&A trends

A rise in deal value shows an increase in the amount of large deals that are being conducted – the type of purchase that requires careful integration into the acquiring business.

In the first quarter of 2011, ten deals valued at more than £500 million have been completed, compared with 32 for the four quarters of 2010 (see chart 2 below).

Danny Davis, programme director of M&A at Henley Business School, says the best approach is to have a clear upfront plan of how to go about the post-acquisition integration strategy, but be adaptable to changing it as the situation evolves. ‘When you get the keys to the company, there are always some surprises and things that you might want to change.’

In differentiating between a hardline approach to sticking to the plan and indecision, he adds, ‘The best medium is in the middle, where you try and stick to your guns but learn by taking a pragmatic approach and change parts.’

Accessing new locations has been the prevailing issue for PHS Datashred in its recent acquisition push. The company – part of the PHS Group – has made two acquisitions so far in 2011.

Anthony Pearlgood, commercial director at Datashred, explains: ‘As a business we are still relatively new – Datashred only started seven years ago. Our initial acquisitions were to put a geographical footprint on the UK, and the two recent purchases we made in Shred Easy and Shred Secure fitted that bill in that we didn’t have a location in the North West.’

Speaking on Datashred’s post-deal integration strategies, Pearlgood says that the most important consideration is the customer, and maintaining the relationships that have been built up. He adds, ‘You can do as much work behind the spreadsheet as you want, but generally within the first fortnight we get out and see all the major customers. We will communicate with them all straight away.’

Michael Hamilton, ex-group acquisition executive at hazard detection and life protection products maker Halma, says that the company takes a different approach by allowing acquired businesses to stand alone and be managed locally.

He explains, ‘We are a very decentralised operation, and we just establish a set of management systems and a structure of support. The reason we do that is because it keeps decisions as close to where they need to be – close to the customers.’

Hamilton now works as head of people development at Halma but headed up its acquisition department for three and a half years. He explains the ideal situation for the company: ‘The utopia for us is that we don’t make any changes to the management team – we just leave them in place.’

‘The most attractive thing for us is to continue with the existing team, and part of due diligence and the negotiation is getting to know that team. Therefore, if we feel they don’t share our values and are unlikely to fit into our culture and style then we would hope to have figured that out early enough,’ he adds.

Hamilton explains that one of the biggest changes comes in the form of the financial reporting system. As Halma is a publicly listed company, from day one acquired companies adhere to Halma’s method.

In the past 12 months, Halma has made five acquisitions totalling £89.5 million, with the most expensive being that of cataract surgery components business Medicel for £46.6 million.

For market research specialist Cello, a different approach is delivering results. The most important factor in post-deal integration there has been the people that it acquires.

The AIM-listed company makes acquisitions based on brand potential and bases its level of integration on the size of deal completed. Mark Scott, CEO of Cello, says, ‘The only thing to consider is people – there is no other consideration.’

Scott explains that Cello manages issues relating to personnel structure by promoting people from those companies acquired.

With two acquisitions in 2011 – Red Kite Consulting Group and MedErgy HealthGroup – Scott says that Cello is very targeted and focused, only doing deals with companies that are known to it or have a very immediate clear fit, ensuring a trouble-free integration process.

According to Henley Business School’s Danny Davis, the size of the deal has a profound effect on how the integration process is carried out: ‘The smaller the deal, the less cost synergies there are and the more it is a case of growth and revenue synergies.

So it’s less about consolidating back offices and more about customers and increasing the margins and profits, as opposed to the cost cutting that we get in the mega-mergers.’

Davis believes that for the smaller deals it is easier to see the whole picture and, therefore, easier to complete effectively.

Part of a successful integration for Datashred’s Anthony Pearlgood is being upfront about your intentions, including the changes that the acquiring business plans to make: ‘We are honest with people. Whether it is good or bad news, people appreciate bad news delivered in a fair and honest way.

‘One or two that we have lined up for the future will be ones where we may have to close a site and move work into an existing depot, with probably a higher redundancy level than usual and a tough client base to manage because we are going in slightly cold.’

But he is quick to point out that PHS’s selective nature has meant that there haven’t been any disasters and that many of the current managers were at the company pre-acquisition.

Monitoring the growth of an acquired company is something that Hamilton sees as an important part of ensuring a seamless integration after the deal has been completed. He adds, ‘I think the main issue with a company that is growing is judging the strength and how much overhead to carry, particularly in terms of skilled, capable management.

‘Our view is often a bit more than they think, but we’re very loath to work by imposing change and decisions on a company.’

P&L Systems is a manufacturer of insect-control devices with backing from US private equity investor Wind Point Partners.

Commenting on M&A and integration in the lower mid-market space, Peter Mangion, managing director of P&L, says, ‘A key difficulty we have encountered is some of the quirks of family/owner-managed businesses, which would not have been an issue with a corporate vendor.

‘This factor introduces a higher degree of unpredictability in delivering a deal. It also means that the integration of acquisitions of this type needs to be handled with care.’

Mike O’Shea, chief executive of fund business Premier Asset Management (PAM), was central to the take-private MBO that PAM underwent in 2007, a deal that was backed by private equity firm Electra Partners.

As well as being integrated into the Electra portfolio of companies, PAM also made an Electra-backed acquisition in 2009 as part of its plans to grow, despite the overhanging problems brought on by the recession.

O’Shea explains, ‘Fund management is a highly cyclical business, and when you are quite small you can go from being a profitable business to a not so profitable one quickly if the stock market falls.’

Speaking about PAM’s 2009 purchase, O’Shea explains, ‘From our perspective, working in a regulated environment, it’s all about planning. We know that, at the end of the day, underneath the assets we acquired in 2009 are thousands of underlying retail investors, and we have to look after their interests.’

O’Shea believes it all comes down to effective planning, making sure that all the administrative parts are in place and that there are competent and relevant investment managers to ensure that the integration is seamless.

With acquisitions at the forefront of many businesses’ growth strategies, the ability to partly or fully integrate the purchased company quickly and effectively has become an essential element, with an increasing number of management personnel charged with carrying out the process.

Davis sees the initial planning work that is done pre-acquisition as the most essential part of ensuring that the integration works. The ‘mini-strategy’ is a way of getting ideas on the table, he says.

‘Lots of companies don’t do that at the initial stage and then they come a cropper as they don’t really know what they are up to when it comes to integrating later,’ Davis concludes.

See also: Post-deal reinforcements – Once the deal has been sealed, interim managers can ensure it delivers on its initial objectives,