Technology Innovation Management Review October 2011

Acquisition Integration Models: How Large

Companies Successfully Integrate Startups
Peter Carbone

all affairs it's a healthy thing now and then to hang a ”

“ Inquestion mark on the things you have long taken for
granted.
Bertrand Russell
Author, Mathematician, and Philosopher (1872-1970)

Mergers and acquisitions (M&A) have been popular means for many companies to ad-
dress the increasing pace and level of competition that they face. Large companies have
pursued acquisitions to more quickly access technology, markets, and customers, and this
approach has always been a viable exit strategy for startups. However, not all deals deliver
the anticipated benefits, in large part due to poor integration of the acquired assets into
the acquiring company. Integration can greatly impact the success of the acquisition and,
indeed, the combined company’s overall market success.

In this article, I explore the implementation of several integration models that have been
put into place by a large company and extract principles that may assist negotiating
parties with maximizing success. This perspective may also be of interest to smaller com-
panies as they explore exit options while trying to ensure continued market success after
acquisition. I assert that business success with acquisitions is dependent on an appropri-
ate integration model, but that asset integration is not formulaic. Any integration effort
must consider the specific market context and personnel involved.

Introduction Based on a several first-hand acquisition experiences, I

have observed that the majority of the discussion pre-
When large companies wish to bring new technology to ceding the close of a deal is often focused on the value
market, increase their portfolio capability to address of the technology being acquired, the fit to a customer’s
broader customer opportunities, or access new custom- solution, sales projections, market valuation, and po-
ers or market segments, their need to move quickly tential roles for the senior leaders in the acquiring com-
drives them to consider acquiring the assets of other pany. The most successful transactions that I have been
companies. The target of acquisition, typically a star- involved with also had a clear strategy for the assimila-
tup, may have outstanding technology and a wish to tion of the new company into the acquired company,
exit stand-alone operation in favour of being acquired. one that fueled growth of the strongest assets.
Their motivation may be to leverage a larger company’s
capabilities, such as cash for growth, access to chan- Transactions Selected for Examination
nels, and brand association. The combination of these
complementary motivations may seem to provide a Over an eight year period, Nortel (http://wikipedia.org
strong force in the market, however, a strong commer- /wiki/Nortel) made more than 20 acquisitions of com-
cial outcome depends on successful integration to real- panies to improve its market/competitive position and
ize the consolidated potential of any deal. Many accelerate technology availability. This article will ex-
acquisitions that looked promising during the business amine six of these transactions (Table 1), selected
case phase do not deliver to expectation, in part due to based on the author’s personal involvement. These se-
the implementation challenges. lected transactions illustrate some of the characteristics

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Technology Innovation Management Review October 2011

Acquisition Integration Models

Peter Carbone

Table 1. Summary of selected Nortel acquisitions

of the different integration models being used and will 2. The “New Bet” model turns an acquisition into a
be examined based on their impact on performance. new, standalone business unit within the company to
pursue a new market segment. Shasta was a startup
Models of Integration that had a unique value proposition at the time. They
offered a services gateway based on routing technology
Different models of integration are characterized based that was not easily addressable by the market leader,
on how the newly acquired assets are leveraged by the Cisco, due to its architecture. Shasta was set up as a
acquirer. Figure 1 illustrates four types of integration new, standalone “applications business unit” within
that can be differentiated along two dimensions: i) the the larger company and was chartered to lead in this
form of integration used and ii) the target organization new applications space by leveraging Nortel’s brand,
for integration. The form of integration considers customer base, and manufacturing leverage. In theory,
whether resources are consolidated in the buyer’s or this model should assist in entering a new market seg-
seller’s company; the other dimension considers wheth- ment; however the new entity must overcome many
er the combined entity remains as a standalone unit or challenges, such as the acquiring company’s lack of
is absorbed into the acquiring company’s units. brand value in a new space, different business pro-
cesses, and unwanted ”help” from the acquiring com-
1. The “Cross-Leverage” model leaves the acquisition as pany.
a separate business unit, but merges the technology
and people into the main company. Bay Networks was 3. The “Top Up” model breaks up the acquired entity in-
a large company and, after being acquired, was folded to portfolio elements and consolidates it into the ac-
into the existing data business within Nortel at the exec- quiring company. Architel’s portfolio elements were
utive level. It then underwent portfolio rationalization consolidated with the Nortel portfolio elements and the
and integration across the new, larger data networking product managers and technology people moved to
unit, being fully assimilated over time. This is the de- join Nortel organizations. Clarify was split between the
fault model when the acquired company is very large or Enterprise and Service Provider divisions within Nortel
has overlapping portfolio elements that must be ration- and was consolidated within these units. This model
alized. works well to accelerate a successful internal business

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Acquisition Integration Models

Peter Carbone

Implementation Discussion

The most successful transactions, as measured by mar-

ket or revenue growth, were the ones that maintained a
strong business focus after the deal closed, rather than
a strong technology focus. By reviewing these six ex-
amples, the key attributes that contributed to success
or failure can be distilled.

