M&A Integration Process - What Every CEO Needs to Know
Contrary to popular belief that only an acquirer needs a robust M&A integration plan, selling business owners and CEOs also need to collaborate with the acquirer to ensure the deal is a success.
In fact, the deal isn't really a success if it doesn't achieve its desired values because you left the acquirer to their own devices after the transaction to complete the transition and integration.
Here's a detailed look into the entire post-merger integration process to help you understand your role in ensuring a smooth transition and capturing synergies.
TL;DR - M&A Integration Process
The post-merger integration process is quite complex and typically involves the steps below:
Defining integration strategy and guiding principles
Selecting post-merger integration teams
Planning the integration in detail
Executing the post-merger integration plan
Reviewing and optimizing impact after the integration
Before we look at these steps in detail, we agree that planning and executing a successful integration can be overwhelming.
You'll want to hire the best professionals to help you understand and execute the entire process to ensure the deal is successful.
Our team at Exitwise can help you recruit, hire, and work with the best industry-specific M&A experts who can ensure not only a successful sale but also a successful integration.
Schedule an initial consultation with us today to get started.
What is an M&A Integration Framework?
An M&A integration framework is a detailed plan and strategy for unifying two or more companies or businesses after a merger or acquisition.
Depending on the deal, the framework includes aspects such as:
Integration vision, mission, and strategy
Integration guiding principles
Integration process
Integration teams structures
Integration phases and timeline
Integration dispute resolution mechanism.
How to Develop an Effective M&A Integration Strategy
To develop an effective M&A integration strategy, consider thorough planning, involving stakeholders early, prioritizing clear communication, aligning company cultures, and managing change proactively.
Some key aspects to look into include:
Conducting thorough reverse due diligence and diligence on the acquiring company
Forming a dedicated integration team
Involving employees early and often
Developing a communication plan
Monitoring progress and adjusting where necessary
Identifying and addressing potential challenges
Identifying and defining synergy opportunities
Ensuring legal and regulatory compliance.
Steps in the M&A Integration Process
Let's look at the integration process steps in greater detail:
1. Defining Integration Strategy and Guiding Principles
The best way to set an integration strategy and the principles to guide it is to start early in the sale process, before closing the transactions.
You'll want to agree on who makes the final call, when and if you reach an impasse, which integration method you'll follow, how you’ll keep communications open, and how fast the integration will be.
Your vision can be to integrate the merging entities in an accelerated time frame to ensure the resulting new entity realizes synergies quickly and maximizes profitability.
For the strategy, you can agree to create a steering committee and an integration management office to manage and implement the ongoing integration workflows on either side.
The strategy can define the focus of the integration workflows as follows:
Ensuring business operations continue smoothly
Escalating and resolving issues promptly
Ensuring transparent, timely, and consistent communication
Controlling finances and execution properly to achieve targeted synergies
Ensuring all stakeholders are updated consistently and promptly.
Other guiding principles you can adopt include:
Putting customers first to ensure they feel part of the success of the merged entity
Speeding up value creation by ensuring the envisioned synergies are realized quickly
Maintaining respect for people from either side by ensuring honesty and integrity in your communications and interactions.
Once you've set up your strategy and guiding principles, you'll want to choose the teams that will lead the integration process.
2. Selecting Post-Merger Integration Teams
Most merging entities choose two main integration teams—the steering committee and the integration management office. The steering committee usually includes two to seven high-level executives from either company, while the integration manager is usually a senior executive from the acquiring company.
You may also have a dedicated risk management office to ensure you increase your chances of M&A success.
A change management office is another crucial team for handling any resistance to the merger or acquisition from employees, suppliers, shareholders, or customers.
You'll want to establish the teams long before the transaction closes. You should also assign their specific roles and responsibilities and define their hierarchy to avoid conflict of duties or seniority.
3. Planning the Integration in Detail
If you fail to plan well for the post-merger transition and integration, you set the deal up for failure. You don't want to be another statistic on the low M&A success rate radar!
The in-depth planning step includes the following aspects:
Operating Model: The operating model describes how the merged company will function and implement its strategy. Its three key focus areas are the company's hierarchical structure, employee roles and responsibilities, and operational processes.
Value Creation Plan: You can improve your chances of success by making an all-round value creation plan and focusing on key value drivers. Some considerations include synergy targets, who owns each target, an execution plan for achieving the synergies, and the merger integration software for tracing the synergy realization process.
Communication Plan: You'll want to define the right communication approach to control how stakeholders discuss or report the deal internally or externally. Key employees should know what to say or not say to avoid misunderstandings or misleading other stakeholders and the public.
Risk Management Plan: M&A risks, like cultural clashes and litigation issues, can tarnish the deal before the integration starts. Have a mutual plan to manage risk, including a dedicated risk manager.
Culture Integration Plan: Your due diligence should ensure your culture aligns with the buyer's. If not, develop a plan to reconcile the cultures or create a new one altogether.
Employees and Retention Plan: If you want the new entity to retain all or a section of your employees, make a formal request during negotiations and develop a mutual plan for integrating them into the merged company.
Change Management Plan: Most M&A transactions create uncertainty in employees, customers, and even suppliers. A change management office will help these parties understand the deal and boost their confidence.
Some considerations include employee onboarding, maintaining company culture, retaining leadership, prioritizing communication, and offering incentives.
4. Executing the Post-Merger Integration Plan
Once you have all your plans set, start the implementation process. Use the integration workflow plans and any other documents you prepared earlier to guide the entire team and individuals.
