What is M&A integration?
Post-merger integration is the complex process of combining two companies with the purpose of maximizing synergies and ensuring that the M&A deal returns its intended value.
The integration process involves several logistical and social-technical systems being combined into one. The merger integration includes assets like resources, employees, tasks, and all the information technology behind them.
The importance of a well-organized integration process cannot be underestimated — especially with 70-90% of mergers and acquisitions failing to live up to their predicted value.
Overcoming risk management issues and achieving early results is critical for successful post-merger integration.
Key responsibilities for post-merger integrations
The common problems to tackle during the integration planning boil down to:
- Blurred reporting and responsibilities
- Communication difficulties
- Employees’ resistance to change
- Absence of trust to new leaders
- Low employee retention and turnover of key talent
- Divided loyalties
As the first step of the change management process, clear roles and responsibilities of the integration team should be set. Typically, they involve the following:
- Integration owner — acquiring company CEO/member, in charge of acquisition integration
- The top team — key executives and direct reports of both companies
- Integration manager — the project manager leading both integration teams
- Integration leaders — key managers of the merger integration process
- Integration team — the broader team involving key talent of two companies
Now, let’s take a closer look at the importance of each role for a successful integration.
The integration owner is the Buyer, e.g. the acquiring company’s leadership. They own the integration process, and their main responsibility is to oversee the acquisition integration and the post-coming purchase of the acquired organization.
The top team
The top team is the governing body of the integration, represented by top executives of the two organizations. The key responsibility is to define the integration strategy, select the integration manager and its team members, and communicate the deal value — while defining cultural integration risks and building integration plans.
The newly defined integration strategy should convert a company’s aspirations for a successful post-merger integration process into clear performance metrics — both operational and financial.
The integration manager is the project manager, responsible for all day-to-day post-merger integration activities and the future success of merger integration as such.
The integration leaders are the management of both integration teams. They act according to the integration plan, mobilize key employees from both companies, distribute tasks across all business units and functions, and oversee the change management process as such.
The integration team is a broader team of the new company, consisting of the integration manager, integration leaders, and top leaders from both the target company and the acquiring one. The integration team must lead the merger integration and take the combined company, which is often building a drastically different company culture, into post-merger integration success.
5 steps for a successful post-merger integration process
Realizing the potential of value creation poses challenges for a successful post-merger integration, since no two deals are alike.
However, having a clearly defined integration plan along with all forthcoming integration activities are key for achieving strategic objectives of a combined company. To start with, here are the main milestones of the integration process:
- Start early — before the deal is announced
- Create and manage the integration program
- Build the integration management office around key value drivers
- Prioritize the essential workstreams
- Define clear exit criteria
Step 1. Start early — before the deal is announced
The integration planning should begin before the actual merger integration is announced. This will buy you some time to prepare a clear post-merger integration checklist to follow.
To start with, define the objectives of the post-merger and decide how to communicate them:
- Keep in mind pre-close considerations. Identify them ahead of time. Consider specific requirements for management structure, financial, sales, and administrative operations, technology integration, IP management, document retention, high turnover prevention, deal value communication, and more.
- Make key structure decisions in advance. Engage key players quickly, letting them act in functional teams and perform their duties immediately. Identify the top-level integration executives, including integration team manager, leaders, and members.
- Set up a vision for a successful integration. Create a well-planned vision statement explaining how the successful merger drives the corporate strategy towards ultimate success. Be clear about the potential risks, but explain how challenging initiatives can also drive profit and maximize opportunity.
Step 2. Create and manage the integration program
Regardless of the size of the forthcoming merger integration, you should rigorously plan it as a distinct program.
Once you have a clearly formed vision and a list of key employees to engage, you are ready for the next steps, such as:
- Define key expectations from the M&A program. Along with key executives, integration managers and leaders define confidentiality expectations from the entire organization and clear data-sharing standards. If the organization doesn’t have an effective data sharing system in place, the use of integrated solutions like data room software should be considered. Making sure none of the companies violates confidentiality is critical prior to the merger integration close.
- Consider business and functional integration. For this, create a planning document with specific integration steps, assignments, deadlines, responsible people, dependencies, and other functions. The document will serve as the integration work plan, clearly stating who, when, and to what extent is responsible for the integration.
- Navigate the change management. Last yet as important, crisis communication and change management are key for deal success. Create a plan for communication to minimize uncertainty, build full transparency, and provide clear leadership to all employees and stakeholders.
