Cracking the Code: Managing Post-Acquisition Integration Effectively

Executive Summary

It is important to define the objectives of an acquisition before diving into the procedures. This is really the true north of any merger, defining its guiding principles.
In buying L&T’s E&A division, Schneider’s main objectives were to gain market share, establish a manufacturing hub and attain operational efficiency.
Successful post-acquisition integration rests on several pillars:

Ensuring business continuity.
Building oversight for performance management and delegation of authority to ensure the functional integration of processes.
Setting benchmarks and creating synergies by assigning clear detailed targets.
Identifying differences in the systems and processes used by the two entities and laying out a plan to integrate them.
Working towards cultural integration.

Study after study of merged businesses reveals a dismal record in terms of achieving the projected benefits. A primary reason is the failure of the acquiring company to implement integration processes that can manage the clash of two competing cultures. At a recent India CFO Forum session in Chennai, Sugata Sircar, Executive Director Finance & Group CFO, Azure Power decoded the elements of an effective post-acquisition integration process, some of the best practices to apply and pitfalls to avoid, using the real-life example of Schneider Electric’s acquisition of L&T’s E&A division.

What The Acquisition Sought To Achieve…

Before diving into procedures, it is vital to define the objectives of any acquisition. This is really the true north of any asset purchase, and the guiding factor determining the market/delivery strategy in terms of people, production, etc. For Schneider, there were three main objectives in acquiring the business:

Market: Schneider would get additional grid access access across India and certain parts of Taiwan, increasing its market spread. 
Manufacturing: To establish India as the fourth global hub for Schneider, and allowing it to cater to a growing Indian market. 
Operational efficiency: The expected revenue and cost synergies were projected to generate Rs 300 crores a year.

...And How It Was Rolled Out

Ensuring business continuity

This is a critical aspect of any integration process. To facilitate a seamless transition, extensive work was undertaken to shift the financial processes to Schneider’s name. This operational work involved meticulous planning, coordination, and continuous efforts leading up to the go-live date.

Synchronising systems and processes…

Schneider and L&T had very different performance measurement processes: while Schneider used percentages (sales growth, new product introduction percentage, gross margin percentage, etc.), L&T used absolute values. Both approaches were merged for reporting purposes. The delegation of authority also varied, with L&T granting greater authority to regional sales teams in terms of pricing and discounts. This prompted Schneider to simplify its own structures and empower its sales teams. Finally, there were challenges in integrating the different versions of SAP used by the two entities. Instead of a full merger of systems, the focus was on consolidating financial reporting. The decision of whether to finally merge the two systems was deferred by a year.

…and building synergies

Through detailed target-setting, leader-driven workshops and using benchmarks from consultants, the new entity aimed to create synergies across its supply chain, sales and marketing, and export units. A stage-wise approach was adopted to document initiatives, from ideation to contract signing and achievement, with a focus on reflecting these synergies in the P&L statement. Synergies were discovered through price-stability analysis and data-driven insights into discounting patterns. High-performing product lines were identified where sales would be unaffected if discounts were reduced or eliminated. This allowed for higher average sales prices. Additionally, the combined entity’s strong market presence facilitated volume stabilisation, contributing to the realisation of revenue synergies.

Managing cultural differences

To ease cultural differences, a consultant was brought it to guide and work with both teams. L&T employees were initially concerned about Schneider’s practice of using data extensively. However, these and other acquisition-related concerns started to ease when the acquiring team made it clear that they would continue to respect L&T’s unique strengths and values. Ultimately, this helped provide a strong internal justification for the merger. Additionally, significant efforts were made to incentivise leaders from L&T, fostering their integration into the Schneider system and providing them with exposure to the wider global team. As a result, they started to feel a sense of belonging and realised they were integral parts of a dynamic global organisation.