Merger and acquisition integrations can be a lot like the beginning of a marriage. They’re often intense and can get messy. The parties need to adapt to each other and there’s a lot of baggage on either side. It takes commitment.
As with any significant institutional change, post-merger integration is never simple. Successful integrations demand a lot of planning and communication on both sides and at different levels. You need leadership, integration planning, and an effective mergers & acquisitions strategy.
That said, post-merger integration is also a powerful opportunity to set the course for future success.
Below, we shall look at some of the central tenets of the post-merger integration process, the main responsible decision-makers, and some key risks. We’ll also go through helpful checklists for dealmakers.
The main aspects of an M&A integration
Global deal values decreased by half to $2.5 trillion in 2023 from their peak of over $5 trillion in 2021. Deal volumes also dropped 17% from around 65,000 in 2021 to 55,000 deals in 2023. But, according to Malcolm Lloyd, Global Deals Leader, the outlook for M&A in 2024 is pretty optimistic:
Market signals are more positive and we’re seeing a willingness among dealmakers to find creative solutions to get deals done and accelerate transformation. I believe these factors—and pent-up demand—have created a tipping point and we will see an upswing in M&A in 2024
However, regardless of the positive outlook, it’s a well-known fact that more than half of all mergers and acquisitions fail, leading to a decrease in shareholders’ value.
These numbers and all the recent merger and acquisition examples tell us a little about the importance of a successful post-merger integration. Few transactions entail bigger deal value than mergers and acquisitions; few are as meaningful or involve as many players. Few demand as much planning and thought.
Defining M&A post-merger integration
An M&A integration, also known as post-merger integration (PMI) is a complex process of joining two companies to maximize the efficiency of each.
Integration in M&A requires both sides to adapt operations, with logistics and technical procedures, and the corporate culture, where company values and human resources are a key concern.
Our findings indicate that, for a post-merger integration success, companies often create an M&A integration playbook, which specifies all the key tasks, roles, and responsibilities of the process.
Post-merger integration activities can be defined as combining all the baggage from two companies and making it work together. It is what happens after the deal is closed.
People often assume that the bulk of a deal comes before closure, and it’s all downhill once the merger happens. However, this is precisely where many deals fail.
The post-merger integration is where key aspects of the deal happen like the fusion of corporate cultures and synergy generation. As such, it cannot be disregarded, at risk of causing the deal to fail and losing value to both sides.
Key elements of post-acquisition integration
A successful integration strategy has three essential aspects: direction, value, and structure. Let’s break this down and understand how these guiding principles can help steer a successful post-merger integration.
1. Establishing the direction
Good planning demands clarity of thought and purpose. To put it nautically: Before setting sail, chart your course, assign crew members to their posts, and know who the skipper is. Here’s what exactly you should do:
- Formulate clear strategic objectives for the integration program and have an operating model.
- Put together integration teams with a view to value creation, as well as operability.
- Appoint integration leaders on both sides of the merger and nurture engagement.
2. Keeping momentum
Distraction is a deadly pitfall of mergers and acquisitions. You should strive to maintain momentum during the integration process at all costs. Keeping momentum essentially means:
- Time is of the essence. Value creation starts before the deal closes. Starting careful planning to capture and integrate value even in the due diligence process.
- Accelerate synergies. Work to prevent lost opportunities and value erosion by ensuring the two organizations have a synergy realization plan. Teams should cover new ground, not wasting time on tasks already taken care of.
- Clients are not just spectators. That’s right: as much as possible, you should seek to bring existing customers into the action and keep them interested and engaged.
- IT solutions are a must. On a purely practical often disregarded level, plan ahead the IT solutions for the integrated company. Proper IT execution will speed up processes and help with maximizing synergies.
3. Structuring the new organization
Even before the deal closes, you should be planning what the future organizational structure of the company will look like, and what actions need to be taken. Remember to:
- Design the integration from day one.
- Keep your eye on talent: identifying, retaining, recruiting, and promoting key talent is essential for a successful PMI.
- Manage culture integration and company change. Typically, an integration management office is an essential part of the integration team and will help shape the company’s unified culture.
