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A new playbook for digital acquisition integration

by contributors Christopher Vollmer, Greg Springs and Harry Hawkes, Booz & Co. | Published June 28, 2012 at 2:05 PM

The digital media and technology industries are in the middle of a veritable shopping spree. Facebook Inc., Groupon Inc. and Zynga Inc. have been acquiring Silicon Valley startups at a voracious pace, moving quickly to secure valuable technology talent and to bolster their product offerings in fast-moving areas such as mobile, social media and gaming. In the first quarter of 2012, this trio bought at least 21 firms, more than double their combined acquisitions in the first quarter of 2011, according to The Wall Street Journal. And they are not alone: Google Inc. made 11 acquisitions in the first quarter of 2012, and Microsoft Corp., Twitter Inc. and Amazon.com Inc. are all expanding via acquisition too.

It is not that surprising that such an acquisition arms race is occurring. Digital media and technology players are under enormous pressure from customers, competitors and investors to accelerate innovation and revenue growth. This has led to an increasing reliance on high-stakes acquisitions, rather than organic growth, as a fast, crucial means of capturing and deploying new capabilities (as Facebook did with Instagram Inc. and mobile photo sharing) and rapidly establishing new industry positions, especially because smaller companies are most often the ones with the game-changing capabilities, talent and products.

In a competitive deal environment, such quick decision making -- getting to "yes" to complete a deal and then moving to integrate and execute -- has become a critical advantage. The old benchmarks for integration timelines, which could run anywhere from four to 12 months, are no longer valid in an environment in which acquisitions tend to be smaller and expectations are for organizations to be integrated and synergies secured in 90 days or less. Combine this "need for speed" with the desire to preserve an acquired company's capabilities -- the factor that most drives digital value creation -- and it becomes clear that digital media and technology companies need a more contemporary playbook for acquisition integration. They need a digital M&A playbook 2.0.

This new playbook eschews traditional post-merger integration efforts -- typically run under an approach that could best be described as heavily structured, process-intensive and inclusive -- in favor of what has been called the "hurry-up offense," in which speed and bursts of highly concentrated activity are deployed to manage the integration of acquired companies. This approach leads to better value retention in the acquisition and more effectively prepares the overall company to face the market faster and with greater focus than traditional approaches.

Although speed is the most noticeable outward manifestation of the hurry-up offense, it is only one of several important elements of the new digital M&A playbook. This integration approach requires the ability to interpret in real time what is happening, the recognition that every situation is different and the know-how to make decisions quickly, adapting to realities "on the field" as they evolve. It also requires executives who understand how to apply the new approach and bring the necessary training, frameworks, methodologies and decision making to bear.

Digital media and technology companies that run the hurry-up offense in their acquisition integrations typically focus on six key success factors. This helps avoid the most common integration pitfalls, such as founder disempowerment and ambiguity over strategy, which can slow decision making and impair performance. These success factors include:

1. Effective digital media and technology acquirers invest significantly in up-front due diligence to clearly establish what is required to drive a positive fit between companies. For many serial digital acquirers, such as Google, due diligence is as much about evaluating the "soft" factors (talent, quality of technology) that will drive acquisition success as the "hard" ones (valuation, synergies). At Google, in-depth discussions focus on understanding how "Nooglers" (new Google employees) will work alongside existing Google teams and evaluating whether acquired companies and their founders have coherent strategic visions that can align and coexist with Google's acquisition objectives.

2. These winning companies use speed as a strategic advantage, employing rapid decision making through frequent informal huddles to share learning and call the next play. They work from a dynamic plan, prioritizing and reprioritizing based on new knowledge and insights -- an adaptive process that accelerates integration. They use tools that are functional rather than "pretty" (such as Excel and Word documents and Google Docs, as opposed to PowerPoint) to collaborate and communicate. And perhaps most important, they make active -- even daily -- use of the 80-20 rule to focus their analyses and integration activities on the areas that matter most.

3. Successful digital acquisition practitioners preserve the acquired operating model, or at least, they don't "break" it. This often involves paying special attention to and providing support for employees of the acquired company (perhaps via an executive sponsor who can act as a guide for operating in the new environment). They may also create a specific plan for transitioning the acquired operating model that details its key features, the intent for each feature within the combined companies and the steps by which the features will be implemented. Or they design the integrated organization specifically to support the strategic objectives for the acquisition.

4. These companies ensure that informal factors that contributed to the acquired company's success are not lost. This requires a recognition that the "soft stuff" involving culture really matters. Talent in the acquired company can see the acquisition as not only a validation but also an exit opportunity, and may envision that ownership by a larger entity means bureaucracy, low growth and slowness. To combat this perception, successful acquirers identify the key drivers of the acquired culture and protect it during integration by organizing a team charged specifically with managing the cultural integration. This team can be responsible for undertaking qualitative evaluations by which they compare cultures, confirm a new vision and develop action plans to resolve issues or harmonize cultural differences.

5. Successful digital acquisition practitioners demonstrate integration success externally to markets. One way this can be done is to identify a short list of internal and external "proof points" that enable acquirers to build morale and prove integration success when these milestones are achieved. A well-executed proof point campaign spreads them out, achieving them at regular intervals to sustain the momentum and excitement of the acquisition.

6. These companies retain, and intelligently deploy, acquired talent. Executives implementing this new approach to digital integration know that retaining the right talent is critical. This may seem like a self-evident success factor, but it is surprising how many digital acquirers are not able to retain key leadership. Yahoo! Inc., for instance, unfortunately developed a reputation for its inability to create environments in which "acquired" executives felt comfortable or secure (see Flickr or Delicious). The implication is that it is critical to have a short-term talent plan that identifies key players and lays out a strategy to keep them.

The relentless pace of change and the high stakes for success emphasize the need for a truly different approach to integrations for digital media and technology companies. While the reasons to pursue such acquisitions should be rooted, as always, in capabilities enhancement, more is required to capture premium returns today. Executives must understand the need for speed in integration and the importance of moving quickly and precisely in preserving the unique aspect of the acquired company's model that made the deal attractive in the first place. Those who remain convinced that the traditional, slow and overly deliberate approach to post-acquisition integration is best will risk "breaking" the acquisition or innovating too slowly to win in the market. And if that is to be the result, they may as well stay on the sidelines.

Christopher Vollmer is a partner at Booz & Co. and leads the firm's global media and entertainment practice. Greg Springs is a principal in its global media and entertainment practice. Harry Hawkes is a partner and leads the firm's global operations and performance improvement practice for the media and entertainment industries.

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A new playbook for digital acquisition integration

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