Step 3. Build the integration management office around key value drivers
Once the basis for the merger integration in terms of operational and financial expectations is set, it is time to arrange the essential processes.
- Set up the program, hold the IMO, kick off the essential workstreams. At this stage, an integration management office (IMO) should be established. The process includes a kick-off IMO meeting, a weekly synchronization between IMO functional teams, and constant communication between the integration leader and IMO. Critical cases should be escalated quickly, risks minimized, and action points and new functional workstreams created according to the integration plan.
- Design the operating model of the newly created (NewCO) organization. It should include key employees, processes, and technology integration plans of both the target company and the acquiring one — as well as how they are expected to work as part of the combined company. During this step, it is also essential to conduct an operation-focused analysis of gaps to find out if any of the sides is missing any capabilities or processes, critical for the combined organization’s future success.
- Plan the expected synergy realization. No merger integration is a success without meeting synergy goals, which, at its best, takes months to achieve. Be sure to build the synergy realization plan and embed it into the annual budgeting process of a new organization.
Step 4. Prioritize the essential workstreams
When two companies set up for a merger integration, all workstreams are essentially important. However, some functions are more critical at the beginning of the integration planning, while others (operations, marketing, design, sales, distribution) should be considered further down the road.
For a successful PMI, prioritize the following functions:
- Finance. This function is critical, since it has a direct relation to funding the deal, paying taxes, calculating the expected synergies, measuring financial performance, and evaluating the synergy realization plan.
- Legal. Since law firms and legal experts handle all processes that precede and follow the merger integration, they should consider all elements of the merger, from corporate structure to compliance with local regulations and laws, and making the deal happen as intended.
- Human resources. These employees should navigate the change and provide reassurance to both companies’ teams during the merger. Human resources experts should validate lists of employees, develop perspectives of top performers and make sure they stay engaged, mitigate attrition risks with retention bonuses and new contracts, define corporate strategy changes needed, and discuss them with the senior executive.
- Communications and PR. Since uncertainty is the biggest bottleneck in a successful merger integration, communication experts should overcome it. For this, they should work with groups of external and internal stakeholders, leadership of both companies, and employees to mitigate risks and make sure the default values of the deal are well-understood.
Step 5. Define clear exit criteria
If you do not set clear exit criteria for the post merger, it will be difficult to estimate when the actual deal closes and what are the main steps to accomplish along the way. This is why it is better to break exit criteria into the following:
- Pre-transaction factors. These may include anything from choosing the right partner to conducting proper due diligence, building trust between both parties after the due diligence phase, and communicating effectively all along.
- Post-merger factors. These criteria should evaluate the quality of the PMI projects and activities, execution of the post merger plan, realization of synergies — as well as the smoothness of acquisition integration in terms of strategic, cultural, and organizational fit.
- Macroeconomic factors of influence. The overall economic environment and political climate can also have a huge impact on the post merger. As such, they should be a part of exit criteria as well.
Post-merger integration key practices
Since the success of post-merger depends on the success of communication, it is essential to build it properly from day one. That said, you should develop efficient communication on the targets of the merger, and make it clear to everyone.
Key communication points to highlight are the following:
- As a result of post-merger, what changes on day one?
- What areas will changes affect mostly — operating models, redundancies, etc.?
- What processes stay the same?
- What changes are expected in the near future?
- What is the timeline for those changes to come into action?
- Where more information can be found?
- Who are the main contact people to get more information from?
Make sure you address all these points in several phases: at pre-closing, closing, and post-closing stage:
- During pre-closing, you should arrange all-hands meetings, schedule discovery sessions and fireside chats with leaders, distribute FAQs and Q&As to all employees, and make sure an overall deal purpose is clear to everyone.
- During the closing stage, or on the day one of the post merger, you should schedule an announcement for the entire organization, arrange one-on-one calls with leaders, and distribute welcome kits and press releases to every employee.
- Once the deal closes, be sure to maintain momentum and have regular one-on-one discussions with groups or individuals. Arrange regular all-hands meetings and integration newsletters to keep everyone on the same page.
Post-merger integration is the process of combining two organizations into one with the purpose of maximizing synergies.
Usually, key responsibilities of a post-merger are divided between the integration owner, the TOP team of executives from both parties, and also the integration manager, leaders, and team members.
To arrange the process of integration, it is essential to plan the deal in advance, create a detailed integration plan, and build integration teams, while prioritizing the essential workstreams and clearly defining exit criteria. If followed properly, this framework lays the foundation for post merger success.