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Chapter 6 | Post-Merger Integration

There is no one-size fits all approach to a successful post-merger integration (PMI) process – however, careful planning, focusing on the strategic objectives of the deal and the identification and capturing of synergies will help maximize deal value.

PMI is a complex process – often necessitating changes in an organizations’ business operations, people, processes, culture and structure. The bringing together of two organizations experiencing change (perhaps for the first time) while at the same time ensuring that business continues as usual is a challenge that should not be underestimated and one requiring a high-degree of planning.

It is important that the PMI process is approached with speed in mind. Stakeholders typically expect to see synergies captured and cost savings realized within 12-24 months of deal close. The longer the PMI process is drawn out the more likely it is that potential synergies will be lost, cost savings and economies of scale will not be realized, management will become disillusioned and key staff will leave.

For most organizations, PMI is not a core attribute. Rather, it is a process that will be encountered once, or perhaps a handful of times if a serial acquiring is considered. PMI requires a different skillset than is required for usual business operations. The approach taken to PMI depends on the strategic rationale behind the deal and the future intended strategy of the new organization.

Critical Success Factors
Midaxo_PMI Diagram
 

Integration Strategy – e.g. consider the extent to which the target will be integrated – (i) such as full or partial (ii) how resources will be shared and (iii) the extent to which duplicate functions will be removed, etc. If there is a need for some level of autonomy to remain consider across which areas of the target’s operations this will be.  

Leadership integration success begins at the top. That is to say, ensuring an organization has the right individuals(s) to lead the integration team and people involved in the PMI process is critical. The leadership team should assume responsibility for building the right functional team, planning and strategizing and ultimately, should use their leadership skills to execute on the integration plan. Leadership will need demonstrable competence in a number of areas including (i) managing multiple projects simultaneously (ii) managing cultural differences (iii) managing customer expectations (iv) managing expectations of the wider organization – including C-Suite, shareholders and other stakeholders.  

Speed of Integration – the longer the integration process takes place, the longer the realization of synergies will take. The time-value of money means deferring the capturing of synergies will result in less value being captured than estimated - essentially leaving cash on the table. 

Communication – communication across the integration process should be timely, open and honest. It is important to clarify the expectations of all involved and to reduce ambiguity. Effort should be focused on explaining the strategic objectives of the deal (and resultant integration) and in using interpersonal communication as extensively as possible. A detailed integration communication plan is central to this process.  

Managing Culture – taking the time to consider and manage cultural differences is vital to integration success. The new culture of an organization may combine the best aspects of both acquirer and target (depending on the extent/nature of integration) or cultures may have to be adapted in a way that supports the new organization’s strategy. In managing culture, the following are important: (i) leadership behavior & communication (ii) appointment of key people (iii) organization design (iv) approaches to change management.

7 Steps to Integration Success
#1 Prepare in Advance

Maximizing deal value begins in the earliest stages. While smooth integration expands the value potential of M&A, if teams are executing on a deal that is simply incompatible, the value won’t be realized, regardless of how defined integration processes are. Many companies call this a ‘preliminary integration assessment’. At this stage, an organization should answer a well-defined and previously agreed upon set of basic rationale questions. These are posed before every opportunity that enters the pipeline and assess the ultimate integration and value potential of a target.

This basic assessment may disqualify opportunities before they undergo further due diligence because synergies are just too illusive. This may be due to unmanageable cultural clash, merger or asset transfer laws or practical incompatibility of operations, for example.

