Realizing the maximum potential of an M&A transaction poses complicated and unique challenges since no two deals are alike. M&A deals may fail or underperform due to a number of factors, including the economy or regulations. Another reason for this may be the challenge of post-merger integrations as bringing together two organizations, each with its own processes, structure, culture, and management is profoundly complex.
Favorable results of M&A deals depend on successful post-merger integrations that minimize risks and prevent missed opportunities and unintended consequences. Thus, clearly defining and managing post-merger integration activities is one of the most important elements of successful transactions.
Post-merger integration is the process of bringing two or more companies together with the aim of maximizing synergies to ensure that an M&A deal reaches its predicted value. The same process is sometimes referred to as post-acquisition integration.
Managing the complexities of post-merger integration requires a systematic and disciplined process governed that can be narrowed down to design, organizing, planning and execution:
- In the design stage, organizations identify their shared vision, strategies, and goals to form the foundation of all subsequent decisions, actions, and initiatives. This phase considers the legacy cultures, strengths, and commitments of the two organizations in order to define the purpose and direction of the newly merged organization.
- The organizing stage determines the framework within which the newly merged organization will function. To ensure successful post-merger integrations, this framework should include the decision-making process, governance and leadership structure, reporting matrix, operating model, plan for internal and external communications, and financial plan.
- The planning stage serves to establish objectives for key functional areas, including finance, operations, IT, clinical departments, quality, supply chain, human resources, and staff. At this stage, it is necessary to ensure that best practices from each organization become standard practices throughout the new organization in order to facilitate successful post-merger integrations.
- The execution stage serves to integrate the adjustments to the organization. All identified integration initiatives are evaluated based on the new organization’s vision, strategies, and goals. Key elements include tracking, monitoring, and reporting of initiatives that determine the goals of the merger.
Successful post-merger integrations are critical in order to avoid the risks of M&A deals and prevent their failure or inability to extract true value. While they are often treated as a one-size-fits-all process, each post-merger integration has its own speed, style and focus. Therefore, the strategy and process for successful post-merger integrations must be tailored to account for those differences.
The first step necessary to make the task of post-merger integrations far more manageable and lead to the right outcome is preparing in advance. Ideally, the acquiring company should begin planning the integration process even before the deal is announced. Starting early and having a team in place to handle the complexity of companies’ integration is critical for positive outcomes as opposed to waiting too long and assigning the wrong people to handle the task.
To handle all the differences encompassed by M&A deals, companies need to determine a set of success factors that guide post-merger integration efforts. Such factors may include: ensuring stability, maintaining customer focus, securing and increasing value, integrating cultures, emphasizing employee communication, well-being and retention as well as aligning strategy, processes and mission-critical systems.
The success of M&A transactions is directly tied not only to the terms of the deals but also to the ability to successfully integrate the transaction in a timely manner. While no two deals are the same, certain integration variables should be considered early in the due diligence process to increase the probability of success.
Companies undertaking an M&A must be certain whether it is an expansion in the same or highly overlapping business or an expansion into a new market, product or channel. The answer to this question affects a number of subsequent decisions, including what companies choose to integrate and what they keep separate, what the organizational structure will be, which people to retain and how to manage the cultural integration process.
M&A deals provide a unique opportunity to transform a newly combined organization, shape its culture in line with strategic priorities, and ensure its health and performance for years to come. This is why cultural factors and organizational alignment are key elements of successful post-merger integrations. While all companies have their unique corporate cultures and their own way of operating, it is important to start this process early and act before cultural integration becomes more challenging.
While every M&A deal is different, having a thoughtful and planned approach to integration is a must, but this is where companies usually fail to execute. The success or failure of M&A transactions is measured in the years immediately following its completion. Therefore, determining, planning, and communicating goals and strategies should be a top priority for companies from the very beginning.
To help plan and streamline the process and ensure successful post-merger integrations, companies should determine specific strategies from the very start to final completion and stay focused on the strategic objectives of the deal, synergies, value drivers, and the integration plan as a whole.
Also, they can consider working with a team of experts to help manage the process. This allows companies to plan properly from day one and the very beginning of the diligence process, have access to all the files and data prior to the deal closing, spot areas of concern and plan accordingly. As a result, they can avoid common post-acquisition mistakes and increase the chances of successful post-merger integrations.