A merger and acquisition doesn't stop once you sign the dotted line. In fact, the tough work starts during merger and acquisition integration, when two different teams and sets of operations must become one.
Merger and acquisition integration can make or break the future of your organization. According to one study, up to 90% of mergers and acquisitions fail. Why? Many issues arise during M&As, from poor planning to cultural conflicts.
Unfortunately, if your M&A fails, you'll experience serious risks, such as loss of talent and operational disruptions, which lead to reputational damage, financial loss, and an inability to scale.
How can you ensure merger and acquisition integration success? By leaning on the expertise of those who have been there before. Here, we outline the challenges involved in M&A integration and the tips you can use for success.
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Key Takeaways
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Table of Contents
- What Is Merger and Acquisition Integration?
- Common Challenges in Merger and Acquisition Integration
- 5 Tips for a Successful Merger and Acquisition Integration
- The Role of Communication in Successful Integration
What Is Merger and Acquisition Integration?
After a merger or acquisition, two different companies must become one entity for the best results. This is called merger and acquisition integration or post-implementation integration (PMI). During this stage, each company's people and processes, like accounting and sales, must be combined.
The goal of merger and acquisition integration is to take advantage of the potential benefits uncovered before a deal was made, such as increased market share, improved financial performance, or access to new talent.
Merger and acquisition integration is an intricate process that involves many steps. Some of these steps include:
- Cultural alignment: Aligning two different cultures while preserving the best of both.
- Systems consolidation: Ensuring each company's IT systems, such as ERPs and CRMs, work together.
- Financial reporting synchronization: Merging financial statements, such as balance sheets, to gain a clear view of the new entity's performance.
- Change management: Ensuring a smooth integration of both organizations and supporting employees through change.
- Strategic goal alignment: Aligning the strategic goals of both organizations to benefit the new entity.
Common Challenges in Merger and Acquisition Integration
As mentioned above, up to 90% of mergers and acquisitions fail. And this is due to the many challenges that are common within M&A integration, from cultural conflicts to operational disruptions.
Cultural Conflicts
There are many examples of how cultural differences can impact the success of an integration. Deloitte shares a few, such as:
- Decision-making style: Different decision-making styles between companies can slow decision-making, which can quickly derail integration initiatives.
- Leadership style: Does one company have a dictatorial leadership style? Does the other have a consultative one? Leadership style clashes can quickly cause uncertainty or turmoil for employees, leading to turnover.
- How work is completed: Is there a formal structure to how work is done within one company, while the other is more informal? This difference can cause breakdowns in operations as employees try to balance working in different ways.
These cultural differences and others result in a misaligned workplace that can result in operational inefficiencies, increased costs, reduced employee morale, and other consequences.
System Incompatibilities
It's common for companies to use different legacy IT systems to manage their operations. However, during integration, those systems must come together. Otherwise, data visibility and collaboration become impossibilities. The merged company will need to be able to invoice its customers, apply cash, and make payments to vendors without disruption.
Unfortunately, integrating legacy IT systems, such as ERPs and CRMs, can be difficult to manage. For example, if one company is using an outdated system while the other is using a modern system, the two may be completely incompatible.
Leadership Misalignment
A lack of unity at the executive level can also derail an M&A integration. For example, different values can lead to slow decision-making or a lack of clear strategy, which can halt business operations during a critical time.
Leadership differences can also result in employee confusion and reduced engagement, resulting in the turnover of talent required for integration success.
Operational Disruptions
All of the above challenges, from the need to merge incompatible systems to combining different cultures, can lead to serious operational disruptions that bring their own set of consequences. For example, a system incompatibility can make it difficult to fulfill customer orders, leading to low customer satisfaction that impacts your reputation and bottom line.
5 Tips for a Successful Merger & Acquisition Integration
Every M&A is unique and requires its own distinct plan to meet the above challenges head-on. In the past 20+ years, we've supported several successful mergers and acquisitions. And many of them had the following steps in common when planning and completing a merger and acquisition integration.
1. Develop a Clear Integration Strategy
First, a clear strategy is a non-negotiable for any business initiative. You must develop a clear integration roadmap that aligns with your merger's strategic goals. A few key items to include within that roadmap are:
- A guiding policy: This policy should highlight the synergies or additional value you expect from the M&A. It should also highlight the overarching goals of the M&A, a breakdown of who is responsible for leading the M&A, and other key details that govern the integration process.
- Integration objectives and priorities: The strategy should feature clear integration objectives and priorities. Objectives should cover everything from goals for team integration to software integration. All the key integration activities and steps should be documented by functional area and assigned to the person or team responsible. This will serve as an integration roadmap and help leadership track progress and challenges during the actual integration phase.
- Defined timelines and milestones: Along with your objectives, you should define specific timelines and key milestones to hit to ensure your integration stays on track to completion. It's important to remember that most integrations can take multiple years to complete. Best practice always includes the development of a post-merger project management function led by an individual that will have the time to focus on the successful completion of the integration tasks and who will report back to leadership on progress and resolve challenges as they occur.
