Create an effective pre-merger strategy: Recommendations and checklist

A merger or acquisition must be well-planned to proceed efficiently. And planning starts early in the acquisition process, long before the purchase agreement is signed. 

A rushed pre-merger phase and lack of proper planning can see major roadblocks missed that may ultimately lead to deal failure. For instance, a failure to plan was one of the reasons behind the infamous Daimler-Benz and Chrysler Corporation merger breakdown in 1998. Two companies lacked strategic alignment, which led to catastrophic operational inefficiencies.

This article covers the pre-merger process, focusing on the importance of developing the right acquisition strategies and early integration planning. Read on to learn how to build a strong pre-merger acquisition strategy, using our step-by-step checklist.

What is a pre-merger strategy?

A pre-merger strategy is the foundational planning phase of the M&A process. Its aim is to assess the potential of integrating two companies. 

This stage is essential because it helps evaluate whether the companies involved share certain strategic objectives and understand how their combination could realize synergies in the future. 

A pre-merger integration strategy should also explain how the prospective combined new company will operate, ensuring alignment between both organizations’ goals, cultures, systems, and processes. In other words, a pre-merger strategy is about assessing the potential of a post-merger integration.

By starting the planning process early, the companies involved can understand whether the proposed deal has a chance of success.  It also proactively addresses possible challenges, such as issues with cultural integration or workforce alignment, both of which are critical for a smooth transition and successful merger.

Strategic focus in pre-merger planning

The main objective of pre-merger planning is to understand whether the sell-side and buy-side of the M&A process align on their strategic goals.  

Here’s what  pre-merger planning typically includes:

Communication strategies for pre-merger success

Clear communication is a critical driver of change management in M&A integration for almost 60% of deal-makers. More and more are rolling out change management programs early in the deal execution, long before the due diligence starts. 

This proves the importance of transparent communication in the early stages of the M&A preparation process, particularly, during the pre-merger phase. 

Here are the main recommendations for establishing effective communication among all stakeholders involved.

Explain objectives and rationale

Before entering into a merger or acquisition, you should communicate the strategic reasons behind the decision. This clarity helps employees understand the need for the deal, reducing uncertainty and potential resistance. This is crucial since a merger or acquisition can negatively impact employees’ perception of alignment, decision-making, and motivation. 

To mitigate such a risk, leadership can organize a series of presentations explaining the deal’s strategic goals. By articulating how it aligns with the company’s vision, employees are more likely to support the initiative.

Create a comprehensive communication plan

To establish effective communication pre-merger, you should clearly outline its aspects in the M&A communication plan. 

A pre-merger communication plan should include details on who will communicate what, when, and through which channels. This ensures that messaging is consistent and timely across all levels of the organization.

Use multiple communication channels

To reach different employee groups and make sure everyone has access to the information they need, employ different communication channels.

For instance, you could use email newsletters to provide regular updates and town hall meetings to discuss the company’s rationale for entering the deal.

Foster two-way communication

Feedback is important at all stages of the M&A process. Getting constructive comments from stakeholders can positively impact decision-making. 

Moreover, encouraging feedback and questions creates an atmosphere where employees feel heard. This approach not only reduces anxiety but also enhances engagement. 

Engage managers as communication leaders

Managers and team leaders can provide support and address employee concerns directly, ensuring that information about a potential deal is effectively shared.

That’s why it’s recommended to roll out training sessions for managers on how to communicate the deal. It can equip them with the tools to address concerns and keep their teams informed. 

An example of a pre-merger checklist 

Building a pre-merger strategy requires a knowledgeable and fastidious approach so as not to miss anything that could affect the potential deal’s success. 

We recommend creating a detailed checklist that outlines the main tasks of the pre-merger stage and ensures that no critical issues are overlooked.

Below is an example of the tasks to include in a pre-merger checklist.

Category	Task
Strategic assessment	Confirm that the potential deal aligns with the company’s long-term goals and overall strategy. Analyze potential areas for cost savings, revenue growth, or enhanced capabilities. Assess how the deal will position the company against competitors.
Initial due diligence	Conduct operational due diligence and evaluate the target’s operational efficiency, processes, and scalability and how it can align with your company’s ongoing operations. Review the target’s culture to identify compatibility or differences. Understand the target’s customer base, market position, and brand perception.
Financial evaluation	Identify and value both tangible and intangible assets and assess debt obligations. Review historical revenue, profitability, and growth rates. Develop forecasts for post-merger revenue, costs, and profitability.
Legal considerations	Examine contracts, intellectual property rights, and ongoing legal disputes. Assess compliance with industry regulations and identify required regulatory approvals. Identify any potential legal risks or liabilities tied to the deal.
Risk assessment	Determine potential financial, operational, cultural, and reputational risks associated with the deal. Develop strategies to mitigate each identified risk. Establish a process to continuously monitor risks throughout the deal.
Integration planning	Start developing a detailed integration plan, including milestones, timelines, and responsibilities. Plan the merging or compatibility of IT systems, data, and infrastructure. Identify and allocate resources needed for successful integration, including personnel and budget.
Communication strategy	Create a strategy for informing employees about the deal and managing concerns. Develop messaging for external stakeholders, including customers, partners, and investors. Prepare messaging for public announcements and handling media inquiries.

Key takeaways

• A pre-merger strategy is the foundational planning phase of the M&A process that helps evaluate whether the buyer and the seller share their strategic objectives and understand how their combination can help realize synergies.
• The main components of pre-merger planning typically include defining strategic objectives, target selection criteria, alignment of leadership vision, market analysis, cultural integration strategy, financial evaluation, risk assessment, and post-merger integration planning.
• Timely, proactive, and transparent communication is a critical part of the pre-merger strategy’s success.
• A pre-merger checklist outlines the main tasks to complete during the pre-merger phase. Some areas to include are strategic assessment, initial due diligence, financial evaluation, legal considerations, risk assessment, integration planning, and communication strategy.