Potential problems during M&A integrations
Let’s look at some challenges you can face during an acquisition integration. Keep in mind that the best time to address most of these issues is during thorough due diligence, i.e. before the deal closing.
Of course, everyone wants the deal to work, but you should know when to back out. Don’t let a sunk cost bias prevent you from making the best decision for your company.
In practice, part of your corporate strategy should be setting clear NUTS, or Non-Negotiable, Unalterable Terms. These are not just your default values, but also the conditions under which backing out of the deal becomes a more valuable course than plodding through with it.
Once the deal is closed, you should pay special attention to avoid the following issues:
- Lack of integration planning. It is worth repeating: the lack of a good post-merger integration plan is the number one reason your integration execution will fail, no matter what type of deal it is — horizontal merger or vertical merger. It’s a significant challenge, so have a clear operating model, get your strategy right, organize your checklists, and do your homework.
- Lack of leadership. The best ship goes nowhere without proper steering. Apart from integration plans, having a competent and respected integration leader is key to driving your integration forward. It’s usually best to have a senior executive take the reins of the integration. A steering committee can also help manage responsibility and lead the way.
- Poor team organization. If left ungoverned, teams are prone to fail. Prioritize communication, both between team members and with the leadership. Make sure everyone is in the loop, with each member having clear separate tasks and ensuring a combined organization design for your PMI projects.
- Slow integration process. Letting the acquisition integration drag on for too long is a critical mistake. It drains energy, distracts the company’s focus, and misses out on opportunities to provide services and growth.
Make sure your team is adequately prepared to act decisively during the acquisition of the target company and ensure that proper synergy captures the fundamental values behind the merger.
Note: Learn more about post-merger integration challenges in our dedicated article.
M&A integration checklist
The following post-merger integration checklist takes you through all the steps before closing the deal. Further below, you’ll find a post-merger integration framework for shaping up the combined company once the deal is done.
Define your strategic focus
- Clearly determine the acquisition goals and the vision for the new company. Make sure you bring executives from both the acquired company and the acquiring company into the fold
- Establish a central leadership team for the merger integration
Plan your team integration
- Develop a blueprint to guide your team through the integration
- Review the different sectors (accounting, financial, sales, operations, etc.) to determine which areas need to be removed, which ones are kept independent, and which ones need to be reorganized and merged
- Identify potential challenges to the integration, including those of human nature. Promote communication between all parties with a view to reducing misunderstanding and conflict
- Evaluate and isolate potential regulatory challenges to the integration ahead of time
- Delineate tasks to be completed and prioritize according to importance and urgency
- Determine whether you need to hire a consulting company
- Appoint an integration leader and establish the extent of their authority
Create your merger integration plan
- Establish goals, both long- and short-term, and prioritize tasks to be completed
- Define a timeline for the integration process
- Establish well-defined metrics for success to help keep oversight on the integration
Have a clear communication plan
- Have a plan for both internal and external communication so that both employees and customers/stakeholders are kept in the loop throughout the process
- Have an appointed representative for communication — a spokesperson for the process if you will. The spokesperson can be the integration or change management leader or someone else assigned to this specific role
- Determine a centralized channel for communication, to keep things in one place, and minimize the time and effort spent with back-and-forth. You can use your deal room or data room platform as the centralized channel for communication
Responsible parties and key aspects of post-merger integrations
Who helps take care of the post-merger integration — and bears the responsibility for its success or failure?
Top executives and stakeholders
The company’s CEO and board of directors are essential players in the post-merger integration, together with key stakeholders such as banking or law firms, consultants, and other actors in the process.
To ensure proper integration, you should promote plenty of communication among these key players, starting well before the actual deal.
The integration team members
Your due diligence team is another key element of the integration, helping provide integrated solutions through an understanding of the other party’s business processes, documentation, and culture.
As mentioned above, a well-functioning team can make or break a deal, and it’s here that proper communication can make all the difference between getting it right or mishandling it.
HR
In what is often a period of intense work and some uncertainty, the human component is another vital element of successful mergers. Your HR department will often play an important role in communicating with employees and ensuring an environment of positivity and collaboration to drive the integration forward.
