Every year, PWC conducts an M&A Integration survey among hundreds of companies that have performed some form of M&A integration in the previous 12 months.
And although every year the results are slightly different (and always interesting), one thing that every year has in common is a large proportion of respondents that feel their integration wasn’t a success.
While M&A practitioners have adopted the widespread stance that integration is absolutely necessary for the long-term success of a merger or acquisition, the process is nonetheless fraught with difficulties.
Signing the dotted line on a transaction is, in many cases, the easy part. Extracting value from integration is a far more complex question.
We at DealRoom have a long history working with companies on integration and below, we look at eight of the biggest post-merger integration issues and challenges and discuss ways in which they can be overcome.
Note that these are just some of the challenges of post-merger integration.
Technically, each one of these post merger issues is broad enough to merit an article on its own so this list should be seen as food for thought rather than an exhaustive list of the issues.
1. Maintaining Momentum
The issue which underpins all integration challenges in mergers is maintaining momentum.
While carefully addressing each of the integration issues which follow, it’s all too easy to overlook the day-to-day operations of the company. The integration effort has to happen in addition to ‘business as normal’, not instead of it.
Overcoming this demands setting a range of KPIs from the outset, both for the business and the integration process.
KPIs will quickly allow you to realize whether your business or the integration process (or both) have fallen behind. And if they start to suffer, you’ll know where to focus more attention in the period which follows.
2. Employee Engagement
Every list of the integration problems in mergers and acquisitions begins with ‘people’ or ‘employees’ and how to engage them as part of the integration process.
In some cases, companies are lucky when the human resource issues that they encounter after a merger or acquisition double. More frequently, they multiply.
As we have recommended on more than one occasion, the best way to overcome the employee- and people-related issues that your business faces during an integration, is to implement a change management program.
And that requires installing a change management expert to oversee the process.
3. Senior Management Issues
Managers are often no more immune to challenges brought about by M&A than their junior colleagues.
A big difference is the extent of the impact that an underperforming manager can have: if they don’t quickly get up to speed in their new role, it’s possible that a range of other problems will soon be added to your post merger integration challenges.
What’s required to avoid this?
Simply, preparation and communication. Senior managers may need to undergo training for new systems and routines that they’ll encounter in their extended roles.
The new responsibilities will probably also warrant extra remuneration. All of this has to be talked through in advance of the transaction, not after.
4. The Culture Shift
The word ‘culture’ in organizational terms may be one of the reasons that too many companies treat it with a light hand when addressing merger integration issues.
‘Culture’ might instead be termed ‘the way we do things around here’ and, when phrased in this way, you can see it’s an extremely important topic to address in PMI.
‘The way we get things done around here’ will be one of the concerns of the change management expert that your company appoints.
Several reports into the importance of addressing culture have used the expression, ‘communication, communication, communication’ and we couldn’t agree more. Overcoming cultural issues begins with communication.
5. Technology Integration
The bigger your company, the more likely it is to have some custom-built technological solutions (your CRM system, for example).
The older your company is, the more likely it is to have some legacy systems. These issues will be underlined to you when you contrast and compare systems with a company you’re about to merge with or acquire.
Overcoming these issues may involve bringing in a technology consultant from outside, but a good place to start would be writing out the technology stack of each company and establishing where training gaps among staff exist.
Training in the new technology would ideally commence even before the transaction has closed to ensure a smoother transition thereafter.
6. Synergy Implementation
One of the most commonly cited motivations for performing M&A is the ability to achieve synergies.
Unfortunately, most synergies go up in smoke because they’ve been over-optimistically estimated since their conception. But even those that do make sense have a tendency of disappearing as soon as the integration process begins.
Overcoming this is one of the keys to achieving more value in the integration process.
Be clear that ‘achieving synergies’ is not just about identifying them. It’s about understanding how to implement the changes: there will be big decisions about staff cuts, for example, which look easier on paper than in practice.
Be firm. You’ll need to be for these synergies to be realized.
7. Customer Engagement
It’s a mistake for companies to believe that their post merger challenges only concern what happens within the company and not outside.
Stakeholders – particularly customers – have to be engaged as part of the process. They may even receive invoices with a new name at the top. It’s bad customer service to do this without making sure they’ve been informed in advance.
The key to overcoming this is to inform customers as soon as the transaction has closed. If you don’t yet have plans about how the changes will impact them, that’s okay, but ensure to tell them as soon as you do know.
The more they feel they’ve been considered as part of the changes, the more likely they are to remain as your customer.
8. Communication Challenges
Just as with ‘maintaining momentum’ at the beginning of this list, communication is something that flows through the whole integration process.
As such, communication challenges – be those internal or external – can hinder the success of an integration. If people don’t know what’s happening, it’s not just that they won’t engage with the integration, it’s that they can’t.
Avoiding this by setting the goal of regular briefs. Weekly is better than monthly.
If you feel like there’s nothing to say on a weekly basis, it’s probably because you’re not achieving as much as you should be in your integration. Make sure it’s informative, honest and transparent. Doing so minimizes the insecurities that come with all stakeholders straight after a transaction.
Post-merger and acquisition challenges are common.
By now, it’s been well established that a high proportion of the deals which fail have ultimately overlooked elements of the integration process.
Rather than being seen as a ‘necessary evil’ (an expression that arises frequently in the literature on post merger integration issues), integration should be seen as a way to add as much value to a transaction.
This list provides you with a roadmap for that journey.