2. Establish Strong Leadership and Governance
A critical part of developing your strategy is establishing a strong leadership team to guide the M&A integration. A dedicated leadership team can help manage integration expectations, ensure milestones are met, and provide ongoing updates to all stakeholders.
We also recommend forming cross-functional teams to complete integration activities. This means bringing stakeholders together from key business teams such as finance, IT, and marketing. A designated overall post-merger project manager and charter will help keep the leadership team on task and help report and resolve any difficulties and challenges as they occur.
This creates a team of individuals with diverse expertise and insights, which can improve accountability, break down communication silos, and keep teams aligned on key integration objectives.
3. Protect Business Momentum During Integration
As we discussed above, business disruption is a key risk during integration. You must safeguard ongoing operations while managing integration activities to ensure you keep your business moving forward.
There are many strategies we've seen that can help you do just that. For example, develop and implement contingency plans for disruptions. This means identifying potential disruption risks and building strategies proactively before they occur. When they do, you'll have a plan to follow, enabling you to quickly recover.
Another strategy is preserving customer relationships during an M&A. Customers are the lifeblood of your business, and their experience during this time is important for protecting your bottom line and reputation.
To preserve these relationships, prioritize clear and frequent communication. You should also have contingency plans in place that provide ongoing product or service delivery, ensuring your customers receive what they need with minimal disruption.
4. Identify Quick Wins to Build Momentum
In addition to preserving relationships with your customers, you must do the same with other key stakeholders, including your employees and investors.
Merger and acquisition integration is a tough process that leads to confusion, frustration, and fear. But highlighting your wins is an excellent way to showcase the progress being made and the future benefits of completing the integration.
Start integration work by prioritizing easily actionable initiatives that can help demonstrate early success, such as consolidating vendor contracts or eliminating duplicate processes. Then, communicate these wins to stakeholders.
By doing so, you'll build confidence in the integration process and boost engagement, building momentum and moving you toward the finish line.
5. Create a Unified Culture
Cultural differences can quickly derail even the most promising M&As. In 2018, AT&T purchased Time Warner for $85.4 billion with the hopes of merging their distribution networks with Time Warner's content to generate revenue. However, the merger failed.
Why? One reason was a difference in cultural objectives. As Victor Glass of Rutgers University explains, AT&T was a communication technology company while Time Warner was an entertainment company. Both had significantly different cultures that were difficult to combine. The result? AT&T sold Time Warner in 2022, resulting in a serious loss.
How can you avoid a failure like this one? By ensuring you're creating a unified culture through merger and acquisition cultural integration. Some steps to consider include:
- Identifying and addressing cultural differences: Take time during planning to identify cultural differences, such as leadership style. Then, outline your plan to address these differences proactively.
- Redefining decision-making processes and governance: Instead of trying to combine two different cultures, consider working with key stakeholders to completely redefine decision-making processes, leadership styles, and ways of working for the new entity.
- Integrating performance metrics and KPIs: Review performance metrics and KPIs for each business separately and decide which ones will help you reach the goals for your new entity. Integrating these metrics will unify stakeholders, ensuring everyone is working toward the same goals instead of disparate ones.
The Role of Communication in Successful Integration
In my experience, there are many reasons why merger and acquisition integrations fail. And a lack of communication is one of the most common. The only way to ensure a smooth transition is through transparent and consistent communication with all stakeholders involved, including:
- Employees: Mergers and acquisitions are difficult for employees. Many may experience fear and uncertainty throughout the process. By being transparent about your organization's future and how it impacts their roles, you'll protect employee engagement.
- Investors: Those who invested in either company will want to be assured of the benefits of merging and building a new entity. By communicating goals and expected value, you can maintain investor confidence in the future of your organization.
- Leadership: Communicating with those in leadership, such as managers and directors, will ensure they have the information needed to communicate appropriately with their own teams. The post-merger project manager and charter should keep leadership updated frequently on integration status and remove roadblocks and issues as they occur.
- Customers: Remaining transparent with customers and addressing their concerns will build trust and eliminate uncertainty, which will help you retain their business and protect your reputation.
How do you provide transparent communication to these stakeholders? Start by developing a clear communication strategy that outlines the following:
- Who you'll speak to (like the above stakeholders) and what messages will resonate with their priorities.
- A timeline that specifies when communications will be shared, such as weekly or monthly.
- The communication channels you'll use, such as online meetings, emails, or press releases.
- Ways of gathering feedback from stakeholders, such as surveys or Q&A sessions, and your plan for acting on that feedback.
Why Work with an Expert Consultant for M&A Integration
Merger and acquisition integration is critical to your organization's success. However, it's also complex and requires dedicated time and attention as well as M&A expertise to get right. An M&A consultant can help you overcome challenges and ensure a smooth transition for both companies and your stakeholders. The M&A consultant can be fully dedicated and will have the time to make sure the acquisition integration is kept on track and is successful.
8020 Consulting's merger and acquisition integration services include hands-on consultancy from our team of experts. Our team has years of experience in M&As in various industries, including finance. And each consultant has a unique background, allowing us to find the perfect fit for any large organization.
Ready to supercharge your success through merger and acquisition integration consulting? We're ready to help. Book a meeting with one of our experienced consultants today.