Aptis grew to become the market share leader in its cat-

egory, despite competition from large, dominant play-
ers, such as Cisco and Alcatel. Aptis had developed
high-performance technology, but were struggling to
penetrate the market. The following factors impacted
their success:

Figure 1. Four models of acquisition integration 1. Consolidation of smaller capacity remote access plat-
forms with Aptis and provision of a clear and single fo-
cus for remote access in the company. This avoided the
inevitable platform battles that would have emerged
between different organizations if they had not been
unit by providing it with additional resources and filling consolidated.
gaps more quickly than can be done organically.
2. Consolidation of associated sales forces. This
4. The “Double Down” model consolidates both com- provided access to large customers (Regional Bell Oper-
panies’ assets into the acquired company. In the case of ating Companies in this case) and avoided go-to-mar-
Aptis, all Nortel and Bay Networks remote access tech- ket conflict.
nology and associated sales teams were moved to Aptis
and the President of Aptis took on the larger responsib- 3. Setting of aggressive revenue targets (beyond what
ility for the development and revenue targets of the Aptis thought possible). This was a clear and shared
combined portfolio. This model works best when the goal for the entire team and made the Aptis unit a core
acquired company has the market momentum, brand, contributor to the success of the overall Nortel division.
customer base, or channel, and when it also has an ef-
fective leadership team. 4. Transfer of an experienced R&D leader to Aptis, who
was able to tap the Nortel technology portfolio quickly
The motivation for using one model over another ap- for required assets and manufacturing capability. This
pears to consider the following: person worked well as an “employee” of the Aptis, suc-
cessfully eliminating an “us versus them” mindset.
1. The acquiring executive’s preference for structuring
and organizing the new assets, often based on the avail- 5. Appointment of the President of Aptis as the clear
able internal talent leader for the consolidated business.

2. What is possible giving the size of the acquisition 6. Provision of required investment to develop and ship
the competitive product.
3. The decision to focus on business results (e.g., mar-
ket share, revenue) or technology results (e.g., plat- With limited distractions and a clear focus, this became
forms, portfolio elements) one of Nortel’s most successful transactions in that it
exceeded its acquisition business case.
Each of these four models had some strengths and
weaknesses, as will be discussed in the following sec- Cambrian grew to provide a successful platform and
tion. portfolio for Nortel, and it held a market leadership pos-

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Acquisition Integration Models

Peter Carbone

ition for several years. The company had developed and “taken over”. The key was to rapidly fuel a winning busi-
delivered a technology capability in advance of most ness and provide it with a compatible joint leadership
competitors and were struggling with scaling to de- team.
mand. Following its acquisition by Nortel, Cambrian
was provided with: The “new bet” on Shasta was less successful. Although
they had excellent technology and market position for
1. A senior Nortel leader to co-lead the business unit. their target service-edge market, the startup leadership
The Nortel leader provided access to R&D and manu- team did not know how to leverage Nortel effectively
facturing, as well as the service provider market. The and had little respect for the Nortel team, seeing the lar-
Cambrian leadership remained focused on enterprise ger company as a drag on their nimbleness and mo-
opportunities, and by working well together, they were mentum. Table 2 summarizes the factors that impacted
able to reach a leadership position. the success of this acquisition.

2. Clarity around Cambrian’s positioned as the com- The “top up” of the network management portfolio
pany’s key bet in the metro-optical space, including with Architel worked as expected. The Architel team
ambitious targets that were key to the success of the saw the value in leveraging Nortel’s technology and
overall business unit. sales to further penetrate the market, and this contrib-
uted to the new unit’s aligned objectives. These efforts
3. Investment to grow and evolve the portfolio and plat- benefited greatly from a compatible management team
form. at the director level. The service provider portion of Cla-
rify was less successful because the core technology
4. Access to Nortel’s technology and manufacturing team was retained in a different unit that had different
capability. priorities. This arrangement slowed the implementa-
tion changes required to fit the offers to the respective
5. Access to Nortel’s customer base and sales team. markets. Because the Clarify team was artificially split
between Nortel units, they retained allegiance to two
Cambrian was also a successful transaction. As with the masters (their old core team and their new masters:
Aptis acquisition, the decision made was to add capabil- Nortel), which negatively impacted performance.
ity and fuel to the unit that was focused and was gain-
ing success. By doing this, Nortel avoided having to The Cross-Leverage model used with Bay Networks was
train a new leadership team and address the natural difficult to implement due to the relative large sizes of
concerns that acquired companies have about being the two merging organizations and the overall complex-

Table 2. Factors that impacted the success of the Shasta acquisition by Nortel

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Acquisition Integration Models

