Strategic M&A Post-Close Execution: A 3-Body Problem

A morning Coffee debrief:  Strategic M&A Execution, a 3 Body Problem

The word “integration” is often used to portray the body of activity seen after post-close, when the deal team hands over the execution responsibility of M&A deals to the business, corporate functions and the program management team.   I feel that the use of the word “integration” as a catch-all often diminishes the complexity of deal execution between the buyer, seller and target.  So, for my morning coffee opinion debriefs, grant me the license to use the word “transition” to mean an Integration, Divestiture, Strategic Partnership, Roll-up or Carve-out.  To me, “transition” has a better representation of the M&A post-close execution phase.

I see Transition as a “3body problem”.  It exists in your firm’s agenda, your counterparty’s agenda and the joint agenda.  Each agenda poses together a number of complex situations that are hard to predict.   If you don’t know what the 3-body problem is, look it up in Wikipedia or watch the Netflix series.   Ok, perhaps I’m being a little dramatic, but the point is that the success of your transition to completion (end of TSA or move to BAU) has levels of unpredictability that cannot be locked down.   Your best chance of succeeding is to install an approach / framework that accounts for grey area conditions that the deal construct doesn’t memorialize on behalf of the transition phase.

So, for those of you who are on their first or umpteenth post-close M&A initiative; as the transition leader, workstream lead, or participant - here are a few points to consider (scratching the surface) when your Day 1 fast approaches.  It might make all the difference in a successful transition:

1.     Resourcing your roster - Often for those who get thrusted into a post-close M&A execution initiative as a workstream lead, I see a wide range of experience in handling work that faces them.  Often, I hear folks say that they’ve done a “number of M&As”, when really folks that present this to me have only been involved in one or two workstreams silos across a series of deals.   Also, leaders of the firm may nominate a transition workstream lead to represent their body of work (that you may not be familiar with).  A key responsibility of the transition lead and his/her office is to ensure connectivity between all workstreams, the counterparty’s workstream teams and shape a viable transition culture to make sure both sets of teams (yours and the counterparties) are operating efficiently from a people and interaction perspective.  A workstream lead won’t have this vision going into the transition.

2.     Joint Counterparty Transition Planning – The transition phase is the most effective when both parties agree to even have a joint transition approach and metrics to assess progress.    It can’t be one-sided nor ignored (this phenomenon happens more than one would think).   Transition plans with your counterparty need to be jointly signed off.   I’ve seen way too many times where a transition plan for an acquisition, divestiture or strategic partnership become one-sided or un-enforceable - leading to delays, transition cost overruns and executive blame.   How to bring both sides to the table will be covered in another coffee debrief.

Also remember that there’s not one post-close transition plan, there are almost always 3.  Avoid including internal activities into the joint plan as it can distract both parties from focusing on the obligations to the transition.   Also, having too much internal plan activity into the joint plan can have negative outcomes to negotiating day to day deliverables and agreements.

3.     Scope Management - Transition activities are flooded with day-to-day negotiations involving your internal stakeholders and the counterparty.    A main component of a transition leaders’ responsibility is to ensure scope management across all three stakeholder parties are within the confines of the legal construct.    If you are playing the role of a workstream lead or participant, do you consult with your transition lead or the transition office for agreement?  The other aspect is cost and who pays for transition work if going beyond scope.  How do you manage scope?

4.     Transition Services Agreement – The TSA is your bible! It defines the operating commitments between your firm and the counterparty.   Importantly, it when a deal is effectively completed.   The TSA should be present in all types of M&A transactions (even if acquiring a target company directly, the TSA in this situation create clarity around the operating expect outcomes of the acquirer.  It also scope manages the interactions for the target company).   Sometimes additional agreements such as an ASA are linked if there is a perpetual commercial relationship that occurs after transition completion.    There are a number of key components to the TSA that must be in place and the deal team needs to seek input from the transition lead / business lead on must haves, non-negotiables and fees.

There is a tendency for deal teams is to finish the TSA agreement at the very end when all of the key deal terms have been agreed to.  This can pose a number or risks to transition.   Does your Corporate Development engage the transition team before deal close or after?  I would be interested in knowing what you’ve encountered.

Upcoming Future Morning Coffee Articles:

·       The role of Corporate Development in Strategic Post Close Activity

·       Transformation and it’s role in M&A Transition

·       Using Consultants and Contractors during pre-close / post-close phases

·       Penalties and Covenants - How effective are they?

·       Strategic Partnerships – finessing Investment, Commercial and Operating dynamics.

Albert Eng is a senior leader that has been responsible for collaborating with Guardian’s C-suite leaders on all of post-close M&A transaction work over the past 3 years.  The opinions and statements in any of these articles are the expressed opinions of Albert Eng only and not that of Guardian Life.