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Managing Change: M&A Integration Strategy

June 23, 2022
Persient acquisition integration strategy

Harvard Business Review indicates that 70% of M&A transactions fail because of neglected transition strategies. Acquiring companies often fail to create and implement an M&A integration strategy after the deal that reconciles the difference in company cultures. They are often too concerned with the financial aspects of the deal and not the people’s issues. Ultimately, synergy is key to maximizing the value of your transaction. 

What happens if your post-acquisition plan is neglected? 

Without a clearly structured post-acquisition integration plan, merging companies may succumb to one of several detrimental circumstances. 

  1. Ambiguity creates operational inefficiencies which is harmful to employee morale and impairs relationships with customers
  2. A rocky integration damages value for shareholders and, in turn, reputation 
  3. Key players can become frustrated and leave, leaving a company with little to no day-to-day leadership

What is synergy? Why is it important in an acquisition integration strategy

At the most basic level, synergy is achieved when the combined companies create a value that exceeds the value of the companies individually. Realized synergy gives companies a competitive advantage in their markets. Synergy can be associated with a number of things, such as workforce and scale efficiencies, market expansion, and combined technologies. So what role does synergy have in a post-acquisition integration strategy? In short, a substantial one. 

Synergy is only achieved through a thoughtful and well-executed integration strategy. Synergies are often the driving force for companies to pursue M&A, but in order to realize the full value, there must be strong communication and clear alignment of strategy across the combining companies. M&A is an opportunity for companies to join forces for the better, but without recognizing and timely addressing differences such as culture, processes, and management styles, there is the risk of destroying morale and productivity, missing opportunities, and ultimately slowing growth and profits. It is important to remember that synergies may take time, but there is no value in delay. 

M&A strategy and integration in each stage of the transaction

Your M&A strategy and integration are inextricable: an integration strategy should be at the forefront of every stage of the M&A transaction. For the sake of this article, let us consider the M&A transaction in 5 stages: initial evaluation, due diligence period, negotiations and closing, integration, and realized value. 

Initial evaluation: 

In the initial evaluation stage, you should assess where you are as an organization and where you want to be in the future. Does an acquisition aid in achieving your long-term business goals? If so, this will only be accomplished through successful integration. In this stage, you can begin to evaluate the benefits of combining assets such as IP, human capital, relationships, customer bases, and more. These discussions can help you begin to formulate an integration strategy that prioritizes the benefits of the transaction that best aligns with your business goals. 

Due diligence: 

The due diligence phase, often rigorous, includes a more defined valuation of all tangible and intangible assets of the target company. This stage can have an incredible impact on your integration strategy, as it explicitly identifies opportunities, risks, and dissonance in company culture, personnel, and operations. These factors will largely inform your integration strategy, should the deal move forward. In this stage, begin to consider how your strategy will address things such as cultural discrepancies, leadership roles, and differences in operational processes.

Negotiation and closing:  

In the late stages of the transaction and closing, a company should begin to apply its integration strategy. This strategy should include a communication strategy for major stakeholders that guides the process of informing employees, staff, investors, and partners of the benefits of integrating and a timeline for integration. Further, at this point, the strategy should name key leaders and teams from both organizations that will spearhead the integration process. With clearly defined objectives and tasks, expectations will be clear and will leave little room for confusion or frustration.

Integration:

At this point of the transaction, the strategy should be built out with deadlines, including clear objectives, and be carried out by designated teams. A strong integration strategy will not delay. The quicker the strategy is implemented in this period, the faster the ROI will be realized. On the other hand, prolonged execution can create frustration, diminish profits, slow growth, and lead to missed opportunities. 

Realized value: 

This stage should reflect on the efficacy of the integration strategy and its implementation. During the realizing value stage of the transaction, decision makers should consider several things. First, they should determine what long-term and short-term success look like as an integrated organization. Next, they should determine a way to measure success and how the integration process can be structured and tracked to reflect this success. They should also consider the best method and plan for communicating progress to all stakeholders. 

Strategies for a successful integration process 

A well-developed strategy serves as a business plan and “operating manual” for both teams that keeps all players focused on the value of the transaction and how to carry it out. It sets forth explicit timelines, consistency, and accountability measures. With everyone on the same page, moving forward with integration in M&A can be much less of a daunting task.

Prepare early:

Develop a post-transaction integration strategy when you are 60% certain the transaction will go through

Cultural assessment: 

Perform a deep dive in both companies’ cultures to identify alignment points and potential dissonance. This can help your management teams to determine how much effort it will require to reach cultural synergy post-acquisition. 

Strategic vision sharing: 

Major stakeholders such as upper-level management and investors need to buy into the benefit of the acquisition. A strategic plan for announcing the transaction will gain early buy-in and minimize confusion. Transparency from decision-makers will help tremendously when the two companies merge. 

Focus on the power of teams and definitive roles:

An acquisition without dedicated leadership teams and properly allocated resources is a recipe for operational inefficiencies and confusion. Within two weeks after finalization, a leader from each company should be appointed and should oversee the transition process. Each of these leaders should work to build multidisciplinary teams to work together. Ideally, this post-acquisition team will formulate an action plan, promote the benefits of the integration, and encourage cooperation and collaboration from all employees. 

Persient can help with your integration in M&A from initial evaluation to “phase-in”

For us, M&A is more than a numbers game. We are dedicated to helping you get top value from your business and live into that value even after integration. Each of our transactions is skillfully executed to fulfill your business goals and build your legacy. We are proud to help businesses in La Jolla, San Diego, and beyond help maximize their value. To learn more about how Persient can help you with your business needs, contact us today.

Investment banking services and securities offered through Independent Investment Bankers Corp., a registered broker-dealer, Member FINRA / SIPC. Persient LLC and Independent Investment Bankers Corp. are not affiliated entities. FINRA Broker Check.

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