#2 Define Success Factors

Every acquisition will present unique business, operational and cultural benefits, as well as challenges. This variety is expected and part of the inherent opportunity present in strategic M&A. But for all the differences, an organization needs to firstly establish a consistent set of success factors that guide integration efforts. These are compass, or anchor points, in the process that defines deal success. Integration decisions need to be made with these convictions in mind. Common strategy and success factors that span deal making of any size/type include:

  • Ensuring stability and operational continuity;
  • Maintaining customer focus;
  • Securing and increasing value;
  • Actively integrating cultures;
  • Emphasizing employee communication, well-being and retention;
  • Aligning strategy, processes and mission-critical systems, like IT and financial reporting. 
#3 Day One Readiness

While Day One is of tactical importance, it is also representative of something bigger. All eyes are on leaders as stakeholders build a perception of leadership competence, gauge impact to their livelihoods and establish their level of buy-in to this new world. Navigating Day One must include addressing three core areas: communication, operative structure and systems and controls.

Communication

Thoughtful, planned communication not only shares important information to internal and external stakeholders, but builds trust and helps maintains motivation in a time of relative uncertainty. Practically, it can reduce the impact of rumors and help to unify different parts of the new, joint organization.

Operative Structure

Defining the operational structure and reporting procedure is a Day One requirement. If this information is not available, or is poorly communicated, personnel will follow familiar habits. While initiating change is always difficult, there is a natural openness on Day One and beyond that, establishing new protocol get difficult. HR should play an important role in these shifts and needs to be apprised in advance, while having a strategic say in structural planning, future staffing, strategy, etc.

Systems & Controls

Continuation of financial and sales reporting is crucial for management to be able to control the operations of the target and the progress of integration. It is recommended to have clear and detailed instructions with ready-made forms and templates available to the both the acquired and acquiring entity teams on Day One.

#4 Define Objectives

Building on the idea of standard success factors, deal objectives need to be clearly established and communicated. These have a more deal-specific flavor, but guide decision making throughout the integration process. These objectives will be drawn by organizational leadership from considerations around: underlying logic of the deal, structural nature of the deal, system integration planning, schedule optimization, investor return expectations and other commercial or strategic rationale that underpinned into “green-lighting” the deal.

#5 Prioritize Activities –Day One to 100

Deal teams will be hit with a deluge of tasks the moment a deal closes. General tendency is to divide up activities and get to work. Instead, teams need to work from a prioritized list of activities and establish coordinated action plans to make sure they are carrying out the right tasks in the right sequence.

In particular, the First 100 Days represents the high-visibility window in which the critical path toward value realization and change management is set. An integration plan must include staged deliverables in separate phases to reduce implementation risks and set the stage for a healthy future for systems, operations, culture and controls. As well, it is where organizations will practically assess their pre-purchase phase findings and build relationships with acquired entity leadership, employees and key customers.   

#6 Link Due Diligence to PMI

Information transfer or issue tracking from the Due Diligence team to the Integration team is often incomplete. Additionally, because of how deal responsibilities are assigned, the Integration team may not understand the full scope of the deal strategy or objectives behind aspects of the acquisition.

Obvious outcomes of this are either (i) wasted resources as unimportant issues are prioritized and resolved, or (ii) deal critical issues are neglected, compromising important aspects of the integration such as reporting system service or customer service consolidation. A Smart M&A Platform offers integration teams the opportunity to seamlessly look back through the due diligence and planning phases to understand what is essential and stay in lockstep with intended outcomes.

#7 Report & Collaborate in Real-time

As with any project, effective post-merger integration includes regular reporting, reviews against set goals, feedback and summaries of the results. This spans all communicative activity from the integration kick-off meeting, to setting agendas for intermediate review meetings.

Ongoing report examples for post-merger integration will include: 

  • Team/Stream; 
  • Integration Manager; 
  • Market/Country; 
  • Integration Steering Group; 
  • Board;
  • Owner;
  • Lessons Learned/Post-mortem; 

Similarly, across the integration process, a deal team will need to drive collaboration and share issues that are relevant to their specific stream of integration with workstream leads (i.e. HR or Procurement, for example). This can, and should, be handled in a Smart M&A Platform to ensure that leaders have the latest account of integration progress and can address tasks, corrective actions, notes or sub-tasks in one central place. This must move out of email and off static spreadsheets to create a synchronous, interactive and accurate process.