Over the last decade, Private Equity (PE) firms have established an increasingly significant influence on the Merger & Acquisition (M&A) Market. With a deep understanding of M&A, large amounts of available capital and their ability to drive value creation, it is no surprise that PE-backed M&A transactions now represent a significant percentage of global deal value – especially with the growing economic uncertainty, rising interest rates and inflationary pressures over the last several years.
Despite increasing popularity, much like corporate M&A transactions, PE-backed M&A execution still faces significant integration challenges and if not addressed properly, can lead to the M&A failing to achieve the expected value.
To understand some of the challenges faced during the integration process of PE-backed M&A transactions we sat down with Elias Mazzawi, an interim specialist in private equity M&A transactions, and Fiona Kidd, a highly experienced IPO, M&A and separation/carve out specialist programme director, board adviser and NED, to get their insights on what these challenges look like and how to overcome them.
When beginning to discuss integration, Elias emphasised that “M&A integration is not a one size fits all process and programme”. Transaction goals vary, as do deal types, and the process must flex. A merger of equals may need to address duplication of systems and processes whereas a roll-up may well be more about migration to a central platform and product enhancement. “My first question with any client is, what are the goals for this transaction?”.
The strategic rationale behind the deal—whether it’s aimed at driving growth, capturing cost synergies or acquiring new capabilities—informs the process and decision-making through the integration process. With the pressure to generate high returns in PE-backed deals, ensuring alignment of integration efforts with the core strategy is essential to allocate resources and drive measurable value through decision-making effectively.
Ensuring decision-making is properly guided was emphasised as a key focus by Fiona, stating, “a major reason for integrations failing is indecision or lack of unity in decision-making across the enlarged business. This can be between the target and the acquirer, or within the acquirer, and can lead to multiple steps in the acquisition process being delayed”. Having a value strategy is key in guiding decision-making. Though the complexity depends on the circumstances of the M&A transaction and is confined to a limited timeframe, value creation throughout the integration process can drive the success and profitability of the transaction. It ensures that a clear strategic purpose is being driven, or has been identified, allowing businesses to realise synergies, accelerate growth and ultimately deliver on their investment goals.
In driving value, Fiona also emphasised the importance of recognising quick wins. “In any integration, there are long-term strategic synergies which will take multiple years to deliver, but there are also some quick wins where you can enhance the bottom line and create value early on”. Early, tangible success during integration builds momentum and generates confidence among stakeholders, including investors, employees and management. For PE firms, it can demonstrate the value of the transaction early on, alleviating some uncertainties and challenges that inevitably arise during the integration process – laying the groundwork for substantial, long-term value creation.
It is often likely, in these circumstances, that both the acquiring and target company have very different approaches and mindsets around the way they conduct their business; having styles that may contrast starkly with the fast pace of the PE environment.
Fiona states, “It’s likely that there will be vast differences in culture, so working out how to operate as one team and align goals early on, is key to success”. Elias agreed with this further expressing, “culture covers strategy and the way we do things around here. It takes time and understanding to align to an existing or a new normal”. Therefore, compatibility and leadership alignment are key.
An integral aspect of ensuring alignment is the presence of someone within the organisation who can interact across multiple layers of the organisation to develop an understanding of the alignment and identify any areas where this isn’t being met. This was emphasised by Elias who added, “spotting the opportunities and the issues isn’t always straightforward. There is so much value in having someone independent of either organisation who can sit down and have those coffee conversations and understand whether things are really aligned”.
An intrinsic part of ensuring cultural alignment is also the alignment of leadership across both organisations. Fiona stated that “getting the executives to agree is fundamental to the delivery of the integration”. With the shorter time horizon of PE-backed M&A transactions, the acquiring and target companies, along with the PE firm’s leadership, must quickly align around a common vision and strategic objectives.
Elias agreed with this by stressing the importance of an open line of communication. “An integration is not a static thing. Opportunities, approaches and road-blocks evolve and emerge as the integration develops; so the process must flex and bring the teams together, to address the expected and the unexpected”.
Fiona further stated “There are two management styles when the buyer is expected to be from within private equity. There are those who relish the opportunity and those who fear the environment. Depending on which style you have will depend on how the existing target management team culturally fit and are aligned in their approach post-deal”.
So, cultural and leadership alignment is about understanding that integration is not a ‘one-size-fits-all’ process. While there may be a headline strategy, variations will arise around that. The true skill of those leading the integration lies in recognising these variations and engaging the right people in the conversation. Establishing this understanding and adapting to these nuances, means leadership can present a united front and successfully blend different corporate cultures, and align management practices, while fostering a positive environment that supports employee engagement and retention.
The integration of PE-backed M&A transactions presents unique challenges. Elias highlights that “particularly in the rapidly evolving PE M&A landscape, transactions have multiple drivers of value. The integration model needs to reflect this, and it also has to be nimble and adaptable as the transaction evolves and opportunities emerge”.
Achieving value creation requires a clear strategic focus, and cultural and leadership alignment are essential elements to establishing an understanding of the value of the transaction, across the organisation.
With extensive experience in identifying and placing top-tier talent globally in leadership roles, Tom focuses on aligning transformative business strategies with financial leadership. Recognised for a deep understanding of the evolving demands of today's dynamic business environment, he partners with organisations to source executives who drive innovation, enhance financial performance, and lead complex change initiatives.
