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Post-merger Integration:  Make the Deal a Complete Success

To be a success a merger or acquisition requires a smooth transition of operations and core business values.   Many companies declare victory after the deal is closed, but the real challenge is developing a new operating model that captures the synergy of the new entity.

The figures vary but all the research is consistent in confirming that the majority of mergers and acquisitions fail. The reasons for the failure inevitable are to be found in the implementation of the merger.  Some of the main reasons are:

  •  Inadequate planning.

  • Managers responsible for integration have day jobs and cannot devote their time to     integration.   

  •  Frequently managers do not have the experience of managing integrations. 

The probability of deal success goes up considerably when the key elements of post-merger integration are started before closing and during the due diligence process.

How much integration is necessary?

This will be dictated by what type of merger or acquisition you are entering into and the size of the new entity.

If you have two companies that continue to act as separate entities and focusing on different markets your integration issues will be different than if you have a larger company purchasing a smaller company in the same market place.

 

When you merge two substantial size companies, you will need to decide which company is best when it comes to different business processes and operations. For example if two companies merge to boost revenue infrastructure, back office integration will be a key goal of the new entity.

 

Understand the scope of the integration plan

Your integration team should have a full understanding of the environments that need to be merged, outsourced or left alone. Staffing this team cross-functionally can help give the planning effort a diversity of viewpoints and expertise, particularly from those divisions most directly affected by the change.  

In order to develop goals and implementation plans the team should focus on: assessing organizational capabilities, analyzing the impact of the change on the business, policies, priorities, customers, internal systems, and anticipating where the resistance to change will be.

The team should develop an integration plan that provides an analysis of work values between the two merged or acquired organizations.  They need to arrive at a clear understanding of the new entity’s overall operating principles and cultural differences before setting an integration plan in place. 

The purpose of an integration plan is simply to help you organize the work required in the many important integration areas into a comprehensive plan, with responsibilities, expectations, and time lines clearly spelled out. The plan you create will be a living, changing document, but it will also serve as a benchmark for all future integration activity.

 

Manage the integration process

It is critical to the success of the integration the plan be managed before, during and after the integration.  The integration team should remain in place to manage the on-going delivery of the implementation plan to avoid costly mistakes.

One example is in the Human Resource area.  Two companies merged and planned to consolidate there benefit plans.  During the transition they failed to notify the broker of a cancellation within the 30 day cancellation policy.  This resulted in an additional month of premiums that had to be paid to the insurance company. 

While it may not be necessary to distribute all the details of your integration plan to every one of your employees, it does pay to be open about your short- and long-term goals. Regularly communicate to your employees about where you see the company heading and how it will get there. Making your goals and strategic positioning public will encourage employees to participate in your success.

Be in touch with the human side

The toughest part of any integration process is being honest with all affected personnel. People are the most valuable asset for most organizations. It is essential that the integration plan contain a detailed communications plan designed to provide employees with as much information as possible, as soon as possible. The initial aim of the communications plan is to help prevent the loss of key personnel and the maintenance of productivity before, during and after the transfer of people and processes.

Serious consideration should be given to offering "pay to stay" bonuses, even if only for a short period. If you have to hire temporary help to get you through the rough period, it will be expensive, and the amount of time needed to train temps can be enormous in comparison to the amount of time they will actually work for you. Better to spend this money on those who already know the job and have proven they can do it in the most efficient manner.

 

Julie Corbo is Co-founder and Managing Director of EdgeStone Consulting, specializing in acquisition consulting and due diligence support to firms in the federal marketplace. For additional information, contact Julie Corbo at jcorbo@edgestone.net, or review more detailed information at www.edgestone.net.