Mastering M&A Integration

0:00This is a conversation with Seema Nimagada, Head of M &A Integration for North America at Woven by Toyota. She started out as a software developer and then transitioned to product management, which led her to product and technology integration in M &A. In this interview, she shares her experience on how to master M &A integrations. We talked about M &A integration planning pre-LOI, setting up an early version of the IMO, detailing the M &A integration strategy, and aligning deal goals with the integration strategy. This episode is brought to you by Firm Room. Searching for a data room that offers simplicity without compromise?

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1:37Hello, M &A scientists. Welcome to the M &A Science Podcast, where we learn from the best in M &A to uncover proven techniques for enterprise value creation. If you're interested in learning more about the products and services we developed to support world-class M &A teams, or want to get involved with the community of forward-thinking M &A practitioners, visit mascience.com. You can get started by subscribing to our free weekly newsletter for the latest insights and events. Again, that's mascience.com. I'm your host, Kisan Patel, CEO and founder of M &A Science. Joining me today is Seema Nimagada, head of M &A integration for North America at Woven by Toyota.

2:20Woven by Toyota is the mobility technology subsidiary of Toyota, creating and managing Toyota software for automated driving and safety. Today, we're going to talk about mastering business integrations in M &A. Seema, how are you doing today? I'm doing great. Really excited to be part of this podcast. Thanks for taking a break from doing massive integration projects to have a conversation with me. Could we kick things off a little bit about your background? I started at Woven more than two years back. I had, as you mentioned, the M &A integration for our North America region. Prior to Woven, I worked at KPMG, GDigital, Cisco.

2:59I've also worked at a few startups. That is where I'm at home at Woven because essentially we are like a startup acquiring and building business. I started my career as a software developer and then transitioned to product management and services management. So when I started working on M &A integrations, I started with product and technology integration, services integration. And then I had opportunities to lead integrations for some of the business enablement functions or back office functions like HR and legal and finance and IT. With my overall experience, I really enjoy leading the IMO here at Woven.

3:39We love engineers here at M &A Science. It just brings like a different skill set to the industry. I think after doing enough of these interviews, it's this whole problem-solving approach that you learn through an engineering background that you don't always get when you come up through finance. That's true. Could you tell us a little bit about Woven? A lot of people are familiar with Toyota, but a lot of people are familiar with what Toyota is up to with their Woven business unit. We are a fully-owned subsidiary of Toyota. Our focus is to create innovative mobility product, technology, and services.

4:08So one of the focuses, of course, is building the autonomous driving for Toyota. And our presence in North America is solely through acquisitions. So we started with the acquisition of Level 5, which was a division of Lyft. And we did a few more acquisitions in the U.S. and in the U.K. And the goal is to support Toyota to bring the mobility solutions to the world and to simplify. So the goal is mobility for all and safety for all. So that is the motto that we drive for Toyota. Not to mention you're building an autonomous city outside of Tokyo. Yes, Woven City is one of our initiatives where we plan to demonstrate our technologies.

4:48That city is built at the base of Fuji, which is like the North Star for all of us. It's going to be awesome to see that come together. Can you give us an overview of the typical integration process? So a lot of times you'll hear that integration, let's think about it once we close the deal. It is considered as an afterthought. That is where we see a lot of the deal failures because of that approach. I'm a very strong advocate of bringing in integration as early as possible in the deal lifecycle. So right when you are structuring the deal, building your deal strategy, that is the right time to bring in integration and start building your integration strategy in parallel.

5:30So as you are doing your early or confirmatory due diligence, the integration process should start. But you don't have to pull in the entire integration team, including all work streams or functions at that time. But depending on the type of the deal, you can pull in the key work stream leads into the picture. And as you go through the due diligence process after you sign the LOI, that is the time that you start pre-planning for your integration, build your integration roadmap. And that's, of course, a very iterative process. But if you get a good head start during that due diligence period, that is what will lead to a successful execution of that integration strategy.

6:15Once you close the deal, you can enhance your integration plan that you have put together and then increase the scope, pull in additional resources and additional functions into the mix and then execute on that integration strategy. The key is to have that integration process aligned with your deal lifecycle. This is the biggest theme that we're seeing in our industry, and it's only going to continue through 2024, is this emphasis on really planning integration well, so you can ultimately execute it well. Why is it important to think about integration capabilities even before finalizing a deal?

6:53They say that more than 70 % of the deals fail. That high failure rate can be directly attributed to integration that is not planned correctly. It is very important to think about your integration, as I mentioned before, as early as possible during the deal lifecycle. But in order to build your integration capabilities ahead of your deal is really critical. You may not have the luxury to have dedicated integration resources at your disposal. You have to leverage the leads from different functions. They will have their day jobs to do, and this is going to be an additional responsibility that they will have to take.

