Acquiring a high performing and dissimilar business?

An integration strategy that identifies key differences between buyer and target can help capture deal value and sustain growth.

John R. Arp

John R. Arp

Director Advisory, Strategy - TE, KPMG US

+1 919-664-7165

Strategics and PE buyers had a big year in the chemicals business in 2021, and there is no sign that things will slow down substantially in 2022. But, as some may already be discovering, while buying is easy, the path to success can be difficult—particularly when buyers are venturing beyond their core to acquire a faster-growth or more profitable asset (for example, a commodity player purchasing a specialty chemicals business).

Buyers should not underestimate the effort needed to integrate a business that may have fundamentally different ways of going to market and serving customers. A critical first step for buyers, then, is to fully recognize the differences between themselves and the companies they acquire. Failing to address this in the integration process can erode deal value.

And there is no time to waste: competitors will be most aggressive right after a deal is completed, hoping to take advantage of business disruptions. Successful buyers rapidly learn what their new acquisition does well, and what key value levers need to be protected. It helps to view the commercial teams of acquired businesses as partners from the onset, jointly exploring near-term value opportunities, developing integration models that minimize disruption to customers, executing on quick win revenue synergies, and cutting off avenues of approach from competitors. Maintaining customer-service levels also involves addressing differences in markets and business models.

By carefully studying how their respective R&D, customer-support, supply-chain, sales, and marketing functions can work together, the buyer and the acquired company can keep customers happy and generate new sales for the combined portfolio. This will serve as a basis for developing a new operating model during integration.

While there is urgency to address the differences that can derail integration, buyers need to maintain a longer view on their return on investment. The integration of dissimilar businesses takes time to ensure minimal business disruption and develop a winning operating model. A carefully considered integration strategy that recognizes key differences between buyer and target can capture deal value and help sustain growth in the years ahead.

An integration framed by differences

A publicly held, global flavor company recently acquired a small but fast-growing supplier of flavors that consistently delivered high margins. The buyer asked KPMG for advice on how to approach integration. We advised them that they should first conduct a side-by-side comparison to better understand the differences between the companies’ go-to-market and commercial strategies.

The acquired company had strong technical and applications competencies in selected end-use markets that were complementary to those of the buyer. The target continually sought out small but rapidly growing customers. Its decision-making was highly efficient, typically involving a single conversation. The acquirer, by contrast, had succeeded by carefully cultivating several long-term multinational accounts. The companies had different go-to-market approaches, and the acquired company had a much more sophisticated and tailored customer relationship management (CRM) system.

Recognizing these and other differences helped frame a successful integration. The integration team identified competencies, technologies, and processes needed in both markets. This led to a phased integration plan, consisting of an interim operating model to deliver quick wins, and an end-state design to deliver the full commercial value of both companies.

The interim operating model allowed each business to operate in areas consistent with their competencies, while working together for quick product cross-sale wins and customer continuity. The phased approach-built trust at the outset, and delivered key lessons for designing the end-state operating model.