Why You Should Plan Your Post-Merger Integration
If only mergers were as simple as the paperwork that unites the two organizations. A deal is struck between Company A and Company B, everyone signs off, and the new Company C launches and dominates its market.
But of course it’s not that easy. Harvard Business Review reports that between 70% and 90% of all mergers fail, and they fail after all the smiles and handshakes, in the post-merger integration phase. Why? Usually it’s due to inadequate planning of the post-merger process, and “process” is the important word there. Depending upon their size and complexity, it may take between one and two years to fully integrate the two entities.
Combining two organizations into one is a process that will benefit greatly from outside help, a classic example of “you don’t know what you don’t know.” An independent consulting team that has lived through successful – and unsuccessful – mergers can help you avoid many of the common potholes. Having said that, here’s a look at some best practices, and some things to avoid.
Start early. Your post-merger integration planning should begin at least when the deal is announced, and often before. This is your moment to decide whether to engage an outside team to help develop that plan and oversee its execution, and that decision will depend in part on the level of internal skill and experience you have available between the two organizations.
Create a team. An integration team should be tasked with creating a successful plan. Best practices here include choosing highly skilled and motivated employees from both organizations, and keeping a careful eye on their stress levels. You’re adding critical extra work to their existing duties, and the last thing you want is to have valued players depart due to stress or burnout. Make sure each team member knows what’s at the finish line also; identify their post-merger roles and communicate those clearly.
Look past the numbers. Understandably, most of the pre-merger focus is on the dollar signs: the valuations of the two entities and all the financial intricacies that add up to a mutually beneficial deal. A successful merger, though, involves much more than balance sheets. Failure to consider any of the following can doom a transaction from the start.
- Technology. You’ll obviously consider the software packages used by each company and how to unify or replace them. Don’t forget a thorough hardware assessment as well so there are no unpleasant surprises down the road. And the cybersecurity profile of any organization becomes more important – and typically more costly – with each passing year.
- Culture. Organization culture is difficult to define and pinpoint, but it’s almost certain that there will be some significant differences between the two organizations. How will those differences be resolved? This is a vital consideration, and a good assignment for the integration team, who are likely to be closer to the front lines of culture than those in the C-suite.
- The people in the seats. Pre-merger planning should include a top-to-bottom assessment of the personnel and their roles at each organization. Chances are strong that there will be redundancy in positions or skill sets as the two companies become one. Can valued personnel be shifted to other roles? This effort should result in a detailed organizational chart for the new entity.
- Compensation. A thorough comparison of the pay structure at each organization should be completed pre-merger as well. This includes not only salaries but commission structures for sales and business development personnel, benefits packages and rules around vacation days and other PTO. Uniting two different systems in a way that doesn’t demoralize team members (especially in the age of the Great Resignation) is a delicate matter.
- Processes. Similar to the situation with pay and benefits, the processes around hiring, training, learning and any number of HR matters must be considered. What needs updating? How will they be integrated? Especially when a bigger company purchases a smaller one, the temptation is to just absorb the smaller entity into the larger one’s processes. But that smaller firm is an attractive target for a reason, so don’t miss the opportunity to carefully review processes and see if anything can be learned that might improve the entire organization.
There are, of course, many more considerations in a merger, running the gamut from insurance to intellectual property to compliance and regulatory concerns. Ultimately, the goal in a merger is to create value, and a 2016 McKinsey study reported that well-handled integrations resulted in returns that were 6 to 12 percentage points higher than otherwise.
The time and effort put into detailed post-merger planning won’t guarantee success, but it will increase the odds. Momentum is vital, and with all these items addressed ahead of time the new organization has a better chance to hit the ground running.