As we have discussed in previous posts, the post-closing phase of an M&A deal can be a difficult one, with 30% of integration deals not achieving their revenue goals. Competing organizational structures, technology, and cultures between the integrating companies often decrease revenue and productivity. Our experience suggests that the following are helpful tips to facilitate successful post-closing integration:
1. Prepare early
Companies planning an M&A deal should prepare early not just for the closing, but also for the integration that follows, especially the first day, as well as the first 100 days. A good integration strategy includes employee training, incentive alignment, and IT preparedness. While the main priority while developing the integration strategy should be increasing shareholder value, companies must also consider and balance financial impact, probability of success, and timeline requirements. Doing so will decrease the duration of the transition period, during which profits and productivity are often lower than average.
2. Create a unique operating model
Companies must modify their operating model to ensure they account for the integration. This must include an accurate and realistic estimated future revenue, based on an elaborative and exhaustive review of both companies' sales organizations, and identifying any overlap in customers, products, or nature of sales. Such a detailed review will provide a more accurate revenue estimate, thus managing expectations and planning. It will also ensure that each company's pre-integration revenue is preserved, further streamlining the integration. The operating model should also ensure that senior leaders from both companies are actively involved in the integration process itself, as opposed to merely focusing on fulfilling their pre-integration duties and only passively participating in the integration process.
3. Develop a dedicated integration team
Companies must also establish a devoted integration committee for the duration of the transition, ideally with a full-time dedicated leader, along with senior leaders and other "A-players" who can allocate adequate time to the committee. Such a team would ensure that the integration plan, and the operating model, are being efficiently applied. The team would also ensure that core processes, including marketing, order processing, and outsourcing, from each company complements the other's. Furthermore, the team would ensure that skills necessary for carrying out the integration are available internally, and hire externally if not.
4. Communicate with all stakeholders
To the extent practicable, timely, transparent, and consistent communication with all stakeholders involved is crucial for successful integrations. Stakeholders include employees, investors, customers, suppliers, and even the general public. Communications should address the specific concerns raised, give the reasons behind the deal, specify the timing for key actions, and honestly describe both knowns and unknowns. Companies that don't do so risk losing quality talent, as well as their customers' and investors' trust.
5. Ensure cultural cohesion
Finally, companies must actively manage and reconcile the cultural differences between them. As we have discussed in earlier posts, colliding company cultures leads to frustration, low productivity, and higher risks of losing talented employees. Integrating companies must conduct cultural diagnostics, which should include both qualitative and quantitative measures, at the start of the integration, if not earlier. Once completed, a comprehensive strategy for an integrated culture should be created based on a shared vision.
The above recommendations clearly outline the importance of preparing and planning for the integration itself. Just as companies dedicate months planning the M&A deals, they should equally focus on developing, and monitoring, strategies that ensure the integration itself occurs as seamlessly, quickly, and efficiently, as possible.
The author would like to thank Ahmed Labib, Summer Student, for his assistance in preparing this legal update.
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