The mergers and acquisitions process doesn’t end with the deal closure. Moreover, the post-merger integration process that happens after has even more impact on the deal’s success.
The post-merger integration is the process of combining two businesses and their assets, people, resources, and technology into one in a way that creates the most value for the future of the company and accelerates synergy realization. Without having a post-merger integration phase well-planned and all the possible post-acquisition challenges addressed, a deal is at risk of failure. This is especially true considering the high rates of deal failure, which is up to 70%-90%, as stated in some resources.
So what are the key challenges of post-merger integration, and how can they be addressed? We’ll figure it out in this article.
Top 8 common post-merger integration challenges
Let’s review 8 most common post-merger integration issues and challenges and possible ways to mitigate them:
- Cultural differences
- Technology integration
- Operational alignment
- Organizational restructuring
- Talent retention
- Leadership issues
- Communication challenges
- Customer retention
1. Cultural differences
Cultural integration is one of the most critical parts of the successful integration process. To be precise, difficulties in cultural alignment are the reason for 30% of failed deals. This is because employees of both companies have different work styles, communication methods, and general values. And ruining them for one of the sides could lead to overall employee concerns and result in a huge loss of talent.
Combining two distinct corporate cultures into one is a complex task and requires particular attention from integration teams. That’s exactly why 60% of businesses already make a cultural assessment an essential part of the due diligence process.
Interesting fact: One of the biggest M&A deals in history, the $350-billion AOL and Time Warner merger, failed due to huge cultural differences.
How to mitigate?
- Conduct a thorough cultural assessment of both companies before the deal to detect similarities and differences in corporate cultures.
- Assemble a dedicated integration team that will be responsible for managing the cultural integration process.
- Ensure transparent and timely communication across employees during each transition stage.
2. Technology integration
The process of combining two companies into one also includes IT systems consolidation.
Both the acquirer and acquired company use different tools and have different IT processes built. For successful integration, all these services should be carefully merged into one without loss of efficiency and disruptions in operations.
Interesting fact: Technology integration issues are one of the reasons why the eBay and Skype merger failed in 2009 since Skype’s technology wasn’t compatible with eBay systems.
How to mitigate?
- Conduct a thorough IT due diligence, assess all the available IT systems, and decide which ones you’re going to keep or implement.
- Have a dedicated IT integration team assigned, with core IT leaders defined.
- Create a detailed IT implementation roadmap with key goals described.
3. Operational alignment
Just like with IT systems, merging companies also differ in operational styles. It concerns different supply chain management, customer service, manufacturing practices, and other types of operations within a business.
Not addressing these post-merger challenges can lead to customer dissatisfaction, disruptions in operations, and other problems that could negatively impact operational synergy.
How to mitigate?
- Perform a thorough operation due diligence, assessing the operations of both companies and defining what aspects to keep and what to omit.
- Develop a comprehensive integration strategy with key operational strategic objectives defined.
- Have a dedicated operation integration team assembled, with key roles and responsibilities assigned.
Pro tip: For a better understanding of post-merger integration objectives and addressing the most common challenges, develop a detailed post-merger integration playbook.
4. Organizational restructuring
The transition of two business entities into one presupposes combining their organizational structures into one as well. This comes with lots of peculiarities and challenges, since all the reporting lines, decision-making processes, as well as roles and responsibilities should be aligned.
Failure to address this integration issue can lead to confusion among the employees, which, in turn, can significantly impact the overall staff effectiveness and even cause a pause in operations.
How to mitigate?
- Before the deal closure, assess the organizational structures of both companies, define areas that overlap and those that don’t, and think of possible improvements.
- Create a streamlined organizational structure for the new entity, with all the reporting lines described.
- Ensure clear and transparent communication about the organizational structure among all employees so that everyone understands their responsibilities and objectives.
5. Talent retention
Key talent retention is one of the biggest M&A integration challenges. First of all, massive layoffs are always a part of the M&A process. For example, as a result of the $44 billion Elon Musk’s acquisition of Twitter (now X Corp.), about 6,000 people were laid off, while only 1,500 employees were kept. What’s more, rough statistics state that about 30% of employees are deemed redundant when two businesses in the same industry merge.
Additionally, the integration process is sometimes stressful for employees due to the number of changes that take place during the merger. This can also impact their motivation and lead to resignation.
How to mitigate?