7:35If you have the time to do that planning beforehand, try to engage the right leads from each of the functions and prep them for the integration. If you have playbooks that you have built based on your prior experience, you can leverage that so that you can build that muscle in the company and build that culture for M &A in the team. so that once you have the deal in front of you, you've done your homework and you're ready to tackle that specific deal because every deal is unique. However you prepare, there are always going to be new situations, new problems that you have to solve. But at least if you have the base aligned, then you can take on those complexities of a specific deal based on your team that is already now familiar with the base integration process and the capabilities that are required to execute that kind of a deal.

8:32I'm under the impression that pre-LOI, there's really not a lot you can do with integration planning. I feel like you're just so limited on information and you're ultimately focused on building a business case that's going to get approved to do the deal. What are your thoughts on that? Is that my op? Is there stuff you can actually do? Is there certain things that you actually really push for? I totally agree that pre-LOI, you definitely have a lot of restrictions, but within the constraints, You can still bring in the right leads, make sure you can leverage the NDA so that you can keep the confidentiality and maintain the restrictions that you have.

9:07But I think it is really important to pull in the right leads. For example, if you're looking at, say, an acqui-hire, you definitely need to pull in your HR leads up front because then you can plan how you are going to build that strategy to retain that talent. If you are acquiring a new technology, then it is really important to bring in your product and technology leads, bring in your operations leads so that you can integrate and launch that new product as part of the integration. And so depending on the type of the deal, identify the critical works team leads or critical functional leads that you need.

9:44And then once you sign the LOI, bring them into the discussions, involve them into the due diligence and make sure you ask the right questions. And it is important to involve the right counterparts from the target too. Again, with NDA, you can definitely restrict the audience, but at the same time, you can make sure that you have the right people involved. so that you can gather the critical information, which is going to allow you to build your integration plan and integration strategy. Again, maintaining the tight alignment with the deal strategy. That is going to be the key. Okay, so it's not a whole comprehensive effort.

10:19I'm going to bring all the people in from integration pre-LOI, but identify key value driver, then I can get a sense of who's going to be critical to delivering on that value driver. And I ideally want to pull them in to start getting some validation or thinking as we put it together in LOI. Absolutely. Yeah. Okay, awesome. And then it sounds like the bulk of this stuff happens from LOI to close. Yes, I think bulk of your planning is going to happen during that phase as you do the delusions. And obviously, you'll always have the caveat that you cannot pull in each and every individual into the mix yet because you haven't closed the deal.

10:54But to the extent you will have your first versions of the integration strategy, define integration plan develop, and even you will have your work stream or functional plans, the draft version should be ready by then. You should have at least a good idea about how your target operating model is going to look post-close. You will have a good head start on those deliverables by close. And then definitely it will become an iterative process that once you do the detailed discovery after close, you will change certain things, your plans will evolve, and then your focus will change from day one to day 90, day 100, day 300, depending on the type of the deal, whatever horizon you are looking at for the integration completion, you can continue to enhance and recreate your planning after close.

11:44How do businesses ensure they have the resources and capabilities in place to successfully integrate a company? A lot of you may or may not have that luxury to have dedicated integration resources or capabilities in place. The best thing to do is when you have a downtime, say right now you don't have any active deals going on, or you don't have a very active pipeline, that time should be leveraged to build the capabilities and then identify resources in each of the functions, your HR, finance, legal, etc. And try to do some workshops, train the resources. If you have playbooks that you have built, try to leverage that to bring everyone up to speed.

12:29Based on the lessons learned from the past acquisitions, you can identify specific areas that you need to focus. You may have expertise in certain areas already in place, but then I'm just making it up. Your IT could be an area where you need to build more capabilities. So you can identify those gaps or areas that you need to focus for your organization and then start building that expertise. That is how you can make sure that when the next deal comes through, you have the right resources and you have the right capabilities to tackle that deal. You kind of have to do one deal to really learn some key lessons the hard way.

13:08And then you build off of that and start doing your retrospectives and say, okay, here's were the gaps. Here's things that we can really prep for. Then especially if that downtime, you can utilize that for some proactive preparation for the next deal. Absolutely. Is there a way to not get burnt on the first deal to get us started building out an integration program? It again depends on the maturity level of your organization for M &A. If you have done deals in some capacity in the previous life, then you are familiar with how the deal life cycle goes through and the pitfalls of integration. And you can plan not to have any burnout, but like Woven, where we didn't have that past expertise in all of our other functional areas, though it was a huge burnout after the integration.

