Strategy Execution

Keys to Success for a Merger Integration

The merger integration process for a major transaction can make or break a company’s long-term success. With so much at stake, it’s worth investing in an integration that understands what it takes to realize the merger’s strategic vision. This starts with an empowered integration management team staffed with experienced leaders who can guide and manage each component of the effort.

Many organizations mistakenly assume they can repeat the activities of a past merger integration with the same level of success, regardless of the details. Overconfidence and lack of awareness of the new organization’s capabilities can derail an integration. Here are six integration pitfalls we regularly observe, and how to overcome them.

Pitfall #1: Synergy Targets Make or Break the Merger

Synergies are typically the holy grail of a merger or acquisition decision by company leadership. The synergy targets rationalize the merger to investors, leaders, employees, and customers.

Synergy projections that are poorly justified or calculated with unrealistic assumptions can lead to second guessing of the targets and damage to the integration team’s perceived credibility. Overly aggressive targets that are forced on teams have the potential to hamper operations for years to come by gutting the business’s ability to adapt. Overly modest targets can demotivate leaders and teams from executing the difficult decisions necessary to realize the deal’s value. Finally, late revisions to synergy projections and targets can not only disrupt progress in forming the new organization, but also undermine the original value proposition.

Solution: Clearly articulate the basis for synergy target assumptions and calculations. Once financial baselines and expectations are drafted, review department by department to evaluate whether their targets are attainable; and identify gaps/risks and remediations as needed. Confirm leadership supports the targets before beginning to design the combined organizational structure.

Pitfall #2: Location Uncertainty

Most mergers and acquisitions involve some form of location strategy. Shutting down offices and relocating staff is costly, requires significant lead time, and can delay synergy realization. It can also create significant stress and anxiety among employees, which can decrease productivity and threaten retention of critical employees.

Solution: Make high-level location strategy decisions early and announce them in conjunction with the merger announcement. Set communication expectations early with employees in locations that may be affected. Explain potential impact to their location or roles. Emphasize the upsides of location changes and explain how transitions will be handled. Provide support services as needed.

Pitfall #3: An Understaffed Integration Team

An integration team of internal employees can seem logical: they know the company’s people, processes, and tools. Maybe they have successfully taken on smaller integrations in the past. But an inexperienced or understaffed integration team can hinder a merger’s success. The breadth and complexity of planning and execution changes can be overwhelming – from organizational and operational decision-making to the complex psychology of change management and crafting sensitive-yet-pragmatic communications to investors, employees, and customers. The result of an understaffed and/or inexperienced team is often poor decision-making, missed deadlines, and lagging results.

Solution: Staff a dedicated integration team that does not also have to maintain their business as usual responsibilities. Be realistic about skill sets and capacity, and leverage outside subject matter experts where needed. This will ensure M&A best practices are integrated into the team operations and the demanding integration schedule is managed appropriately.

Inexperience coupled with bad decisions stacks the deck for M&A failure.”

Jack Prouty, President of the M&A Leadership Council

Pitfall #4: Failure to Empower Integration Leaders

Mergers impact all organizational stakeholders, from employees to investors and customers. They present cultural and political challenges, test relationships, and generate anxiety. An integration’s leadership and management are some of the biggest influencers of these factors. If the combined company’s leaders fail to empower the integration team leadership, business managers can attempt to take control and only focus on protecting their respective area.

Solution: Navigate the merger with a clear vision and strategy coupled with strong leadership and communication. Select an integration lead who is well-respected and highly influential within the company. Clearly communicate confidence in the integration team – with a message that everyone is supporting the same objective – to establish their authority and credibility. Ensure organizational senior leadership meets regularly with integration leadership to review statuses and resolve issues.

Pitfall #5: Poor Organizational Design

Organizational design is the backbone of a business; the revised organizational design defines how the new company will operate. Poor organizational redesign can hamper both the immediate and long-term value the merger was intended to create. Too often, leaders develop organizational charts based on the people in front of them rather than on how their department can be run well.

Solution: The new organizational design must reflect the strategy of the merger or acquisition. For example, if the merger is a cost play, the organizational design strategy should focus on achieving cost savings through consolidated back office operations and select duplicative customer-facing operations. Or the merger may focus on building enhanced product or sales teams to drive accelerated revenue growth.

Pitfall #6: Too Little Post-Integration Follow-Through

A final common pitfall is expecting that once the new organization is designed and communicated, integration work is complete. Disbanding the integration team too early can create gaps and risks in the new organization.

Solution: Retain a small core integration team that drives realization on long-term synergy items and develops a plan to transition activities to business-as-usual operations in finance, recruiting, and others impacted. This includes items such as building and executing a workforce management plan to prioritize, recruit, and fill open positions identified in the expansion or consolidation. In addition, carefully plan and execute location strategy decisions to close offices and relocate employees.

Build the Right Integration Team

Mergers are high-profile, high-risk, and high-potential events. The stakes are big and often executives must make decisions in a pressure-filled environment of expectations and public scrutiny. Since most leaders bring limited integration experience, especially with large or complex mergers, the pitfalls listed above are common but avoidable.

This is why we recommend investing in a team with deep experience in merger integration who can build and execute on a comprehensive M&A plan. They will help you remain realistic about resource needs and plan end-to-end processes that alleviate risk and avoid being reactionary. Organizations with the right integration capabilities are more likely to realize their synergy objectives. The newly combined company will lay the foundation to capitalize on the next horizon of growth and profits.

2020-02-07T13:40:54-05:00