September 2, 2016
6 Steps to a Successful Post-Merger Integration
Any merger or acquisition is rife with risk. Will your company lose its focus when you join with another company? Will you lose key employees from either company – or both? Will financial performance suffer? If you are the buyer, you need to consider the synergies, risks, value drivers and the integration plan as soon as serious negotiations begin and well before the transaction closes.
Post-Merger Integration: Start Early to Finish Strong
Realizing the maximum potential of a transaction poses complicated and unique challenges since no two deals are alike. Clearly defining and managing post-merger integration activities is one of the most important elements of a successful transaction. A rigorous post-integration approach can drive the ultimate success of the deal while minimizing risk and avoiding missed opportunities and unintended consequences. For example, if the integration commands too much focus or takes too long to complete, leadership – and as a consequence, all employees – will lose focus on the primary goal of operating the business effectively and profitably.
Here are six steps that can serve as helpful guidelines for a successful post-merger integration:
Start integration as soon as the deal is announced. You can actually begin planning the integration process before the deal is even announced. Once it’s official, you should immediately address the following to ensure a successful integration:
- Decide whether to engage a consulting firm to assist in developing and executing your integration plan. If you’re experiencing internal bandwidth or technical skill constraints, this will be essential to a successful integration.
- Identify and define pre-close considerations and requirements including, but not limited to:
- Financial Operations
- Corporate Document Retention
- Management Structure
- Data Room Creation
- Intellectual Property
- Sales And Operational Processes
- Insurance Coverage
- Material Contracts
- Management Structure
- Anti-Trust/Regulatory Hurdles
- Property Plant & Equipment Identification
- Litigation, Environmental Or Tax Matters
- Customer And Employee Retention
- Customize a carefully planned vision statement explaining how the deal enhances the company’s fundamental structure and future goals. A clear vision statement illustrates where the potential for profit growth exists and where risk lies. Due diligence on both the deal and the integration plan should be structured around this vision.
- Make major decisions ahead of time, if possible, to enable key functions to begin immediately. For example, identify and name top-level management groups quickly, but with deliberation and objectivity.
Select integration team members.Choose highly motivated and skilled employees from both companies for the integration teams. Serving on the integration team will require a tremendous amount of effort from the acquired organization, creating an extremely stressful workload. Watch carefully for signs of fatigue in the team to minimize the risk of losing key talent. Identify these team members’ future roles in advance. Too often, integration teams fail because of the lack of a future plan for those employees selected for the team.
Plan the integration structure. Divide integration activities into functional categories like Sales, Manufacturing, Service, Facilities Management, Human Resources, Legal, Finance and Information Technology. Specialists in the functional areas should be tasked with outlining and performing integration tasks within their area of expertise. This will make the integration run faster and smoother, as the experts and users are intimately involved in the process. Certain cross-functional categories will require input from multi-disciplinary teams to capture desired synergies and positive results. Most importantly, the integration plan must be clear. Tasks and accountability for those tasks, along with specific timelines, are key to integration success. An improperly planned integration structure will lead to turmoil.
Related: Look Before You Leap: 5 Due Diligence Activities for a Successful M&A Transaction
Create an internal communication plan. Change makes people nervous. To create the “NewCo Way” successfully, cultures and roles must be redefined at all levels, and expectations of the existing and target company’s employees clearly communicated–before the deal is completed. Employees on both sides of the transaction will wonder what the deal will mean for their respective roles and how, or if, they will fit into the new company. The leadership teams must consider critical messaging and communication to employees, not just to shareholders and customers.
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Keep the overall message consistent. The new company’s leadership must be consistent when communicating the story about goals, objectives, changes and risks associated with the transaction. You can avoid stressors to morale by focusing on how the deal will benefit your people in the future rather than on the synergies it will produce for the organization. Many people associate the term “synergy” with layoffs and cost reductions. This is why focusing primarily on the benefits of the transaction – in both internal and external messaging – is generally a better path when trying to win the hearts and minds of the newly combined team.
Establish clear exit criteria. If a buyer does not set clearly defined exit criteria for the integration of the company operations, then it will be difficult for anyone to know when it is officially complete. Having clear exit criteria helps integration teams know what must be accomplished and when. From there, they can work backwards to determine the tasks they will need to complete to meet the criteria. Generally, there should be exit criteria built around key processes and departments such as Accounting/Finance, Legal, Human Resources, Information Technology, Sales, Operations and Marketing. Each integration team should come up with the appropriate exit criteria to determine when integration for their respective area will be complete.
Bringing It All Together
Managing a successful business integration can be one of the most complex and challenging initiatives a senior executive will ever undertake. What’s the secret to post-merger integration success? Start early and stay focused on the strategic objectives of the deal, synergies, value drivers and the integration plan as a whole. Also, consider engaging an expert to help you manage the process and stay focused on your core business. Explore Bridgepoint’s Transaction Advisory services and get in touch today!