Navigating corporate integration program: Building a baseline

Today's dynamic business landscape, mergers and acquisitions (M&A) have become a common strategy for financial services companies seeking growth, expansion, and increased market share. While these transactions can offer significant benefits, they also present considerable challenges, particularly when it comes to realising the benefits of acquisition through integration.

This article examines the complexities of aggregation and integration programs in the Australian financial services industry. We'll explore the key considerations and methodologies that we employ, offering valuable insights for businesses contemplating similar ventures.

Understanding the Existing Ecosystem – the baseline

In our experience, there is an inherent tension of focus between deal teams on either side of the transaction.  For the Target, that focus is on satisfaction of the minimum requirements for conditions precedent, minimising potential downstream liability and ensuring that separation management plan commitments can be kept to a minimum (time, effort and cost).  For the Acquirer, the focus is generally on de-risking integration, by crafting a transitional service agreement (TSA) and separation plan that created maximum flexibility (including around separation duration). 

On any transaction we act on, we work hard to build good relationships with both parties.  Generally, we advise both parties on the merits of understanding that a successful separation and integration program relies on building a stronger understanding of the baseline of the Target (the “throw”) and the Acquirer (the “catch”). 

Building a strong baseline involves:

· Knowing the Perimeters’ ‘jagged’ edge and how to effectively manage it.  Whilst most deal teams work to map corporate structures and perimeters (people, process and technology), developing a thorough understanding of the interdependencies across the perimeter (the jagged edge) and implementing effective strategies to address those interdependencies is often a secondary consideration (often left to TSAs and reverse TSAs).  This means helping the client understand the jagged edge, the risks and helping them triage each risk to define an appropriate strategy through the separation and integration program.   Addressing this early in the program reduces the reliance on TSAs and reverse TSAs, creating a faster path to integration and value realisation. 

· Understanding organisational maturity – people, process and technology. Development of effective strategies to manage the perimeter only comes with a thorough understanding of the maturity of people, processes and technology that represent it.   Due diligence (prior to signing) provides a limited time-boxed window to undertake that work.  So, when acting for the Acquirer we seek to build on the due diligence work by mapping an organisational maturity matrix and target state blueprints, supported through a series of delivered risk and business readiness assessments throughout the program.  That work not only helps develop effective perimeter strategies, it supports organisations to prioritise the separation work ahead, de-risking integration.

· Baselining the regulatory and risk environment. In a highly regulated environment, baselining the regulatory posture of the Target against key financial services regulators (APRA, ASIC and AUSTRAC) often proves critical.  Whilst historic regulatory issues are generally negotiated with liability ascribed to the seller, material regulatory issues can still create a drag on implementation of the acquirer’s strategic roadmap. 

For that reason (when acting for the Acquirer) we work closely with the Target to ensure a clean handover of regulatory matters, with early engagement of key regulators to ensure alignment of expectations.  The maturity mapping work also supports an understanding of regulatory risks for mitigation.

· Assessing baseline capacity and capability to execute. Evaluating internal and external capabilities and capacity across various functions (business, delivery, technology, risk, legal) is also critical to determine future resourcing needs for the program.

Of course, developing a strong baseline of the current state (before you start) is only the first step to navigating a successful corporate aggregation and integration. 

In our next article, we explore the key considerations for program planning to ensure successful execution of aggregation and integration.

Reach out if you’d like to discuss how we can help baseline, plan and execute your next corporate integration, separation or integration.