- Ensure transparent communication among all employees during each stage of the transition. Everyone should clearly understand their responsibilities and opportunities when achieving overall company goals.
- Develop comprehensive talent merger and acquisition strategies that define all the key roles that should be kept and also suggest incentives for hiring new talents.
- Offer development opportunities and training that will help employees with adaptation to the changing environment and develop the required skills for the company to achieve expected synergies.
6. Leadership issues
For companies to successfully undergo the integration period, a strong and reliable leadership team is required.
A leader, or senior management, is responsible not only for defining key goals and strategic objectives but also for driving change and establishing the desired motivation among all the employees.
Leadership challenges can result in a loss of momentum and wrongly defined objectives, which, in turn, can lead to deal failure.
How to mitigate?
- Have a structured steering committee defined, with the key roles assigned and responsibilities described.
- Clearly describe reporting lines and ensure a steering committee has regular meetings for discussing integration updates.
- Ensure key stakeholders’ engagement.
7. Communication challenges
Based on PwC’s 2023 M&A Integration Survey, 59% of respondents indicate communication as the main driver of the change management program in the M&A integration. Indeed, poor communication during the transition can lead to massive confusion and uncertainty among the employees. This, in turn, can result in the loss of motivation, an effectiveness decrease, and even a pause in the company’s operations.
How to mitigate?
- Establish clear and transparent communication with all employees at all levels.
- Ensure that all managers have regular meetings with their teams that help to keep staff informed about all the essential processes and check their state.
- Have a dedicated human resources team assembled that will be responsible for maintaining clear communication among the organization during all the transition stages.
8. Customer retention
The PwC’s survey on the consumers’ satisfaction with companies that undergo M&A shows that 17% of customers do less business with a company that’s in the merging process or even stop any business with it. This speaks volumes about the importance of customer retention during the integration process.
Such a rollback in the number of customers directly impacts the company’s revenue, and thus, merger success.
How to mitigate?
- Keep all the customers informed about the ongoing and planned changes and establish clear communication at each transition stage.
- Maintain an excellent customer service team that will manage customer experience.
- Assess the products and services of both companies, define what to keep, what to improve, and what new to implement to preserve current customers and attract new ones.
Note: Learn about the main risks of mergers and acquisitions in our dedicated article.
Maintaining employee morale during integration
Culture Amp’s research on how M&A impacts the employee experience reveals that both mergers and acquisitions negatively impact employee’s perception of decision-making, motivation, and alignment. At the same time, employees feel more negatively when undergoing an acquisition rather than a merger.
This is because during an acquisition, an acquirer absorbs the target company, and it ceases to exist. And because of such a process, employees from the target company can often lose their sense of connection to the current company (as it’s soon to be dissolved into the new company), and thus, lose motivation to contribute to the new company operations.
Naturally, such a loss of motivation and uncertainty can lead to a significant drop in staff effectiveness, which, in turn, impacts overall company operations and thus, post-acquisition integration success.
So, how to change that?
- Communicate. Establish transparent communication with employees during each transition stage, hold regular one-on-one and general meetings, explain company-wide and inside-team decisions, clarify general objectives, and ask for feedback. In short, involve employees in the post-merger integration support process.
- Recognize. It’s also essential to notice all the efforts and each employee’s input in the integration process. Provide regular feedback, reward good work, and ensure a culture of collaboration at all levels.
- Empower. Establish an atmosphere of trust within the organization. It’s crucial that every employee feels a sense of belonging and that they’re an essential part of the organization. Provide a certain level of autonomy for everyone and ensure the manager’s support of goals.
- Train. For employees to feel needed and have the required skills for achieving expected merger synergies, roll out regular training sessions and draft a development plan for each role. This also helps in managing expectations of the post-integration process outcomes.
- Post-merger integration is a process of combining two businesses and their assets, resources, people, and technology into one business entity in a way that creates the most value for the future company and helps to realize expected synergies.
- The most significant challenges of post-acquisition integration include cultural differences, technology integration, operational alignment, organizational restructuring, talent retention, leadership issues, communication challenges, and customer retention.
- Post-merger integration also has a huge impact on employee’s morale and motivation. To maintain high morale and productivity, deal-makers should ensure clear communication across all the teams, recognize everyone’s efforts and input, establish a certain level of autonomy for each specialist, and ensure quality training and development plans for all roles.