na M&A

A quick guide to post merger integration

post merger integration
post merger integration

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 big institutional change, a post merger integration is never simple. A successful integration demands a whole lot of planning and communication on both sides and at different levels. You need leadership, integration planning, and an effective strategy.

That said, a post merger integration is also a powerful opportunity to set the course for future success.

Below, we’ll take a look at some of the main tenets of the integration process, as well as the main responsible decision-makers and some key risks. We’ll also go through useful checklists for dealmakers.

Main aspects of an M&A integration

There were over half a million mergers and acquisitions from 2010 to 2021. In 2021, M&A value rebounded from pandemic lows to a whopping 5.9 trillion. However, as many as half of all mergers and acquisitions fail, leading to a decrease in value.

These numbers tell us a little bit 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 integration

An M&A integration, also known as post merger integration, or PMI, is the process of joining two companies with an aim to maximizing the efficiency of each.

Integration in M&A requires both sides to adapt on a variety of levels — the operational, with logistics and technical procedures, as well as the cultural, where company values and human resources are a key concern.

Key elements of integration

To succeed, an integration strategy asks you to consider 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.

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.

  • clearly formulate the objectives of the integration program and have an operating model;
  • put together integration teams with a view to value creation, as well as operability;
  • define who are the integration leaders on both sides of the merger and nurture engagement.

KEEPING MOMENTUM

Distraction is a deadly pitfall of mergers and acquisitions. During the integration process, you should strive to maintain momentum at all costs. This essentially means:

  • time is of the essence, and value creation starts before the deal closes. Starting planning how to capture and integrate value even in the due diligence phase;
  • drive synergy: 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, but oft-disregarded level, plan ahead the IT solutions for the integrated company. Proper IT execution will not only speed up processes but help power that synergy forward.

STRUCTURING THE NEW ORGANIZATION

Even before the deal closes, you should be planning what the future company will look like, as well as what actions need to be taken already. Remember to:

  • design the integration — and that beyond the day one company;
  • 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 culture going forward.

M&A integration steps

With value, direction, and structure in mind, what are the main steps for a successful integration strategy?

We can identify a few key steps to the entire process.

1. Start early

Mergers and acquisitions are as a rule highly time-sensitive operations, which is why you should do your best to start the integration process as soon as the deal is set. The clock starts ticking early on.

A key first decision: whether or not to hire a consulting firm to help manage and advise on the integration. Having a separate legal entity provide oversight and guidance is often a big factor in the success or failure of a post merger integration.

There is a plethora of aspects to start planning early, among which:

  • financial operations;
  • management and leadership structure;
  • technology integration;
  • legal matters: contracts, tax-related, litigation, environmental, intellectual property, regulatory issues, insurance coverage;
  • employee retention;
  • customer engagement;
  • sales and operational processes.

Another important part of this first step is creating and structuring a data room for the transaction.

2. Form your integration team

No merger integration can be successful without a motivated and well-organized integration unit. Here, it’s important to:

  • appoint clear integration leaders, both for the acquired and the acquiring company;
  • make change management a priority;
  • set clear synergy targets;
  • establish the default values for the future company.

Keep in mind that integration is a complex process, and functional teams require more than just experience. You need driven, motivated individuals who work well in tandem and can produce results fast and under stress.

3. Define your integration strategy

Your acquisition integration should have a clear structure and corporate strategy. Your integration leader and team should seek to act along the lines of existing organizational structures. Typically, you would divide tasks related to categories such as:

  • sales;
  • human resources;
  • legal;
  • finance;
  • technology;
  • services.

These and other categories provide a natural plan for the post merger integration, simplifying tactical execution and helping assign the right talent for your change management team.

4. Prioritize communication

A post merger integration demands more than just a back-and-forth between the acquiring company and the target company. A merger is a stressful time for the entire organization, and as such calls for a top-bottom communication strategy.

With that in mind, make sure to start a communication plan as soon as the deal is announced. Too often, employees are overly focused on the potential for layoffs or negative change, so it’s important to emphasize the value creation aspect, the synergy realization, and the potential growth ahead.

5. Set clear exit criteria

An exit criterion gives your post merger team concrete goals to work towards, letting it know when it’s arrived there. Setting clear criteria for a successful PMI is also a great way to inspire confidence in your team and give the integration leader a framework for decision-making.

Potential problems during M&A integrations

Let’s take a look at some of the challenges you can be faced with during an acquisition integration. Keep in mind, the best time to address most of these issues is during due diligence — before closing the deal.

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 taking the best decision for your company.

In practice, this means that 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 bears repeating: the lack of a good integration plan is the number one reason your integration execution will fail. Have a clear operating model, get your strategy right, get your checklists in order, 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 drive your integration forward. It’s usually best to have a senior executive take the reins of the integration. A steering committee can also be called for to 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

Besides lacking a growth strategy for the post merger integration, a key mistake is letting the acquisition integration drag on for too long, draining energy, distracting the company focus, and missing out on opportunities to provide services and grow.

Make sure your team is adequately prepared to act decisively during the acquisition of the target company and ensure that key value capture that can only be the outcome of proper synergy.

M&A integration checklist

To begin with, and with the above tenets in mind, it’s time to take you through our integration checklist.

The following checklist takes you through all the steps before closing the deal. Further below, you’ll find a post merger integration checklist 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 target 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 kept independent, and which ones 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 a clearly appointed representative for communication — a spokesperson for the process, if you will. This can be the integration or change management leader or someone else assigned 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. This can be your deal room or data room platform.

Post merger integration: A key part of your M&A integration

A post merger integration can be defined as the process of putting together all the baggage from what was previously two separate companies and making it work together. This is what happens after the deal is closed.

People are often under the impression that the bulk of a deal comes before closure, and it’s all downhill once the merger happens. However, this is exactly where many deals fail.

The post merger integration is where key aspects of the deal really happen — such as the fusion of corporate cultures and the synergy generation. As such, it cannot be disregarded, under risk of causing the deal to fail and bringing a loss of value to both sides.

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, as well as key stakeholders such as banking or law firms, consultants, and other actors in the process.

To ensure a proper integration, you should seek to promote plenty of communication among these keys players, starting well in advance of 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 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 bungling it.

HR

In what is often a period of intense work and some uncertainty, the human component is another vital element of a successful merger. This is why 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

That is, if you’ve decided to bring in an expert to provide oversight and advice on the integration process. An integration advisor often provides much-needed perspective, besides significant expertise on deal-making. While many companies will prefer their own internal change management, getting outside help is often a good idea.

A post merger integration checklist

We’ve looked at the basic acquisition integration checklist; now it’s time to look at the steps for 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 towards the new company’s success
  • appoint a previously-briefed day-one team to take care of any situations that arise
  • prior to day one, brainstorm and set up contingency plans for potential 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 their 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 prior to day one

Create motivation going forward

  • draft a 1-month or 100-day plan with clearly achievable mileposts. This helps with motivation as well as time management
  • give thought and attention to the new company’s image before stakeholders, the public, and employees. This can include revising company culture guidelines and principles or even drafting and publicizing a company statement of purpose. 

Capping off

While integrations are far from being a simple process, you can stack the odds significantly in your favor by following some well-established guidelines.

Be mindful of the key concepts of direction, value, and strategy; establish clear leadership; promote communication, and bring a powerful tech solution into the mix

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