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. A successful integration demands a 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 shall look at some of the central tenets of the integration process, the main responsible decision-makers, and some key risks. We’ll also go through helpful 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 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 integration
An M&A integration, also known as post-merger integration, or PMI, is the 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.
For a successful integration process, companies often create an M&A integration playbook, which specifies all the key tasks, roles, and responsibilities of the process.
Key elements of 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.
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.
- Formulate clear objectives of 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
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, 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 often disregarded level, plan ahead the IT solutions for the integrated company. Proper IT execution will speed up processes and help move that synergy forward
Structuring the new organization
Even before the deal closes, you should be planning what the future 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 culture going forward
M&A integration steps
We can identify a few critical steps for a successful integration strategy keeping value, direction, and structure in mind.
1. Start early
As a rule, mergers and acquisitions are highly time-sensitive operations, so you should do your best to start the integration process as soon as the deal is set. The clock starts ticking early.
A key first decision is 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 significant 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
A merger integration can succeed only with a motivated and well-organized integration unit. It is 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 M&A process, and functional teams require more than just experience. You need driven, motivated individuals who work well alongside each other 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 team and its leader 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 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 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, 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 a clear framework 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 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 due diligence, i.e. 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, 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 integration plan is the number one reason your integration execution will fail, no matter what type of deal it is — horizontal merger vs. vertical merger. 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.
M&A 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 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 reduce 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
Post merger integration: A key part of your M&A integration
A post merger integration 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.
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 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.
In what is often a period of intense work and some uncertainty, the human component is another vital element of a successful merger. 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.
A post merger 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 towards 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 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 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
While integrations are far from simple, you can stack the odds significantly in your favor by following 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.