How Integration Debt, Cultural Friction, and Communication Failures Kill M&A Deals

0:00If you're on the buy side, you already know most M &A tools aren't built for you. They're built for sellers, and it shows. That's why we built Dealroom. It's the number one platform for buyer-led M &A, designed to help you lead the deal from pipeline to diligence to integration without the chaos. You get real-time project management, AI-powered contract review, templated Dealrooms, and live collaboration all in one place. no bouncing between tools, no duct tape workarounds, and definitely no hidden fees. If you're serious about executing smarter, check it out at dealroom.net. Now back to the episode.

0:51I'm Kisan Patel, and you're listening to M &A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M &A deals.

1:15Hello, M &A scientists. Welcome to the M &A Science Podcast. This show is part of our mission to rethink how M &A is done and build the operating standard for buy-side M &A. That old school seller-led approach, that era is over. Buyer-led M &A is all about strategy, alignment, and execution, putting value creation at the center of every deal. And let's be real, it's not just about closing the deal, it's about making it successful. And we get there by learning directly from the best. If you want to go deeper into the framework, grab my book, Buyer-led M &A. If you want the full system, frameworks, templates, exclusive content, expert Q &A sessions, access to me and the AI-powered intelligence hub, Join the M &A Science membership at mascience.com.

2:02It's the home of Bayer Lead M &A. While you're there, make sure to sign up for our free newsletter. Lead the deal. Own the outcome. Let's jump in. I'm your host, Kisan Patel, Chief Scientist at M &A Science. Today, I'm joined by Danara Jaginyan of Transformation and Integration Leader with deep experience in public and PE-backed environments. She's led diligence, post-close integration, TSA execution, and enterprise system implementations across healthcare, SaaS, professional services, and financial services. She's one of the rare operators who's actually done the work, not just governance on a slide, but real integration, real TSAs, and real change management in the trenches.

2:45Today we're going to talk about all things it takes to make a deal truly successful, from integration planning, through execution, TSAs, change management, and more. This episode is part two of our conversation from last episode. If you missed part one, I recommend giving that a listen first. Otherwise, let's pick it up right where we left off. When people say integration debt tracker, what is it and why do they have it? Integrations accumulate debt and not everything being integrated within 30 days. A similar concept is like technical debt? Yeah, it can be the same. Sometimes you come up with the interim processes that cannot be fully achieved to the target state without the cross-functional dependencies, the system being set up, employees being hired.

3:35So for the functional leads to not come to the program level reporting all the time, if they think they have achieved significant progress, it is more business as usual, and there is one or two long tail harmonization or integration items still remaining, you give the liberty of, okay, functional integration is complete with the caveat of one or two items. You hop on a call, you document it, and you assign owner, you assign timeline dependencies. It's a tool to make sure it is not forgotten. Because once you close the integration or six months after or a year after, It's not an active topic. It is easy to get lost.

4:20So these are the long tail items that, hey, this didn't get done in the 90 days or it's going to take longer. And you're tracking that so somebody else can take ownership of it. Somebody else or they still have the ownership assigned, but it's a long tail. Sometimes it can be you have to create a new policy in order to actually integrate this item. So in the big organizations, it's not that they exercise to draft and get the policies approved. And there is transformation or enterprise activities need to be happening for the integration to be complete. Yeah, integration debt. Yes. Oh, beautiful long lists.

5:00We tried to keep it short, but... We talked about change management before and you did some stuff around that. You like learn some stuff, implemented some stuff, saw how it worked and didn't work. Talk to me about it. There is organization level and how you implement, right? I did a leadership certification at Cornell University for like six months. It was very helpful. And seeing M &As from both buyer and the seller side, It just truly bridges the gap as an IMO leader to account all the activities that are happening in part of the integration. So integration is the how, is the what is happening to the employees.

5:43But change management is how they experience the integration. When you talk about change management, it can be organization level restructuring, coming up with new policies. but in the integration lenses, it's multiple layers. How do you bring in employees? How do you change behavior before you change the processes? How do you make sure you adapt to their processes sometimes? How do you make sure that they adapt your processes? There is cultural components to it as well. So it's making sure you account for the how, you understand the gaps, to understand what roles or responsibilities are changing.

6:26It's a big exercise of not just integrating. You're going to have to spend some time and convince me this is a bunch of fluffy crap. Now, I'll start with going back to the culture piece. Because I feel that comes up so much with integration. In the beginning, it was probably the scapegoat. Like integration failed because the cultures didn't align and that we shouldn't have bought this company, blah, blah, scapegoat. And then I feel like things are evolving. I mean, here's this old school, you buy a company and just like, they're going to figure it out and make their own culture unique. That's old school corporate guy.

