The hiatus on mega M&A marks a sea change. Traditional integration skills are less relevant – step forward the new hybrid commercial/ integration interim.
The M&A deal flow has shifted in favour of smaller deals as several high-profile bank failures sent shockwaves through a market already rattled by persistent inflation, rising interest rates and recession fears. The action now is in mid-market deals, and these require a different approach from traditional large-scale M&A integration.
So, what does this mean for organisations looking to unlock value post-deal? Stuart Jansze, a Partner within our Business Transformation practice, specialising in Private Equity, spoke with Elias Mazzawi, an experienced Commercial and Integration Director, to gain his expert insight into how to make a success in the new M&A landscape.
Stuart Jansze: At Eton Bridge Partners, we are seeing quieter M&A volumes at the larger end and a trend towards mid-market deals, together with a move away from the traditional post-merger integration consultant. Does this resonate with your view of the market Elias?
Elias Mazzawi: The market is undoubtedly quieter in terms of transactions. But there are still a lot of conversations going on – very few around large deals, but more around the mid-market and smaller ones. These deals are very different in nature; they are not transformative where it’s a merger of equals, they are bolt-on deals to expand addressable market and enhance competitiveness.
Many of the skills involved in these smaller deals are very different from in large deals. The value-add is weighted more to co-ordination and joining the dots on the revenue side. How do I make the whole greater than the sum-of-the-parts from a revenue perspective? This is about commercial management as much, if not more than, it is about traditional ‘programme’ merger integration.
SJ: We are seeing a demand for M&A professionals with an integration and commercial overlap; this isn’t always apparent from the early conversations but becomes increasingly so as we probe what drives success. Would you agree?
EM: Yes, I am seeing the same thing. One recent assignment started out as integrating an owner-managed business into a US PE-backed aggregator and moved on to realigning its client management and value proposition model to leverage the benefits of greater scope and scale. This was effectively a Chief Commercial Officer role in a transitional capacity. The business was looking for ‘value creation’ rather than ‘project integration.’
I think there is something here about the interim that is hired, and the fit to business need. There are post-merger integration specialists who deliver outstandingly in traditional M&A environments. Then there are interim commercial leads who fill a gap in capability. The overlap between them in the Venn diagram isn’t well populated.
My experience is that this (integration combined with commercial leadership) will be increasingly sought as M&A shifts more and more to the mid-market and relies on revenue-side integration for value creation.
This is not exclusive to private equity – the same sort of thing is happening in multinationals that have been through M&A, or have a portfolio of related-but-different businesses that haven’t been connected. Private equity has a bigger war chest. But major PLCs are also eyeing up companies they’ve looked at for years and asking if they are becoming available? Is the price looking more attractive?
SJ: In terms of skills, what does it take to deliver on these kind of deals? And how are they different from traditional merger integrations?
EM: It’s a very different mindset, and a very different position within the business. Typically in these smaller deals, integration is quite straightforward and in reality, it is more about migration to the parent company than integration.
The drivers of value in these mid-market deals emphasise revenue-side synergies, which were always part of the M&A value-creation equation, are now paramount. It is less about cost and more about revenue; organisations need to be able to pull value levers such as client synergies, proposition synergies and cross-selling.
From my experience, it quickly becomes clear that in terms of turning the value creation dial, it is all about pragmatically and rapidly consolidating sales and client management to boost competitiveness and drive up the addressable market. Less clear, often, is who is in the chair to deliver this. The skillset that is required is quite specific and not often present in mid-market businesses, particularly, for example, in a roll-up type situation.
To achieve this kind of value creation, active and positive information-sharing and network building between operating companies and skilled management of stakeholders is required.
To really make the difference, you need to nudge your connections; none of this happens by legislation – it happens by showing value.
Nudging connections and unblocking isn’t a typical skill set across an Integration Director. So that’s where the opportunity is; you get someone who can do the simple integration but can also nudge the commercials through. That’s what I’m seeing the market buying although organisations are not going out to market saying that’s what they want initially.
SJ: What is the barrier to the organisation just doing it themselves, and what is the value in using an integration-cum-commercial officer rather than a traditional post-merger integration consultant?
EM: When working with a US PE-backed aggregator, I encountered issues that are common to a lot of roll-up strategies. The group had grown up from an acquisition of around a dozen owner-managed businesses, and broadly speaking, each was run by its former owner, and each had its own financial earn-out. There was no group-level commercial structure and no headroom to create an additional layer, but there was a need for group-level intervention to put in place the interconnections that would drive value.
I think the reason they used an interim manager was because, resource-wise, it was not clear whether there was someone in-house who had both the skills and experience to do the job, whilst thinking ‘politically’ in terms of independence and experience. Adding in a layer to drive value is sometimes counter-intuitive, and the transition is often best driven by a transitional pair of hands who can join the dots across multiple sales and account management teams, while the organisation tests and settles to its ‘new normal’. That’s not an integration programme, but that’s where the money is.
They needed someone to seamlessly combine an integration phase with a commercial transformation phase. Leading the commercial organisation gets things done that a project approach alone could never do, or at best, would take so much longer. It’s a hybrid approach.
SJ: So that’s as an aggregator, how about the other side?
EM: I recently supported a quoted UK-based mid-market business following its transition to private equity. Like the aggregator, its goals were to drive a step-change in revenue. The businesses were related but separate with significant opportunity for ‘revenue-at-the-intersections’ that had not yet been tapped. Top management within the businesses knew each other, but apart from that, the businesses were islands in terms of what growth leaders knew of each other’s business.
I was hired on an interim basis to drive project work around integration; this transitioned into an extended engagement as interim commercial officer. What began as a programme-based approach very naturally morphed into group-level commercial officer activity around key clients and opportunities,
SJ: What was previously bought, in terms of integration support in the past, is not necessarily what is needed now. What would you say to mid-size businesses that may be looking to larger consultancies to do this kind of work?
EM: I would say take a step back and think about what sort of deliverable you are looking for; pick the right horse for the right course. Big consultancies are unrivalled at managing a large integration process rapidly, but for mid-market deals – where integration is more about migration and value creation – it’s about joining the dots. It is less about a programme and more about managing the connections. Big consultancies are good at the largest integrations, but it’s questionable how much they fit in this world where the deals are niche and the skillsets different.
A transitional Commercial Integration Manager is more likely to be able to deliver this, and much more cost effectively with a higher return on investment.
The transitional role also feels more suitable, rather than jumping to a permanent hire as the transition stage is very different from the new steady state. Transition is about engaging, shaping, nudging and broking, and is often best done on a fractional time commitment.
An interim can get the transition into the right place. It is a highly people and change-based role and it’s all about setting a full-time commercial director up for success. An interim can have experience as a Commercial Director and on integration projects – this hybrid skillset can be harder to find in a big consultancy.
For organisations looking for mid-market integration support, I would suggest opening a discussion around the value creation plan with an interim agency that has a broad range of skills and experiences in this space – their networks should be well-placed to offer discussions and a range of potential solutions.
Our huge thanks to Elias for a thought-provoking look at how the shifting M&A market is driving a new approach to delivering post-deal value creation.
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