M&A Transactions: Lost in Transition

Let’s admit it – mergers are exciting. You get to realize your company’s strategic plan and grow the company. The intricacies of negotiations can occupy all of your attention, and getting the deal right is incredibly important. But often, transition plans for managing the resulting company are lost in the process.

Far too often, I’ve seen high-performing companies stumble after a merger with issues like integrating cultures, creating management structures, and merging technology and business systems. The answers to seemingly simple questions such as “Who will serve on the new management team?” or “How do we determine which employees will play what roles in the new company?” can have serious repercussions if not discussed well before implementation.

In fact, corporate board members and CFOs cite post-deal integration more than any other factor in determining the ultimate success or failure of an M&A transaction, according to a recent study conducted by Corporate Board Member magazine.

With acquisitions, the governing philosophies are pretty clear – the larger company tends to make the rules. The larger company often will use its own management team, accounting system or employee handbook. Even with clear guidance about whose culture will prevail, however, the management team in an acquisition must address some of the same issues as companies that are merging. Using sensitivity during the integration process and giving the process the attention it deserves can result in improved cost synergies and scale efficiencies – two of goals for a successful M&A transaction.

If you are involved in a merger or an acquisition, my best advice is to start now with these six suggestions for creating a management plan for the weeks after the legal documents have been signed:

Appoint a Full-Time Integration Team

A difficult or delayed integration can expose a company to more risk than is necessary. Appoint a full-time, temporary team to plan and implement merger strategies. Do not expect team members to assume integration responsibilities in addition to other duties for which they will be held accountable. If you make team duties part-time, day-to-day activities will often take precedence and lead to significant delays in integration. The added responsibility can also lead to employee dissatisfaction among key employees. Define the roles of each member of the integration team in detail, and include someone responsible for reporting progress to appropriate management and board members.

Acknowledge the Importance of Successfully Merging Cultures

Every company has its own culture with its own nuances, and no two companies are exactly the same. It may seem obvious, but merging cultures is perhaps the most unpredictable aspect of post-merger integration. Take the time to review an acquisition target’s culture and identify both similarities and significant differences to yours. Start to identify the cultural aspects making final decisions about culture. The new company should have a clear culture message ready to distribute to all of its employees on the first day of post-merger integration.

Choose a Sufficient Accounting System, Not the Most Convenient

In a perfect world, all parties of a transaction would operate on the same sufficient accounting system. In reality, however, most are operating on different systems, and neither system is sufficient to support the combined companies. Review the accounting platforms for both companies and make decisions about changes and schedules prior to completing the transaction. Once the platform for the combined company is identified, do the following:

  • Develop an integration plan with identified launch dates for functions such as merging the chart of accounts, running parallel systems and stopping the legacy systems.
  • Conduct an account GAP analysis.
  • Identify the roles and responsibilities for people involved in significant portions of the integration.

Review Business Processes with an Open Mind

Business processes vary widely from company to company, even within the same industry. Review the significant processes and procedures in each company before completing a transaction and develop a unified set for deployment as soon as possible after the deal is finalized. Business processes are similar to accounting systems in that the business processes currently in place at either company may not be sufficient to support the intricacies of the combined company. Be vigilant that the team doesn’t eliminate processes that have made the acquired company successful just because the processes don’t line up with yours. Business processes, like culture, generally require careful merging. Be sure to allow for strategic additions to the merged version to fill gaps created by the additional complexities of a combined entity. 

Be Slow to Release Key Employees & Quick to Develop a New Management Team

My team and I will often see newly combined companies release key employees immediately after the deal is finalized, seemingly with no deliberation on the long-term impact key employees can have on customers and sales. The rationale typically involves short-term solutions. I would advise you to take a longer approach and consider the value of key employees in your business.

I would further advise you to develop a post-integration management structure to avoid blurry chains of command in the new company.

  • Outline the new management structure.
  • Specify both existing and newly-created management positions.
  • Identify who will assume those roles.
  • Allow all parties to agree to the plan.
  • Communicate the plan to everyone.

This transparency will go a long way in identifying lines of communication and setting an appropriate tone at the top, which will play a significant role in merging cultures.

Rinse and Repeat

Every company is different and every acquisition comes with its own set of unique challenges and opportunities, but significant aspects of the integration process can be applied from one transaction to the next. You should evaluate the successes and failures in each merger as you develop an integration model that can be deployed in future transactions. Recreating the wheel takes time, so past experience can be a significant bonus in the integration process.

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Topics: Merger & Acquisition

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