6:58And then you have this more progressive approach where we want to understand their culture so we can tailor our integration based on the uniqueness of each culture. Like some departments will integrate fully nicely. Some maybe not. They like have different operating models and styles and leadership that maybe should partially or keep them separate. I've seen that. And then I've seen some where it's more of the culture is the strategy. We're proactively trying to change our culture into the fitting of how we operate. I want to start there because I feel like the change management comes up and people will have a different view of how that comes in play.

7:34But I want to understand how does that intersect with the perspective and actions you take against the cultural part of the organizations. But then maybe you can convince me that change management is the thing and that it actually like facilitates. Look at change management as a framework. It sits on top of the integration. Like being agile. It's like, how do you operate? It's the how, the experience. Okay. I can get with agile. Exactly. It is the same. And I 100 % agree. Most of the integrations fail, not just because of tools and processes. They fail because of the people. But it happens. Most of the cases, you buy a company and we're going to make you professional.

8:16We're going to show you how integration is. That company has been operating for a while. With the change management, you understand who are the key drivers on the seller side, on the company that you acquired. What are the key processes? Who are the people who are doing those processes? What are the gaps? Sometimes you take over, but sometimes you bring in as well. Are the people ready to assume it? It's not just the headcount or like the bandwidth. Are they trained? Do they know what they are taking over? Do they need to be informed? There's so many layers to it. So you do an assessment. Coming to your point, buyer-led M &A, right?

8:57Buyer-led, baby. 100%. As a buyer, you want to make sure that they feel the integrity. They are part of the integration plannings. Because if you do not get there by aim, you have to work with them to integrate. You have to work with them to give you all the information. You have to work with them to draft up materials and all the documents that you need to import to your systems. So it's the experience of how you talk to people, how you do the assessment, their gaps, and then what do they need to be successful. Is this a work stream? No. Can be. Depends. Integration. I'm failing that answer. Legal will love that.

9:44It depends. But usually change management sits in the HR department, but that's if you are doing organizational change. In the M &A context, it's more of a framework that has a functional lead on the technology side. When there's like a transformation function, is that sort of aka change management? No. No? Transformation can look differently. we've seen where we were a SaaS company bringing professional services. That's where you do transformation of how you recognize revenue, how do you transform your ERP systems, how do you train your new teams, how to do that. It's a massive initiative. It's a transformation.

10:28It's a tool. That's the conflict where... That's where you see like how IMO and transformation could intersect. Yes. But sometimes they're overlapping or repurposed, I guess. It is. That's where sometimes the harmonization exercises happen as well. So I've seen, and there's the conflict when you talk, for example, to HR, is it an integration activity or it's a harmonization exercise, business as usual? If you look at it, it's still integration because you bring in five countries into your tent and now you have to integrate to one benefits package, right? Sometimes you leave it as is, countries can drive some decision making, But the ideal goal is to have as minimal packages as possible.

11:12So yes, employees, day one or after acquisition, they have benefits. But it doesn't mean the integration is done because you have to harmonize your benefit packages in Spain where you have five entities. That's where the transformation, harmonization and integration bubbles intersect. Okay, let's go back to this change range. I want you to convince me on this. Let's say I'm buying a company, first time doing an acquisition, and I'm just like telling you, hey, my friend told me to talk to you. I'm going to go do this acquisition. Teach me, how would you get me to start thinking about change management?

11:50I can probably even say I got a little bit of uncertainty with how this founder is going to fit into the company and stuff like that. Teach me, how would you get me to implement change management as a framework? There's multiple surveys that you can do at the earlier stages. For example, how formal the communication channels are, what are the dynamics of founder and employee-based conversations, what are the channels they use. Sometimes like in the technology firms, dev teams, just the Slack, they have multiple communication channels. But some of... This is like what you do in cultural diligence.

12:23Of course. That's the driver of the change management. You are trying to understand how they operate. Are they truly prone to keeping systems or have an experience of introducing a new system and they were okay with, yes, it's a better process. So you can do surveys. You can capture it from the conversations as well. Sometimes it's the micro behaviors that you identify that come out during the diligence as well. Is that the biggest thing I'm trying to address when I think of change management is avoiding points of friction or identifying points of friction? Of course. Yeah. It's not just completing all integration is done.

13:02You have to make sure people adopt that. The goal of change management is to figure out where there's going to be friction. Some people are pretty amenable to change. Some people are not. And is a goal of framework that you're identifying where there's friction and then being proactive to overcome it? Or is it more of like just an end-to-end framework that we're really pushing a change on all front? Combination. It's a change that you are pushing up front. But how are you going to change that? And trying to be proactive. What would be the unknowns? What would be the resentment that you will receive?

