Earnouts rewarding only the acquired team's siloed performance create a major integration roadblock. This structure incentivizes them to hoard resources and avoid collaboration, directly undermining the goal of creating a unified culture and destroying potential cross-functional value.
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To ensure Day 1 alignment and retain key talent, treat integration planning as a collaborative process. Share the developing integration plan with the target's leadership during due diligence. This allows them to validate assumptions, provide critical feedback, and feel like partners in building the future company, rather than having a plan imposed on them.
Combining strategy, M&A, and integration under a single leader provides a full lifecycle, enterprise-wide view. This structure breaks down silos and creates a "closed-loop system" where post-deal integration performance and lessons learned directly feed back into future strategy and deal theses, refining success metrics beyond financials.
Founders should be wary of earn-out clauses. Acquirers can impose layers of pointless processes and overhead costs, tanking the profitability of a successful business and making it impossible for the founder to ever receive their earn-out payment.
Cisco moved from a dysfunctional "throw it over the wall" M&A model to an integrated one. The key change was implementing quarterly reviews where the integration team reports back to the original deal team on progress and synergy attainment. This forces dealmakers to learn from the downstream consequences of their strategies.
To avoid a broken handoff, embed key business and integration experts into the core deal team from the start. These members view diligence through an integration lens, validating synergy assumptions and timelines in real-time. This prevents post-signing surprises and ensures the deal model is operationally achievable, creating a seamless transition from deal-making to execution.
Deals fail post-close when teams confuse systems integration (IT, HR processes) with value creation (hitting business case targets). The integration plan must be explicitly driven by the value creation thesis—like hiring 10 reps to drive cross-sell—not a generic checklist.
Deal models often flag redundant roles for cost savings. However, an integration leader can identify hidden value, such as crucial client relationships held by an administrative assistant. Cutting roles based purely on numbers can inadvertently destroy the very value the deal was meant to capture.
During a merger, prioritize people over process. Technical integration is secondary to building trust between teams. Use simple, cultural activities like joint happy hours and "show-and-tells" about the tech stack to humanize the engineering effort and foster empathetic collaboration early on.
A one-size-fits-all integration can destroy the culture that made an acquisition valuable. When State Street acquired software firm CRD, it intentionally broke from its standard process, allowing CRD to keep its brand identity, facilities, and even email domain to preserve its creative culture and retain key talent.
A process where the deal team hands off a signed transaction to a separate integration team is flawed. State Street integrates business and integration experts into the deal team from the start. This ensures diligence is informed by integration realities, timelines are realistic, and synergy assumptions in the deal model are achievable.