13:56Being proactive and then planning ahead would be the key to avoid that burnout. And of course, taking advantage of advisors and resources like M &A Science, I think it's a great way to prep for the upcoming transactions, raise that level of maturity for the organization using these resources and tools that we can leverage. Say it before and I'll say it again. Your peer in M &A is your most valuable asset. When you get stumped, that's your group that's going to help you out. Let's help out the companies that are going to go through their first deal and try to help them avoid some of the big painful lessons here.

14:33Can we break down the major milestones slash steps in integration, particularly from the LOI to close stage? We definitely want to bring in the integration as early as possible in the deal lifecycle. What I have seen or what my personal preference is the integration management office, I think, is really the best to lead the overall due diligence process. because end of the day, it is running tight governance around the delusions, making sure that the integration management office has the right involvement and the right lead to lead that overall delusions process after the LOI. That becomes one of the key steps to make sure that we can have the right integration plan and strategy built.

15:17The first milestone would be to set up the first version of your IMO. As we discussed, you don't have to bring in all the functions, all the work streams into the mix. But depending on the type of the deal, bring in the key leads and start that IMO version before you sign the LOI. And then the second milestone would be to come up with your integration strategy, which is very tightly aligned with the deal strategy. The next milestone would be to build a high-level roadmap or a plan for integration. And again, it's going to be iterative. It's going to be enhanced, but having that starting version is really important.

15:54And the most important milestone is to socialize that integration strategy and integration plan with the key stakeholders, including your deal sponsor and all the functional executives and getting their buy-in, getting their commitment for the resources that you expect from respective functions. That is a key milestone. own. These are the things that you should focus from that phase once you sign LOI before you close. So first step is build out this early version of the IMO, your integration management office. You made an interesting point about the integration management should ideally lead due diligence.

16:34I'll come back to that with a question. And then from there, this is when you're defining the actual strategy of integration. And then you'll actually define the plan slash roadmap. And you're taking And this is a pretty iterative effort as you continue to gather information. And then you will socialize this with the key stakeholders, which includes a deal sponsor. Is that functional leads from both sides? At this stage, because this is pre-closed, you may or may not have that much visibility. But again, two in the box is the right way to go. And so if you can actually get some kind of commitment from the target side, that is awesome.

17:09That definitely will, first of all, make sure that the target feels involved in the overall integration process. And so you're going to get a lot more constructive response or participation from Target during the overall integration process. So I definitely would recommend involving stakeholders on the Target side as well. Can you explain briefly two in a box for those that don't know and people like me that don't remember? Typically, when you think about building your integration strategy and integration plan, it is the acquiring side which is doing that. But again, if you really want things to work, actually, it becomes instrumental to involve the target side.

17:48And so two in a box is your IMO has a counterpart from the target side. Your each work stream has a counterpart from the target side. And so you're putting the acquiring company and the target two in a box when you are building or designing your IMO. Thank you. The idea of the IMO leading due diligence. I'm curious your thoughts around structure. Because if you look at traditional structures, maybe super early, it's like you have one corp dev team and then integration becomes an afterthought. And then it finally becomes a real thought. And then all of a sudden, it's standing up a separate integration team.

18:20Then you end up with this whole knowledge chasm between diligence integration and then a bunch of other friction and misalignment on strategy and things like that happen. The idea of the IMO leading diligence makes a lot of sense because they'd get all this access to the information they really need to successfully execute integration. But the structure behind that is it's still two teams and you're just enabling the IMO team to run diligence? Or are we thinking of a structure that's more of a combined, essentially the integration people are within corporate development? How do you think about the structure of that overall?

18:53There are different scenarios that we can talk about. at Woven, integration is part of the CorpDev team. In my previous life, there have been cases where integration is outside of the CorpDev team as well. When you look from a deal's perspective, it is still one team. And in that sense, it really becomes very efficient if IMO takes lead into running the delusions process because essentially it is program management at that level, just running the governance for the overall delusions process. And even if your IMO sits outside of the CorpDev, you work very closely with the CorpDev team, with the deal leads who are involved as part of the delusions.

19:33IMO can still provide that governing or program management function for the overall due diligence cycle and involve the stakeholders. In this case, CorpDev is the big stakeholder. And then based on the deal, you would pull in respective functional leads. Even if your IMO is structured outside of Corbev, I don't see a problem IMO running the overall diligence process. Have you heard about any examples or issues where that has been a problem? When you work with different organizations or with your different clients, have you come across situations where that hasn't worked? I feel like it's so much around the culture of the company itself.