13:35So essentially you got to be agile in this framework. Of course. Okay. You know, what's interesting on the change management is the change agents that I've learned in a hard way. Sometimes you think that, oh, you're ready to roll out and you do mass announcement and that's where it happens. But sometimes top-down communication is more important where for mass announcement, you find the manager from one team or like higher up to have enough influence. And you try to teach them or just walk them through why we're doing it. So for example... These are like the neighborhood mayors where they... Of course.

14:13But imagine if I'm coming to your team as like, hey, we are going to change your expense management system. People are used to it. they're using for many years, but it's not just what you've been doing manually, let's assume. But if you have as a manager, you can tell your teams, look, instead of three weeks, now I can approve your expenses within three days. It resonates with the people more. So it's levels up communications and making sure they are unable. Sometimes coming back, it's not just integration, it's how you enable them to adopt. Whether it's the trainings, It's the guides, it's the tools that you give along with it.

14:53And making sure that that's also receiving back the feedback. It's not only change management on the feedback side, but you have to make sure that you hear it's two ways communication. Being convinced yet. I'm getting there. To me, it's like being pragmatic about the change in an adaptive way. You're accepting change isn't easy. And you're actually putting more of a pragmatic effort to really like have extra assurance that you're supporting change by learning these variables, bringing out the key change agents and being able to like make that part of your strategy in integration. Yeah. Usually people don't really resent the change.

15:41They resent the uncertainty. So when you go out and you're like, we have to use this process, we have to do this now. Without the why, it's really hard. Or if you don't really communicate for a while, that's where it's part of the change management of what is going to change. and then do layer up of how many communication do I need. Usually you have to communicate up to seven times for the communication to reach to the end user. It's the entire framework of being proactive, knowing what's going to come and building up around it, whether it's through materials, it's through meetings. Sometimes it's also the major enablement as well.

16:24It's again, change management to make sure you were company A, now you are under the company B and there's multiple systems. Do the managers know what are all the systems? And as an IMO, you help the managers drive the change by saying, yes, this is two systems that we are doing, but the end system is going to be B because all those questions are going to come up. And again, it's tying up to the documentation and making sure that teams are unable to receive the change when it happens. Are there tools you use to facilitate this? something like meetings are part of. For the change management? Yeah.

17:01There is change impact assessment, training needs, templates. There's so many that you can use. I love playbooks. I love templates, but it is hard to use one for all. You can get the framework, but you have to customize to your needs. It sounds like it's a lot of things that could be big variables that come up that you almost need to address them specifically. If it's the benefit change example, like, hey, this is actually, we identified this is going to be a change and it's not going to be received positively. Like we're going to have to get ahead of that. We have to really figure out a plan to communicate it and elaborate the why and get people comfortable with it.

17:41Yes. Usually that would sit on the functional level, but the question would be the function to ask those questions. How are people going to react to it? Are you ready to provide materials? It doesn't have to be materials or referential links. Sometimes it's the geographics driving some politics. We will help definitely the functions come together by asking the right questions, bringing up the themes and the audiences. But there is no standard template for one size fits all. I'm starting to get it. You mentioned that U.S. work standards don't always translate globally. You learned this firsthand.

18:22Can you tell me a little bit about it? Yes, with the mindset having replying emails by end of day or answering, if it's critical, answering after working hours or the U.S. work dynamics versus Europe or Middle East, Eastern side of the world where they, yes, work is professional, but taking the lunch break is important. and taking the vacation as a vacation is very important. You learn that while working on the actual projects where you firsthand expect that it's a US, HQ is in US and they have to operate that way versus it takes layers of approval on their site before they reply back. It takes over the weekend to reply back.

19:11You just go to adapt to it, understand that not everyone works. As much as it's U.S. working culture, it's the same as European or Middle East. You just adapt to it. It's selfish working relationships. Culture can get more challenging on cross-border deals. Have you experienced that? Yes, in a hard way. Sometimes geographics drive how people operate, how decision-making is done. I had an experience in a TSA, again, in the Middle East, where we had to transition payroll and benefit services for employees. And believe it or not, many months into the TSA, it wasn't just moving forward. As an IMO, we were working with HR directly and they were handling the relationship.

20:05But at some point it got escalated to that we have no extensions anymore and we have to exit it. And that's where I almost stepped in. But in some of the countries, there is hierarchy. There is role-based and sex-based decision-making that has been influential. And as a woman going to conversations with a group of men, it was interesting dynamics trying to, yes, try to speak legally or drive conversations per the contract terms. and you see how yes, contractors, of course, there, but that's not the main decision driver because they have to make sure they talk to one specific person in order to release some people from the payrolls.