A change management office
There are advantages to bringing in an expert to provide oversight and advice on the integration process. An integration advisor usually provides much-needed perspective besides significant expertise in deal-making. While many companies will prefer their internal change management specialist, getting outside help is often a good idea.
Post acquisition integration checklist
We’ve looked at the essential acquisition integration checklist; now it’s time to look at the steps after the deal closes.
Implement a clear strategy for day-one handover
- Waste no time in working towards retaining both the best talent and the top customers, which will be central to the new company’s success
- Appoint a previously briefed day-one team to take care of any situations that arise
- Before day one, brainstorm and set up contingency plans for potential post-merger integration challenges
- Prepare guidelines for governance rules for day one
Have visible leadership
- Make sure that CEOs and other leadership figures are engaged and available to provide leadership and orientation on day one
- Establish whether key employees are about to leave and plan to meet with them and discuss the terms of employee retention
- Define early success metrics that will help you present “early wins” to customers as well as staff — this can be vital for keeping everyone motivated and driven
Communication, communication, communication
- Keep everyone in the loop by having a clear, centralized communication platform
- Provide early updates to clients as well as staff
- Nurture communication and encourage a healthy feedback loop
- Brainstorm ahead of time to detect challenges or issues that can be solved before day one
Create motivation going forward
- Draft a 1-month or 100-day plan with clearly achievable mileposts. It helps with motivation as well as time management
- Give thought and attention to the new company’s image before stakeholders, the public, and employees. It can include revising company culture guidelines and principles or even drafting and publicizing a company statement of purpose
- Expand on this list and describe a few more critical items
Cultural integration
- Assess and address any cultural differences between the acquiring and acquired companies
- Provide cross-cultural training and workshops for employees to increase awareness of diverse perspectives and working styles
- Facilitate opportunities for employees to interact and collaborate with colleagues from different cultural backgrounds
Customer transition
- Provide regular updates and notifications to keep customers informed about the transition process and any changes that may affect them
- Conduct personalized outreach to key customers to ensure their needs and expectations are understood and addressed during the transition
- Solicit feedback from customers throughout the transition process to identify areas for improvement, addressing concerns or challenges
Employee training and development
- Identify gaps and determine the training needs for employees after the integration
- Develop training programs to address identified skill gaps and equip employees with the new capabilities required to succeed in their roles after the integration
- Establish mentorship or coaching programs to facilitate knowledge transfer between experienced employees and newcomers
Post-integration review and optimization
“Deal makers who integrate deeper are able to exploit synergies to the fullest, which translates into superior deal success”, comment PwC’s M&A integration survey participants.
To integrate deeper, assessing the success of post-acquisition integration and identifying areas for improvement is crucial. It ensures that the merged entities achieve their objectives and realize their full potential.
Based on our experience, we’ve pointed out five steps to take to evaluate integration success and facilitate ongoing optimization:
- Define success metrics. Establish clear and measurable success metrics aligned with the integration objectives and business goals. These metrics may include financial performance indicators, operational efficiency, customer satisfaction scores, employee engagement levels, and market share growth.
- Gather feedback. Solicit feedback from key stakeholders, including employees, customers, and investors, to gain valuable insights into their experiences and thoughts on the integration process.
- Identify strengths and weaknesses. Identify areas of success and areas for improvement based on the assessment findings. Analyze causes to understand why certain aspects of the integration were successful and others were not.
- Implement feedback mechanisms. Establish feedback mechanisms to gather feedback from stakeholders on an ongoing basis. Encourage open communication, transparency, and collaboration.
- Monitor and measure progress. Continuously monitor and measure the progress of optimization initiatives against predefined success metrics. Track KPIs to evaluate the effectiveness of integration efforts.
Key takeaways
- Integration planning should begin before the deal closes, focusing on capturing intended value early and driving synergy between the merging companies.
- Post-merger integration demands meticulous planning, effective communication, and strong leadership to navigate the complexities and ensure success in combining two companies.
- Success metrics should be clearly defined to track progress after the integration, leveraging the combined capabilities of the merged entities.
- Ongoing evaluation, optimization, and feedback mechanisms are vital for assessing integration success, identifying areas for improvement, and realizing the full potential of the combined entity.
