Your potential acquisition looks great on paper, and you’re telling yourself, “This is the best deal ever!” What could possibly go wrong? Truth be told, a lot. According to the Harvard Business Review, 70% to 90% of all business acquisitions fail. And often, it comes down to the lack of a proper post-merger integration process.
There are many nuances to executing a good post-merger integration (PMI) strategy. Let’s take a look at some of them below.
Start planning a post-merger integration strategy prior to closing the deal.
You should use the upfront diligence period to fully understand what will need to be done in the first 90 to 180 days post-acquisition. Learn the key processes and functions the company uses to produce or acquire its critical goods and services. Questions to ask include:
- Are there any low-hanging, critical issues that need to be solved early on?
- Who are the critical team members of the target company’s management to be relied upon during the PMI process?
- Can the accounting and finance departments prepare accurate reporting within the needed format?
- What are the key things that will be accomplished in each functional area, and within what timeframe will they need to be accomplished?
The acquiring company should have a Day One plan put together prior to the deal being closed. The intelligence gathered during the diligence period can be used to formulate this Day One plan. The plan should be broken down and documented by critical functional area (e.g., Operations, Accounting/Finance, Technology, Human Resources, Legal). Don’t forget to also document the people assigned to lead the charge, which brings me to my next point.
Interested in learning more about due diligence? Explore these related blogs:
- “Sell-Side Due Diligence: Best Practices for Target Entities“
- “3 Tips for Responding to Requests in the Sell-Side Due Diligence Process“
- “Types of Due Diligence and What to Expect from the Process“
- “Sell-Side Finance: Building an M&A Management Presentation“
You’ll need post-merger integration leaders from both the acquiring and the target companies, working together in the execution of the Day One plan.
Many companies make the mistake of assigning an executive team member or other senior official to take responsibility for the Day One plan. The problem with this strategy is most of these individuals are far too busy in their day-to-day jobs to devote the necessary time to fully execute a successful PMI plan.
Best-practice companies bring in an outside project manager or identify someone on the team that can be dedicated full time to driving the PMI project. It is also important to have someone from the target company assigned to the PMI project. This person should know how to navigate the nuances of the acquired company’s processes, systems and people.
Most large integrations also assign members from each functional area (e.g., Operations, Accounting/Finance, Technology, Human Resources, Legal) to the PMI team. They should be responsible for the execution of PMI items in their functional areas and accountable to the PMI project leader. These team members are not always the heads of those functional areas, but rather those who have the time and are adept at navigating their areas to complete tasks.
Interested in team structure? Learn more about teams in our related blog, “Best Practices in Post-Acquisition Finance Integration.”
Being appreciative of cultural differences during the post-merger integration really matters.
The management styles at a traditional Fortune 100 company versus an early-stage Silicon Valley technology company can be vastly different. It’s important to build trust and common ground between the acquiring company and the target company. The PMI team needs to understand that core functions may be vastly different between the two companies. It’s important to take the extra time to be aware of these potentially strong cultural differences. A common mistake is for representatives of the larger acquiring company to view processes of the early-stage company as “wrong,” while discounting the realities of fast-paced environments with fewer resources and staff. These realities can weigh especially heavy on accounting and finance functions in smaller companies.
The practical advice is for the PMI team and the acquirer’s management team is to take the time to communicate the reasoning for changes—and to be understanding of why things may have been done differently in the past.
“Trust but verify.”
This is an important motto to keep in mind as you conduct a proper post-merger integration process. Many times, within the rush to get through a PMI process, companies will “check the box” before things are fully implemented. The target company’s management team will indicate activities are completed without proper vetting or validation. It is another good practice to leverage another independent team as part of the PMI process, or soon afterward, to validate to-do items were fully implemented as intended. This will eliminate surprises and misunderstandings down the road.
Get help in building and executing your Day One plan.
To ensure a higher chance of success with your acquisition, take the time upfront to fully plan and understand what you’re buying. Create a Day One plan, build a solid PMI team, be mindful of culture and validate activities!
If you’d like to learn how 8020 Consulting offers support in the M&A process, we invite you to download our service sheet. It offers much more nuance into how we work with our clients:
About the Author
John is an Alumnus of Arthur Andersen and a CPA with over 25 years of diverse, hands-on financial and operational leadership experience in entertainment, technology, retail and distribution environments, including CFO, VP of Finance, and Controllership roles at companies ranging in size from early start-up through middle market as well as Fortune 500. John also has strong international management experience with time spent in the UK, Germany, India, and the Middle East. In fact, he managed global operations teams including the formation and expansion of India offshore operations and expansion of a company into the European market. Across his career, John has worked very closely with VC firms in the raising of multiple rounds of financing and negotiation of lines of credit with banks, and he has helped lead companies through the successful exit / sale process.
Categorized in: M&A Due Diligence & Transactions