Budgeting Integration

Find out how to effectively determine integration cost. Avoid and prepare for often overlooked costs and integrate the target company properly.

Play by

Galina Wolinetz

Managing Director at Virtas Partners

About the play

This play is designed to prepare for the costs of integration that many overlook.

Preparation

Aside from the strategic rationale that the business development team has developed as to why they would like to do a certain transaction, they need to make financial sense out of it.

Oftentimes, teams are too focused on the synergies, that they have forgotten there is a cost to achieving those synergies and integrating the target company properly.

Use this play to properly assess your potential integration cost. Execute this play towards the end of due diligence after you have gathered enough information about the target company. The integration cost model is an intricate part of the business case and should not be overlooked.

You need to consider all the post-close integration issues which are broken down into two categories; one-time costs and recurring costs.

People

Finance, integration lead, deal sponsor, HR

Difficulty

Medium

Materials

Team collaboration, creativity, math skills

Time

7 days

Running the Play:

Brainstorming

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As you approach the end of due diligence and have gathered enough information about the complexity of the target company, it’s time to plan your integration cost model. Work closely with HR, Finance, all other functions, and the deal sponsor to gather potential integration costs.

One Time Costs

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One of the very first costs that you should consider is the one-time costs. These are typically the costs necessary to fully integrate the target into your organization, but will only take place once and are not intended to be ongoing costs post-close.

External support for the integration
Day one events
Upgrades to the target company to bring to your standards
Miscellaneous

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Recurring Costs

These are the ongoing additional costs that you will incur to maintain the acquired business.

IT
HR
Real Estate
Others as appropriate

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Finalizing

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As you come up with the projected integration cost model, compare it to your synergy model so you can assess if the deal itself is still viable after incorporating all the costs.