PMI: The Achilles Heel of a Deal

PMI: The Achilles Heel of a Deal

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“70% to 90% of all business acquisitions fail. And often, it comes down to the lack of a proper post-merger integration process

Harvard Business Review

Often, it might happen that your potential acquisition is looking great on paper, and you might tell yourself that “This is the best deal ever”!

And, what possibly could be wrong then?

To be honest, a lot!

We all know the importance of Post Merger Integration (PMI) and how it is one of the keys to a successful M&A project but what we fail to realize is that varieties of complexities and risks are ingrained in it. The risks may typically include events that can significantly negatively impact the company’s value or business processes or solutions. To break it into simpler parts, if we consider PMI to be the most crucial part of the M&A integration process, just like your strongest soldier in a battle, then PMI can also be regarded as vulnerable. This vulnerability can be a damaging weakness or the real Achilles Heel of your Integration process and may sink your ship to the bottom of the sea if not reviewed and appropriately executed.

What do you mean by a Post Merger Integration?

PMI, or Post Merger Integration, is an intricate method of merging & reorganizing companies in order to realize the possible efficiencies and synergies that drive mergers and acquisitions. The PMI is a critical aspect of mergers; it involves combining the original logistical-socio-technical systems of the merging organizations into one new combined system. In simple terms, a Post Merger Integration process refers to the Integration of two or more organizations/firms after a merger or an acquisition. Time and again, we have read and learned about the Importance of a Post-Merger Integration; now let’s try to understand some of the common ways and mistakes which can make your M&A deal vulnerable.

Setting unrealistic expectations/targets during the due-diligence phase

Every M&A transaction is incomplete without the acquirer having a set of expectations and assumptions. In such a case, it becomes imperative for both the companies to reassess the deal’s objectives and align on achievable upfront realistic targets for the next few months so that work can start effectively and efficiently. Understanding the project’s implications, adjusting accordingly, and setting the right expectations and goals is crucial to maintain momentum throughout the integration process.

Cultural Crash and Lack of Honest Communication about intentions and culture

The M&A process can be challenging for both companies on both sides. We all know the reality that acquisitions aren’t always beneficial for everyone. Therefore, in such a stage, it becomes crucial to be honest from the beginning so that the tough times ahead can be dealt with by all the executives’ honesty, reliability, and candor. Since PMI is a time of extreme change for both the companies and the people, losing employees’ trust and making all Integration aspects more difficult for the M&A process isn’t advisable for both companies.

Our team at Mergerware found cultural crashes to be one of the primary reasons behind a post-merger integration fallout between companies. We conducted a cultural diagnostic, Organisational Health Index (OHI), which revealed overlaps and disparity between the company’s current and desired culture, which successfully helped us reach an effective solution for our client’s problems.

To start, we have conducted a cultural diagnostic, Organizational Health Index (OHI), measuring culture against 9 health outcomes aligned around 3 areas
The OHI has a ‘values’ component which can reveal overlaps and disparity between the company’s current current and desired value

Not dedicating enough resources to manage Integration and lack of necessary investments

Companies that are unwilling to dedicate the resources required during the integration process should not move ahead with the deal. That is because since the integration process is myriad and involves a lot of systems and processes, companies who aren’t able to quickly adapt and adjust to new roles and responsibilities while aligning the idea behind a joint vision and common goals can be one the biggest possible reasons for the failure in case of a merger. Apart from proper project management and the right kind of leadership to effectively use all the resources for the merger, the allocated resource’s lack of necessary investments can be another significant loophole in the process and cause abnormalities and delays.

Loss of Key Personnel and Spending less time on retaining talented people

The success of a project depends mainly on the people involved in it. Continuous cultural breakouts and delays might cause delays and be heavy on the companies’ pockets in terms of money and employees. For the primary step, it becomes vital for companies to identify the right set of people for their PMI process. The secondary step involves thinking of ways to keep these enthusiastic, creative, talented, and hardworking employees engaged while considering earn-outs and bonuses as a necessary expense.

Finally, “Trust but Verify”

This motto can prove to be very helpful for a company while conducting a post-merger integration process. It refers to making a checklist of things before they are finally implemented and executed. It becomes an essential step in eliminating all the surprises and misunderstandings that can cause hindrances in the deal ahead.

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