A critical element of our strategy as investment partners is to help the companies in our portfolio grow through strategic , add-on acquisition. Add-on acquisitions can bring many opportunities for a business to grow from additional product or service offerings, access to new markets, stronger market positioning, valuable economies of scale, more efficient utilization of capital assets, , and more. In order to realize these benefits, the acquiring business and the acquired company need to integrate.
“Integration” is combining two organizations to leverage people, process, markets, assets, technology, and more to generate more value together than they did separately. Essentially, Integration is the work to make the whole greater than the sum of its parts.
Integration can be difficult. Even when the two companies are well aligned, have strong recognition of one another’s strengths and shortcomings, and share a vision of a combined go-to-market strategy, , integration can be challenging. Integration brings together two companies that often do things differently, have different cultures, operate different processes and systems, manage customers differently, organize roles and responsibilities differently. Integration also commonly means bringing together owners and founders of two successful businesses with great track records who are accustomed to running their business independently.
The good news is the integration road is well traveled. Lessons of critical priorities and best practices are known. We bring deep experience partnering with management teams through the integration process to successfully realize strategic and financial rewards of growth. Our integration approach leverages a playbook developed through experience and customized to founder and/or management-owned businesses. Business owners who partner with Heartwood Partners benefit from this tailored approach. Key priorities of our integration playbook include:
- Strategic Alignment
- Collaborative Planning
- Integration Competency
Strategic Alignment – Strategic alignment is the driving force behind add-on acquisitions. The purpose of the acquisition is to create growth opportunities for both the acquiring platform business as well as the acquired target. The strategic plan is front and center in our integration playbook. We evaluate many questions and design considerations through the lens of the strategy that originally brought the businesses together. We begin with the go-to-market strategy to map the value proposition each company brings to the combined business. We then organize integration priorities to support this mutual value proposition. It is simple in concept, but implementing it in a manner that leverages joint strengths without burdening the business with unfavorable headwinds is honed tradecraft.
Communication – Growing through acquisition induces change in many aspects of a business, especially for small and medium sized companies. It is even more impactful in founder-led businesses where there has been a long history of independent operations. In this environment an acquisition can be overwhelming. We help our owner-partners and their teams manage through proactive and transparent communication. Before a deal closes, we actively engage stakeholders on all sides to build communication plans addressing concerns and constituents. The plan includes near-term, medium-term, and long-term communication with employees, customers, suppliers, and other important business partners. Communication priorities address the exciting opportunities that come with growth as well as challenging topics likely to create anxiety. Transparent and recurring communication relieves stress and builds alignment. Another important benefit is that the work to develop the communication plan requires detail vetting of the integration strategy and teamwork among the leaders across both companies. It enables early identification and resolution of issues, fostering strong working relationships that will be a significant benefit as the team faces challenges throughout the integration process.
Collaborative Planning – When two companies come together through acquisition many things can get in the way of achieving the original strategy. In the end, the most significant factor of whether integration is successful or not comes down to how well the leaders and teams of both companies work together. Teams can overcome drastic differences in culture, strategy, organization, and business process if the leaders are able to work effectively with one another. Our integration playbook emphasizes the importance of collaboration across companies and teams early in the process. An example is our playbook itself. The playbook is employed as a framework outlining key areas of focus, but it does not prescribe outcomes or actions. Instead, we engage with the leadership team in both companies, reviewing the integration framework and work side by side to build the detailed integration plans, phasing, and responsibilities together. In this way, creating the plan is one of the first steps in collaboration. The plan is the team’s plan, not Heartwood Partners’ plan. Ownership of the plan and the outcomes is with the team. Each team member is accountable for his/her commitments to the plan. This teamwork and accountability to one another is the basis for collaborative success as the team works through difficulties along the way.
Integration Competency – Legacy is critically important to Heartwood Partners. One of our most important legacies is the success of our companies long after they successfully exit the Heartwood portfolio. Among the many investments we make towards the long-term success of our companies, one of the most important is helping the senior management team develop the ability to manage acquisition integrations as a core competency. It is very common that leaders of our companies have little or no experience managing large-scale change programs such as acquisition. A central theme of our playbook is to support and empower the management team to learn and lead the integration process. Developing integration management as a core competency is valuable to Heartwood as the team may need to succeed with multiple integrations during our ownership period. Equally, the demonstrated capability of the management team to successfully lead integration contributes to exit valuation and creates leadership opportunities in the future. Our goal is for leaders of our companies to become self-sufficient in managing large, complex business integrations while we work with them.
We keep these principles and priorities as top integration best practices. Doing this is a critical part of our partnership with management teams. Successful integration means the companies achieved strategic and tactical benefits together that neither could have achieved separately. The combined enterprise strengthens returns and enhances value at exit, driving significant shareholder value.