The general rule for more than 80 percent of M&A deals is this: “The seller wins, the buyer loses.” This truism is due to three common mistakes buyers make in both large and small M&A transactions:
- Insufficient preparation. Buyers pay too much when they fail to prepare sufficiently for the M&A process; proceed with an unprofessional and often unstructured approach to integration.
- Bad timing. If the market mood is down and company valuations are lowered, then the buyer waits “to be on the safe side;” if the market is booming and everyone wants to announce an acquisition, then the buyer rushes to purchase.
- Procrastination. The buyer views post-merger integration as a necessary evil and secondary importance to the acquisition itself, so integration proceeds without proper preparation, leading to turmoil and poor post-merger performance.
Many companies have great expectations for mergers and acquisitions, including increased market share, aligned services and products, and increased profit. The decision to merge does not automatically translate to a successful merger. When the buyer incorrectly approaches or underestimates the importance of the necessary change process to merge companies, post-merger integration results in disappointment.
So, how does one successfully merge companies? The following steps lead to a successful post-merger integration:
- Begin integration as soon as the merger is announced.
- Select key employees from both companies to serve on the integration team and plan the integration structure by dividing activities into functional categories (e.g., sales, manufacturing, service, human resources, finance, etc.)
- Develop an internal communications plan that redefines cultures and roles at all levels.
- Maintain a consistent message concerning shared goals, objectives, changes, and risks, and benefits.
- Set clear benchmarks to inform team members of what must be accomplished and when their work is complete.
Post-merger integration takes place under specific framework conditions and changing circumstances. Nevertheless, the essential core tasks are almost always the same in every post-merger integration.
Related: What Happens After a Merger?
Plan the Integration
Integration is complex and depends on choosing the right people and developing a robust integration plan.
Integrations are doomed to fail without the active support of management. Management must not only communicate their enthusiasm but model it to overcome employee resistance to change. Modeling that support includes providing the necessary resources to effect change and bringing onboard core employees with solid operational know-how and intimate organizational knowledge. Without management support, adequate resources, and key employees (and their knowledge), integration teams may find difficult or impossible solutions to implement.
Integration’s complexity means every last detail cannot be planned. The integration plan you develop is the team’s guideline for the process of integration. The plan establishes benchmarks–the steps that must be completed–and a timeline for accomplishment. It should remain flexible enough to accommodate detours and setbacks because nothing this complex proceeds without complications.
As the process toward integration proceeds and knowledge grows, the integration team can refine the plan. The integration plan itself serves as the starting point for management to monitor progress for successful completion.
Form the Integration Team
The merger of two companies brings together different cultures, corporate structures, and different types of know-how. Expecting one company to yield entirely to the acquiring entity breeds resentment and ill will. Therefore, it’s essential to involve core employees of both companies on the integration team to work together on a project that will require both corporate cultures to adapt and compromise.
Integration team members should be key employees with a firm grasp of corporate structure and intimate familiarity with business operations. Because integration is stressful, new management should keep an eye out for employee fatigue and perhaps even relieve those team members of their usual workloads until integration is complete.
The integration team’s framework for the merged company must address the functional categories of management and operation. This defines the distribution of competencies between the company’s management and the operational units. In addition to the new corporate structure, central planning and reporting processes must also be determined. They form the backbone for monitoring progress and provide the framework for timely countermeasures when something goes awry. Reporting processes establish a standard for conveying reliable information to stakeholders.
Communicate New Roles & Responsibilities
The tasks of integration management go far beyond the merger of corporate structure and the merger of personnel. The integration team also faces the challenge of getting all employees to pull together. The development and implementation of the integration vision play a central role. Without a simple and concisely formulated idea to orient the new, joint company, integration management runs the risk of floundering.
However, an articulated vision alone is not enough. Successful integration management carries out targeted training measures to cope with the challenge of merging personnel. Communicate the realignment of the company’s incentive systems, corporate structure, roles, where each employee fits into that organization, and the expectations management holds for them.
Communicate a Consistent Message
Nobody likes change, and nobody likes changes imposed upon them. The announcement of a corporate merger and acquisition creates uncertainty among employees who may feel resentful or fearful. Expect some high performers to consider leaving the acquired company. To prevent the mass exodus of key employees, management serves the company’s future well by communicating a clear plan for corporate integration and the benefits they will enjoy following the merger. Show employees specific and clear perspectives that make their future roles in the new, merged company clear. Last but not least, involving employees in the integration process gives them a sense of ownership and can strengthen their loyalty to the company.
Link Operations & Set Benchmarks
Integration management must harmonize or completely redesign business processes before the newly merged companies operate as one entity. To do this, integration management must regularly answer questions about which processes or parts of the process of both companies can be retained or redesigned to create a unified operation. Be aware that it’s not always best to impose a larger company’s processes upon the smaller one, regardless of pragmatic arguments in favor of such an approach. Doing so risks the smaller company being stifled and its innovative strength crushed by oversized processes.
A Final Word of Advice
An acquisition is only successful if the post-merger integration process has already been planned and discussed with the seller before completing the purchase. A successful post-merger integration requires preparation, proceeds without delay is professionally executed, with each step documented to record important lessons learned for the subsequent integration.
For best results in merging companies, focus on corporate cultures, internal communications with employees, and external business communications with customers and suppliers. Be clear, candid, and sensitive to the people whose lives are affected by the imposed changes.