Post-Merger Integration: Challenges and factors that lead to Success?

Post-Merger Integration: Challenges and factors that lead to Success?

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Post-Merger Integration: What are the challenges and factors that lead to success?  

The M&A environment is currently very strong, but many M&A deals fail to deliver the value case, struggling to drive the expected synergies, affected by a mass exodus of top talent from the seller and an inability to deeply integrate two businesses that are apparently similar but have different cultures and ways of working. Having completed around fifty M&A integrations I have found that there are five common barriers to success.

  1. You begin without an integration thesis

The integration thesis describes the structure and approach for the integration.  So do you keep the two businesses separate, often referred to as a ‘bolt-on acquisition’, do you integrate the two businesses or do you redesign and use the integration as a catalyst to rethink your business model?  Determining this early on from your deal thesis is important as it drives the integration approach.  Highly acquisitive companies can often fall into the trap of ‘this is how we did it last time’, but I’ve found each deal benefits from being thought through independently. 

Advice to succeed:

  • Identify the largest value creation opportunities, risks, and constraints
  • Don’t miss an opportunity to redesign elements of the combined business – have an operating model workstream designed to look at this
  • Avoid the same approach applied across the entire business or ‘that’s the way we did it last time’ mentality
  1. You fail to deliver the value case – leading to growth and cost targets missed

The best advice here is to ‘follow the money’ and focus the integration on the few critical issues that drive the value.  My experience, maybe your too is that the cost synergies are typically well thought through – often enabled by bringing enabling function teams together, procurement synergies and opportunities to reduce or renegotiate on the company’s property estate.  Revenue synergies are often predicated on up sell and cross-sell of new or enhanced products and services to customers and so it’s important to safeguard your customer assets through the integration.  Finally, measure success simply and pragmatically. The success of the integration should not be measured on activities completed – for example,  “plans done and delivered” or “systems integrated”, but rather on how it has achieved the desired value for the business.

Advice to succeed:

  • Have a roadmap for cost and growth synergies
  • Develop an integration scorecard that measures impact to the business
  • Manage ‘cost-to-achieve’ with the same rigour as synergies
  • Monitor and challenge investment costs to preserve net value  
  1. Key people leave – allowing talent to drain out of the business in an ‘employee driven market’

From a culture and ways of working perspective, to win ‘hearts and minds’, it is worth spending time figuring out the extent to which to knit the two organizations together. Careful integration of teams is fundamental for the success of any merger or acquisition. This often involves bringing together people with very different sets of values, behaviors, leadership styles, mindsets, and policies. It’s important not to try to resolve every culture difference or issue immediately – it is impossible from a leadership perspective, and situations inevitably evolve and change over time.

To retain talent in both organizations, it’s important through integration to lead through open and transparent dialogue. Identifying and empowering strong and influential people from both businesses ‘the keepers’ and ensuring that they are involved early in leading the integration is critical. In my experience, I have seen employees experience either too much or too little intervention and it’s important to achieve the right balance. 

Advice to succeed:

  • Proactively wrestle issues of culture to the ground, rather than allowing them to fester
  • Secure the senior team in place soon after announcement so they can help stabilise the rest of the business
  • Map out and define the target organisation design (incl. structure, roles, supporting processes, compensation)
  • Identify key employees for retention (best of both companies)
  • Build the hypothesis for cultural integration
  1. Processes and systems hinder progress and critical systems are not secured

The best integration approaches focus on the base business and Day 1 requirements before adding new capabilities.  After understanding the operating model vision then it’s about mapping systems and processes that will require significant change and/or investment.  A blue-sky only approach can create an overly ambitious scope and phasing so it’s important to put guardrails in place around changes to processes and systems early on.

Advice to succeed:

  • Map system and process interdependencies
  • Balance support for base business with process and IT integration needs
  • Initiate collaboration between IT and functional teams to identify IT requirements for synergy delivery and other business support
  • Work with teams to identify business synergy targets enabled by IT
  1. Integration management fails to deliver

The integration management office (IMO) needs to be set up with clear leadership and accountabilities.  They need to be empowered to make decisions and set up to drive integration efforts well before Day 1.  Getting to day 1 is important in signaling credibility in the organization, so important to get it right.  Likewise, the TSA ‘Transitional Service Agreement’ which tends to be owned and negotiated by the deal team needs to be closely interlocked with the integration design. It’s also important to pace the change appropriately to not overwhelm the organization.  My advice here would be to first focus on what you absolutely need to do to get the basics right and then consider what you could do.  For example, can you pay people and suppliers on time, can you bill and receive cash?  My general rule of thumb is to ensure 90% of the organization is focused on the base business.  If everyone does both things, no one does anything. 

Advice to succeed:

  • Establish an IMO ‘Integration Management Office’ with clear accountabilities and responsibilities
  • Identify changes or actions that could impact base business success
  • Develop and agree how the integration will be managed including value roadmap and targets
  • Develop and agree Day 1 blueprint state and subsequent blueprints for Day 1 + 90 onwards
  • Synchronise operations, initiatives, and phases of change
  • Agree how the change will be managed across employees and customers

By avoiding these five common pitfalls ensures you set yourself up for integration success.

Look out for the next 3 posts where I will deep dive into three of these areas:

  • The best approaches to managing the people and culture aspects of an integration
  • The critical success factors with regards to technology and process alignment
  • How to ensure you deliver the cost and growth synergies

Author

Karen Thomas-Bland

Founder and Director – Interim Transformation and Integration roles