Tax

What Are Key Steps in a Successful Post-Merger Integration

01.15.2020

Emptech's founder, Jeff Aleixo

Author

Jeff Aleixo

M&A post-merger integration

Mergers and acquisitions (M&A) are key to the growth of many businesses, but some of them fail to create value. Outside factors, such as the economy or regulation, can cause deals to produce disappointing results, even when they promise to offer substantial cost and revenue synergies. However, one major reason for this is that companies tend to treat post-merger integration as a process that happens after the deal is closed.

The post-merger integration involves strategic and tactical choices that should be made before the deal is legally completed. Achieving the maximum potential of an M&A transaction poses complicated and unique challenges since no two deals are the same.

Clearly defining and managing post-merger integration is one of the most important elements of a successful transaction because it ultimately determines whether the deal will succeed or fail. A meticulous post-integration approach can create the ultimate success of the deal while minimizing risk and avoiding missed opportunities.

What Is Post-Merger Integration?

The post-merger integration is a critical aspect of M&A. It is a complex process of combining and rearranging businesses with the aim to maximize potential efficiencies and synergies. As a strategy that a merged company should follow to integrate the operation of the participant businesses, post-merger integration should include three stages:

  1. Direction setup:
    1. Design of overall post-merger integration,
    2. Objectives,
    3. Philosophy,
    4. Principles,
    5. Post-merger management plan,
    6. Post-merger staff and teams.
  2. Value construction:
    1. Identification of cost and revenue synergies,
    2. Cost and revenue goals,
    3. Customer transition plan.
  3. Organizational change management:
    1. Talent transition,
    2. Organizational restructure,
    3. Communication strategy,
    4. Culture transition.
Use this comprehensive resource to understand the differences between a merger and an acquisition, identify key phases of M&A transactions and discover tips for efficient and compliant M&A deals.

Achieving a Successful Post-Merger Integration 

Problems in mergers and acquisitions often cause deals to fail or result in the inability to extract true value. With this in mind, post-merger integration planning should begin at the early stages of the deal, and best practices, integral team members, and M&A integration plans have to be established before the deal closes.

Successful integration as the key to avoiding the risks of an M&A and reaching its potential value is always a challenge. It is always a complex process since no two deals should be integrated in the same way, with the same priorities or under the same timetable. Here are some of the steps companies can take to make the task more manageable and lead to the right outcome: 

Preparing in Advance

Maximizing deal value begins in the earliest stages. Since smooth post-merger integration expands the potential value of M&A, companies need to plan as far in advance as possible for what happens after the deal is finalized. Post-merger integration planning should start months before a deal is even announced. Waiting too long to start planning and assigning the wrong people to handle post-merger integration can lead to disaster. Therefore, it is imperative to start planning early and have a team in place to handle the complexity of integrating the companies.

Defining Success Factors

Every M&A deal presents unique business, operational and cultural benefits, as well as challenges. To handle all the differences, companies need to first establish a consistent set of success factors that guide post-merger integration efforts. Such points during the process can define deal success. Common success factors that mark M&A deals include: ensuring stability, maintaining customer focus, securing and increasing value, integrating cultures, emphasizing employee communication, well-being, and retention, and aligning strategy, processes and mission-critical systems.

Linking Due Diligence to Post-Merger Integration

Information transfer between the acquisition and integration team is often incomplete. Also, due to the division of transaction and integration responsibilities, the integration team may not understand the full scope of deal strategy or objectives behind different aspects of the acquisition.

This can lead to wasted resources as unimportant issues are prioritized and resolved or neglecting of critical issues. Thus, it is important to connect two processes. Otherwise, important aspects of the integration such as reporting system service or customer service consolidation are compromised.

Considering the Culture

All companies have their unique corporate cultures and their own way of operating. Hence, a key element of post-merger integration is to consider the different corporate cultures and how to integrate them. To achieve this, the integration team should have access to due diligence materials. This can streamline the information gathering from various departments and help them understand the differences.

Starting Early to Reach Expected Results 

Each M&A has its own dynamics and each deal has its own unique story. However, there are often common underlying issues and challenges. Just like every M&A deal, the post-merger integration stage is unique to its participants. The length and speed of the overall transition stage depend on the deal, parties involved, and the macro-environment factors that can impact the transaction.

The successful blending of two companies and the ensuing integration of its teams and departments requires both foresight and detailed follow-through. Managing a successful business integration can be one of the most complex and challenging processes. For it to be successful, companies have to start early planning and stay focused on the strategic objectives of the deal, synergies, value drivers, and the integration plan as a whole. Also, introducing automation can accelerate the M&A cycle by reducing the amount of time required to separate and integrate business units. An M&A software offers integration teams the opportunity to seamlessly look back through the due diligence and planning phases to understand what is essential, stay ahead of possible issues, and effortlessly achieve intended outcomes.

Outsource M&A to manage the process effectively and increase the pace at which you are able to capture value through M&A while staying focused on your core business.
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