August 22, 2022 | M&A
A merger brings together two companies that are expected to work together seamlessly for the new entity to succeed.
Not surprisingly, almost all mergers are rife with risk.
Will the companies be able to retain focus when working together? Will the employees stay on? How will it impact operations and financial performance? How can you achieve synergy and manage spend better?
Before negotiations must become serious and the deal is finalized, the synergies from the merger, attendant risks, the value drivers and the integration plan are seriously thought out.
Post-merger integration involves bringing together two separate business entities -- their assets, people, tasks and resources -- to benefit from their synergies and create the maximum value for the merged entity.
Realizing the total intended value from the merger poses a host of challenges. Getting the merger right depends on defining and managing the integration activities efficiently such that no opportunities are missed. At the same time, post-merger integration risks are minimized.
Here are some guidelines that can serve as post-merger integration steps:
The planning needs to start even before the deal is announced. As soon as the deal is official, decide whether you want to engage a consulting firm to steer the integration, identify pre-close requirements such as financial operations, management structure, intellectual property, technology, regulatory issues, customer and employee retention, sales and operational processes.
Craft a vision statement that lays down future goals. To enable the activation of key functions, identify top-level management teams ahead of time.
A carefully selected team of motivated and skilled people is key to the merger's success.
A rigorously planned post-merger integration framework breaks down integration activities into constituent functions such as sales, manufacturing, finance procurement, supply chain, legal and human resource. Functional specialists plan and perform integration tasks in their area of specialization. Cross-functional tasks will require multidisciplinary coordination and effort. Essentially, a clear post-merger integration strategy, identification of tasks, fixing accountability and defined timelines are vital for integration success.
The prospect of change creates anxiety. As soon as the deal is announced, the leadership teams must transparently communicate the motivations and goals of the merger to their employees, shareholders and customers.
The leadership of the unified entity must have a consistent message on the goals, changes and risks of the merger. Focus on the benefits of the merger to help relieve anxiety.
Define clear exit criteria in the post-merger integration plan to know when the integration is complete. The exit criteria should be defined around key post-merger integration processes – procurement, marketing, HR, sales, finance and operations. This will enable each functional area to determine when integration for its area is complete.
Also Read: M&A: How Procurement Can Drive Greater Synergies and Savings
Post-merger integration can be undertaken in four different ways:
In this method, the acquiring company completely takes over the acquired company- its processes, people, physical/IP assets and customers.
Here, symbiosis or mutual collaboration happens in selected areas to achieve the aims of the merger/acquisition.
The acquired company continues as a self-governing entity, although limited integration might occur in financial administration.
The acquiring company secures ownership of the acquired entity, but they do not integrate.
All post-merger integrations have impediments to overcome. Therefore, the merging companies must quickly identify and deal with these post-merger integration challenges for the deal to succeed.
An engaged workforce is critical for the merger to succeed. Mergers can be unsettling even for the leadership team. It creates anxiety among the people over their future. For the merger to succeed, the leadership team must communicate the post-merger direction for the merged entity, reassure people and retain top talent.
For any merger to succeed, the importance of clarity on the strategic direction cannot be overemphasized. Without clear direction, misinformation abounds, leading to workforce disengagement.
What gets measured gets done. Companies need to define well-thought-out key performance indicators (KPIs) to measure and track their progress. KPIs themselves need to be based on the rationale of the deal. The firms must use KPIs to evaluate the synergies obtained versus those targeted.
Typically, merging companies bring disparate technologies together. This could give rise to challenges around technical assets, interdependencies, cybersecurity requirements and shortage of tech talent. Overcoming these tech challenges quickly is critical for the merged entity to start delivering value.
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The interplay of several factors makes achieving successful post-merger integration difficult.
For example, technology helps automate processes, save costs, manage customer relationships, and monetize opportunities. Technology also helps power the inorganic growth of the business. However, increasing the use of technology also implies that the integration of tech assets becomes key to the merger's success.
Another example is procurement’s role in this context by executing a well-planned, M&A-focused sourcing program.
M&A restructuring also let the two businesses optimize and boost their ESG and sustainability endeavors.
Post-merger integration is also important because, increasingly, mergers are scope deals meant to extend existing business capabilities and create new revenue streams.
Mergers remain a crucial route for business growth. However, the challenges to successful integration are many and need to be negotiated carefully. Besides, cultural integration, process integration and stakeholder alignment also impact the merger’s success. Handling these challenges competently will help lay the foundation for the faster realization of the hoped-for business outcomes from the merger.
There is no set time frame. It can vary from deal to deal. However, on average, it could take about three to six months to complete post-merger integration.
A post-merger integration checklist is a step-by-step agenda to help the teams remain on course during preparation for the merger.
The integration team is responsible for the post-merger activities together with the respective leadership teams under the supervision of the members of the companies’ boards.