Persistent under-investment in A&D post-merger integration impedes ‘speed & scale’

Under Secretary of Defense (Acquisition & Sustainment) Dr. William LaPlante traveled to New York City last week to meet with private equity and venture capital firms along with financial sector and defense leaders to discuss the incredibly complex challenges required to deliver high-end capabilities to our warfighter at “speed and scale.” M&A undoubtedly presents one of the natural channels for private equity and A&D firms to enable transfer of high-end capabilities between commercial firms and the defense industrial base.? Poor post-merger integration outcomes, unfortunately, threaten the efficacy of this important channel and significantly diminish value for all stakeholders, to include our warfighters.? In an era marked by a renewed urgency to innovate, leaders must look beyond the excitement of the initial economic value and enhanced capability offerings that may flow from a transaction and acknowledge the critical role post-merger integration plays as a key enabler of both mission-oriented deal objectives and the financial incentives required to sustain this important channel of investment.

Despite the unambiguous importance of post-merger integration, recent data indicate that only 30% of acquisitions succeed in capturing expected deal value and fully delivering desired operational outcomes. Given the complexity of regulatory and security related elements that underpin the A&D operating environment, it is easy to surmise that the success rate in this sector may even be appreciably lower. Invariably, the data show that leadership’s propensity to underestimate integration complexity is a primary driver of underperforming acquisitions and degraded deal value. This manifests in a lack of proper integration planning in the diligence phase followed by poorly resourced integration teams and misaligned allocation of limited integration resources. Value degradation in terms of real dollars should alone cause plenty of concern for sustaining stakeholder incentives, but the operational impacts of poorly executed post-merger integrations also foster negative mission-oriented ramifications for commercial technology transfer into the A&D domain. A few of the more common examples of these ramifications include:

• Poorly developed and executed communications plans resulting in loss of key talent
• Poorly integrated command-media resulting in inefficient and confusing delegation of authority impacting operational decision making
• Ineffective cultural synergy assessments and org planning resulting in the wrong the leaders being assigned to key operational roles; an additional catalyst of talent exodus
• Poorly integrated ERP and business systems resulting in incomplete and/or untimely provision of operating KPI and metrics operations teams require
• General operating inefficiencies that leech financial resources from IR&D, NBAE, and continued strategic technology acquisition

“We’ve done plenty of integrations before” and “It’s just integration” are the common refrains from leaders who endeavor to affect successful integration outcomes on the backs of under-resourced internal teams. Hubris abounds, and the after-action reports on these kinds of integrations are not often forthcoming. Alternatively, leaders who have found success in integration understand that no two integrations are the same and that there is no singular playbook or integration team that will be comprehensively effective for every integration. Indeed, successful post-merger integrations in A&D require customized project management playbooks executed by thoughtfully tailored rosters of A&D industry-experienced technical, functional, and people experts. Mission-oriented A&D leaders should resist the urge to opt for the proverbial $5 haircut and proactively seek right-sized integration support, and budget for it appropriately in the early stages of the deal sequence. Once investment in post-merger integration resourcing is right sized across our industry, one of the most commonly overlooked impediments to realizing the benefits of Dr. LaPlante’s commercial speed and scale can be significantly mitigated.

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Brian Sweeney is a Partner at NextFed. Established in 2011, NextFed specializes in strategy consulting and M&A advisory within the Aerospace, Defense, and Government Services sectors. Our post transaction expertise is grounded in decades of experience, aimed at delivering tailored post transaction advisory and transformation solutions. For direct access to our insights and to discuss how we can support your objectives, we welcome you to connect with us.