The implementation stage is as important as integration planning, so you must ensure it flows well at the required speed.
One crucial consideration is to achieve value creation and synergies, which could take months or years.
5. Reviewing and Optimizing Impact After the Integration
Going through the entire integration without measuring its success or failure would defeat its purpose. You'll need the means to measure its impact to see where you could improve as time goes.
Post-merger integration software comes in handy for tasks such as:
Modulating the integration speed
Tracking progress and milestones as per the plan
Monitoring success metrics
Collecting feedback from various stakeholders
Implementing the feedback
Identifying and correcting integration weaknesses
Identifying and building on integration strengths.
The entire integration process can differ from one deal to another, depending on factors like the deal structure and types of integration.
Understanding and executing all these steps can be challenging. At Exitwise, we can help you find and manage a team of trusted M&A experts to ensure the successful integration of your business.
The Role of Change Management in M&A Integration
As mentioned, change management helps ensure the deal succeeds by minimizing resistance.
Some benefits of change management in the integration process include:
Helps Integrate Cultures: Integrating cultures to leverage cultural strengths promotes an environment that's more receptive to change.
Retains or Improves Productivity: Onboarding and orienting employees helps them adapt to changes quickly, feel part of the transition, and continue being highly productive.
Increases Stakeholder Support: Managing stakeholders’ expectations gains their support for the change, minimizes conflicts, and builds trust.
Helps Identify Issues Early: Conducting potential resistance analysis enables you to identify and address potential problems early before they escalate.
Key to Successful Post M&A Integration
Perhaps the most critical key to a successful integration is having an exit strategy from the onset. Starting your exit plan early can help you get psychologically and emotionally prepared for the sale.
You can also prepare early on how you'll help with the transition and integration, whether or not you remain in the business post-merger.
Having a post-M&A integration plan and checklist can help if you haven’t started early:
Post M&A Integration Checklist
The checklist can be a detailed and mutually agreed document where you can tick off integration tasks or steps as you complete them. You'll be able to track your progress and milestones against the timeline you've set.
The checklist can include the following key areas :
Restructuring employees to the different business units or departments
Incorporating all employees into the human resource and benefits or payroll system
Onboarding employees who need to familiarize themselves with new procedures
Integrating bank accounts for the combining businesses
Integrating assets and liabilities
Updating the vision, mission statement, and core values as necessary
Creating a new organizational chart
Deploying post-merger change management plans
Updating the merging firms’ software for uniformity
Reviewing hardware and software to ensure cyber security is up to standard
Performing a post-merger IT audit to uncover any risk areas
Updating services or products as necessary
Aligning the customer service team with new customer initiatives where necessary
Updating the sales and marketing team with the new goals and company offerings.
Post M&A Integration Plan
A good post-transaction integration plan can include aspects such as:
Synergy targets and how they will be achieved
Important integration deliverables based on the goals and objectives of the integration
Success metrics
Budget for the transition and integration
Post-merger integration training for employees
Timeline for the integration and synergy realization
M&A integration software you'll use
Integration teams and leadership.
Work with Exitwise to Hire the Best M&A Expert
We recommend working with industry-specific M&A experts to help you with the business sale, transition, and integration.
Our team at Exitwise can help you hire and work with wealth advisors, tax accountants, M&A attorneys, investment bankers, and business appraisers.
We'll listen to you, help you choose experts from our pre-vetted pool, interview and hire them, and negotiate fees. These experts will then advise you throughout the sale and integration process.
Besides helping you sell at the best price, the team will also help you understand and execute your role in the integration. Schedule a chat with our team today to see how our proven three-step process works.
Frequently Asked Questions (FAQs)
Here are answers to questions you may have about the M&A integration process:
What is an M&A Integration Playbook?
An M&A integration playbook is a roadmap or project management tool for the integration process, showing roles, tasks, best practices, and other crucial aspects.
The playbook may be physical or cloud-based, depending on the service provider.
Due diligence checklists, integration workflows, and post-integration checklists are some of the typical details in a playbook.
What is Included in an M&A Integration Checklist?
The typical M&A integration checklist includes the following:
Detailed integration workflows
Integration governance structure
Communication systems to be used
IT and technology systems to be used
Integration goals and priorities
Legal systems for compliance
Sales and marketing procedures for achieving synergies
Human resource and cultural integration milestones
Finance and accounting harmonization.
How Does Vertical Integration Affect M&A Deals?
Vertical integrations often lower the success rate of M&A deals because vertically integrated businesses can be difficult to manage.
These integrations are typically fewer because they lead to the loss of key talent, limited consumer options due to lower competition, and ruined reputations due to increased customer dissatisfaction.
Generally, CEOs and business owners refrain from merging vertically to preserve a legacy of plentiful consumer choices, retain key talent, and safeguard their reputation.
How Does Cultural Integration Impact M&A Success?
When cultures align, and cultural integration is easy, the new entity is more collaborative, innovative, and productive. The deal can then be said to be a success, even as you wait to achieve the hoped-for synergies.
The deal may fail altogether if cultures don't align and you can't reconcile them. You may note a lack of synergy realization, loss of key employees, employee resistance, and decreased customer satisfaction.
What Makes M&A Integration Successful?
Several factors make an M&A integration successful.
These include careful early planning, selecting the right leaders, using technology, proactively executing the process, communicating well, and hiring external experts.
Conclusion
Talking of hiring external experts, working with the right team can increase your chances of a successful M&A integration.
You can count on us at Exitwise to help you find the most coveted M&A experts to help you sell and integrate successfully. Discover how our process works today!