Peter Carbone

ity of the portfolio and market. Time was not an ally, as This results in friction, delays, and unproductive polit-
competitors were able to target various portfolio ele- ics. This potential problem was addressed in other
ments and reduce overall penetration. This put pres- transactions by assessing the compatibility of the work-
sure on development budgets, ultimately resulting in ing-level team leaders and accommodating their re-
program cancellations. There was drift in focus due to quirements for success (e.g., clearly delineated
the multitude of potential opportunities, and the integ- responsibilities, joint performance objectives).
ration into the Nortel unit required the two teams to
spend time educating each other on capabilities and 4. Bet on the team that has momentum in the market.
strategies. The slow integration prevented this acquisi- It seems obvious, however, it is easy for a master-slave
tion from performing to its potential. relationship develop. To avoid this potential problem,
the business case should reflect the resulting organiza-
Increasing the Potential for Success tional model and associated performance so that “fuel”
can be quickly added” to the asset that has momentum.
The question is always how to maximize the probability
of success with any M&A activity. Based on experience 5. Ensure absolute clarity around the new purpose,
with these transactions, there are five key principles mission, and business objectives of the acquisition. As
that, if followed, would increase the probability of any is often the case, a transaction changes the scope, mar-
acquisition success. Many of these can be derived with ket access, or potential for the new combined unit. Of-
common sense, however, based on the variable success ten, the acquired company wants to continue with the
in the transactions examined here, more attention status quo because this approach helped them achieve
should be paid to them. a success exit. Alternatively, the buyer may want to fold
the assets into its current model. As in the cases ex-
1. Maintain a business focus over the business case amined above, the most successful integrations estab-
period used to justify the transaction. In several cases, lish clear leadership and business objectives, and they
the original business case used to justify the acquisition provide the new leader with the appropriate tools to do
was overlooked due to changes in leadership, market the job.
conditions, or perceived momentum. This can be
avoided by having the transaction’s sponsoring execut- Although selecting a model is not formulaic, in addition
ive continue to be actively involved and accountable to to putting appropriate business discipline around the
deliver the original business plan (or justify its enhance- transaction, betting on the team with momentum has a
ment), at least until it can be determined that the mar- high impact. This involves consolidating with the new
ket momentum promised is on track for delivery. player (as seen with Aptis) or strengthening internal
momentum (as seen in the Architel network manage-
2. Accommodate the size of the acquisition in the in- ment case). The team that best knows how to use the as-
tegration plan, with a focus on ensuring the business sets will have higher potential for market leadership.
plan is implemented quickly. Small acquisitions pro-
ceed more quickly into integration than larger ones, In hindsight, the Shasta acquisition might have resulted
thereby enhancing the performance of the business in better performance had principle 5 been applied
plan. For large acquisitions, the company must hasten along with the Double Down model, thereby consolid-
any “cross-leveraging” integration to reduce the vulner- ating the smaller capacity VPN portfolio with the ac-
ability of the new entity to competition. From the ex- quired company.
amples above, this goal can be accomplished by rapidly
assimilating the portfolio elements and associated Conclusion
people into the unit.
The requirement for choosing an appropriate integra-
3. Ensure compatibility at the level of working-team tion model is not a surprise, but too often it is pushed
management, not just the executive level. Executives aside during the excitement of the chase. Although
of the acquired company are always a focus in a trans- M&A is a key tool for driving competitiveness, addition-
action, however, in some of the transactions examined al focus must be placed on integrating the assets of the
here, some of the key management people were moved companies to realize the anticipated value. As with
into organizations with little consideration for their fit. most processes, success is based on people and the

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Acquisition Integration Models

Peter Carbone

speed of execution. Success is easier to achieve with

small acquisitions, but there is no reliable, formulaic About the Author
model.
Peter Carbone is a successful executive known for
The five principles identified here, by looking at a sub- his thought leadership, business acumen, and tech-
set of Nortel’s acquisitions, highlight the application of nology leadership. He is often called on to address
common business principles to the M&A space, includ- new business and technology challenges. Peter is a
ing measuring results against a plan, making decisions pathfinder with a track record of creating innovative
quickly, clarifying purpose, supporting a winner, and solutions, strategically managing technology and in-
ensuring strong team performance. novation, successfully launching and running new
businesses, and leading business development initi-
Understanding the characteristics of these different in- atives. Peter has held CTO, R&D, and senior busi-
tegration models and their success factors may allow a ness positions in several high-tech companies, and
small company to promote its value and integration dif- he has led or been directly involved with several
ferently and avoid traps that can destroy the value of an technology company acquisitions. Peter has been
acquisition. An acquisition is a material change, and it engaged as technical advisor to startups, is part of
requires change in management structure, which is al- the faculty of an entrepreneur development pro-
ways difficult and bring with it potential benefit and gram that has created >100 new companies, and has
risk. Principle 4 – betting on the team that has mo- been on the boards of US-based Alliance for Tele-
mentum in the market - is often the hardest for a com- communications Industry Solutions (ATIS) and Cor-
pany to do; however, allowing new players that have al CEA. He is past Vice-Chair of the Executive
market momentum to drive the business is a founda- Committee of the Information Technology Associ-
tion of any successful acquisition. ation of Canada (ITAC) and Chair of an ITAC com-
mittee, which is focused on the Global
Competitiveness of Canada’s Knowledge Economy.

Citation: Carbone, P. 2011. Acquisition Integration

Models: How Large Companies Successfully Integrate
Startups. Technology Innovation Management Review.
October 2011: 26-31.

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