21:05So it's just interesting situation handling, I would say. So they want to take direction from you because you're a woman? That as well. It had to be escalated to my manager and it was interesting conversations. An email that I would send like multiple times wasn't being replied on. And then whether it's a title conversation, whether it was a woman, but my manager emailed and within a day it was like, sure, we'll do that. Okay, this is pretty extreme of some culture challenges. Yeah, that was interesting. What about on the other end? You had cross-forward deals go well. Of course. Oh, interesting.

21:49Most of the cases they do. If you build a relationship, you have the respect for sure. That's one of the key aspects that we had as part of the IMO is making sure you connect with the parties and you connect the functional heads from the founder and the seller side as well. But what I would usually do is take a time to learn them. learn about them learn what they do and learn about their pain points and that's it not just fix it not just day one i'm gonna change this you just hear it around that interesting story that happened was one of the people from the acquired company they were in western europe they saw my last name and they're like are you from armenia and after confirmation they said that they were in Armenia at specific year.

22:40And they went to the university that I was in the same time where I was at school. So it was a nice bonding moment where we started like engaging around it. And I started like getting to like asking where they were. After that, I felt like the relationship, the working relationship was so smooth. So sometimes it's the human component that comes into the play of, it's not just work. Yes, I hear you. And then I need this. I'll get this done for you. You're hitting on a good point is around trust. I mean, do you feel you got to really meet people in person to sort of find those? You could do it on a Zoom call, but it's not the same.

23:19It's definitely in-person is the best. It's no layers. You get the emotions. You get hands-on experience. But we live in a digital world and not all the teams have the opportunity to travel and meet the peers in person. If you can do it in person, that's great. Do you have an approach where you're proactively trying to build trust, where you're asking them where they went to school, how many kids you got, and where they grew up? It's truly curiosity in me that building relationship is the best thing to get work done. And I don't do that with that being in mind. I just genuinely am interested what works for them.

23:56How did they land on their position? What has been their journey? And it just genuinely comes to like, how about you? How did you land in the IMO? you just build the trust by similarities, by pain points and the challenges that you had. And I've seen the relationships come into play where you have to do things and people have many things on their plate, but they'll tell that I'll get this done. Because at the same time, it's the trust that they know if they have roadblocks, they have other priorities. as an IMO leader, it's critical. We need to put a pause for a day or two for this team not having the bandwidth.

24:42They have to do this, but you have to trust they'll come back to it and within a week it will be executed. It's again coming to the work relationships. Where do you see like friction actually coming up? In the deal. Yeah. It's always good before LOI. Of course. That's the fun part. A lot of fun excitement there, but then... It depends. on how well you communicate. There's unknown unknowns and you don't know until you close the deal. But from the leadership side, you want everything to be perfect when you communicate to employees. But from the employee side, like bottoms up, you don't really care about the end goal.

25:21You just worry about the uncertainty where it comes. And yes, you are acquired. Yes, you know you're going to be integrated, but communicate to me. That's where the friction happens, where sometimes leadership pauses when they think communication, if they don't speak or they don't have right answers, it's better to be silent versus no, it's just not certain. So you get a read on this pretty early. Yes. Because I'm thinking of a deal where the other executive is such a PIA on doing just initial, like first pass of diligence. Like just to get the first pass of diligence, it was such a hard thing.

26:00And I could tell. We didn't move forward with that deal. But that would have been... Look, we want the integration to be successful on both like execution side and the leadership side as well. And everyone understands, yes, there's a limitation how much you can expand on the team. But you want to integrate it. And for the leaders, it's the product... Is it all communication? If I were to ask you as an operator, what makes deals successful post-close? Is it all about communication? What else? What would you say? It depends. Bottom line. No. No, it can be a legal, it depends answer. It's two-sided.

26:35So for the leaders, quick integration. First sold product. That's how you would look at it. First sold product, like jointly. Of course, like integrated product line already. Branded one. Actually, that's the right metric. Like first sold product. Of course. It's the first deal. Yeah, whatever gets the revenue metrics. But for the functional side as the operator, it's a bit different because you see not all the companies have the manpower of bringing just M &A people to do just the deal. Usually it's the people who do their daily jobs on top of you bringing an M &A. And you see the bandwidth. You see the struggle.

27:19For me, it's successful when we advise both sides. Yes, this is important. What's the earliest we can do? but also what's the healthiest way that we can do so the burnout doesn't happen. Attrition doesn't happen. You want to maintain the knowledge. You want to maintain the people, but in the right way. That's tying back to the day one controls. Not everyone likes, like things happen that people leave, uncertainty, so many things. And you want to make sure you have the right controls before friction happens. What are the biggest things that go wrong in integration? All the beautiful plans that you lay out for 30 days, 90 days, they shift.