20:14Because if there is, all of a sudden it's like, this is mine and it's very distinct separation. I think that's where a lot of the friction and problems come. Because you could have it separate. And if there's a culture of a real partnership there, then you don't have that point of friction. But then there's a lot of these old school companies that just haven't changed their way in 20 years. You could tell it is purposeful. Two weeks before the deal closes, we'll give them a heads up. It's a scramble for them to figure out what they're going to do for integration. I think a lot of the company culture itself is actually the biggest influence.

20:43That is true. But for companies like us, who are, as I said, we are essentially like a startup. It is a small team. Everybody puts multiple hats. And I haven't seen any cultural issues with this approach. And actually, the deal leads are happy if somebody's taking the overhead of running the overall process for due diligence. They can focus on the actual substance of the process and focus on their areas that they need to go for due diligence. And IMO can take care of the overall program management or the governance aspect of the daily process. That's the key advantage is having that startup culture where it's very growth-oriented.

21:20People are very much oriented around change in the company. And the ones I just spoke to a practitioner yesterday that is ready to move on because they're in a role. It's stagnant. The organization refuses to make these changes. They're just frustrated and tired of it when they know the industry itself has moved on in a different direction. I'm wondering if you've ever seen that where the large corporate M &A team that has been around has a very mature function. And what does it take for them to actually adopt change? Yeah, in my previous life, where I have worked in big companies, you do see because it's a very well-oiled machine and the process is really well set.

21:58And so then you happen to stay in your, not silo, but in your swim lane when it comes to the overall M &A integration process. The problems of that is then you don't have the visibility over the other areas and then you lose out on anticipating some of the problems that you might face because you just didn't have any exposure regarding those areas. One way to overcome is if you have dedicated teams and you can afford or if you have enough resources to run separate parts of the overall integration process, making sure that you have transparency between all the teams becomes key. The way you manage the information, making sure that your document repository is open to everyone.

22:43And so people can actually check the required details, go through the diligence findings for other functions, even though it may or may not directly impact you. That would become the key and that would be a way to overcome having IMO taking over the diligence process management piece. You can still have the respective parts of your deal team in that process, but at the same time, opening up the information for everyone and then making sure the access is there. I like your optimism about driving change in these large organizations. I'm going to definitely drop your name when I hear somebody struggling with it.

23:18I want to run through those key areas that we talked to. And we talked about the reason for IMO leading diligence makes sense. When you say setting up an early version of the IMO, tell me more. What exactly do you mean by that? In the beginning, again, before you have done the due diligence, you don't have your integration strategy in place. You are not sure what is the scope for each and every function or work stream. So setting up the IMO, which encompasses the entire integration, is going to be difficult. It is important to identify the key work streams or key functions for the deal and then picking up a lead for that and setting up that starting version of IMO becomes key.

23:56In the beginning, it could just be the IMO lead with the HR work stream lead with finance. And then depending on the complexity, pull in people from the product and technology, pull in people from your IT, sales, GTM, etc. And so it's just a mini version or a mini IMO, I would call it based on the deal specifics. Okay, so we're really identifying people. So if I'm going to buy this company out, it's a competitive product, for example. And a lot of it's around integrating their capabilities into our product. And then there's going to be a lot of lift around migrating customers. And at that point, I'm going to start identifying HR because we have a lot of people moving around.

24:41I'm going to identify the tech leads because we're going to be integrating technology. And then I'm going to integrate the sales team. We're going to integrate sales force. So I'm going to bring my sales lead involved. That's how I start shaping it out in terms of setting up the early version of the IMO. Exactly. We start there. Once we have that established, I want those people involved to start defining the integration strategy. Who's involved with that? So yes, you definitely would take their inputs to build your integration strategy. And for their specific functions or specific work streams, you want to build the plan for that.

25:14And that is where you will start discovering what are the dependencies for my sales team to build their plan. They need some inputs from the product team. And then the product team will say that for this, I need some inputs from my infrastructure or IT team. What infrastructure I need to support the capabilities of the combined product. You start building your functional plans along with the overall integration plan with the inputs from these leads. And that is how slowly you will expand the scope and bring in other leads into the overall process. I want to separate like defining the strategy versus defining the actual plan.

25:55And what I'm trying to get an understanding is when we define the strategy, if you can help me understand the granularity that we want to get to in detail around defining the strategy, because I can put it in one sentence and say, we are going to integrate this company and put their features in our product. Great. That's our strategy. Give me your take. Like how much level of granularity in the details do we want to define the strategy? The level of details that you need to include when you build your integration strategy should be enough for you to actually build or take that next step to build the plan, which you can actually execute.