M&A activity reached new heights in 2015. Nearly 14,000 deals were done in North America worth a record $2.5 trillion. Globally, 46,000 mergers were completed. In each case, management and investors seek to create value through strategic combinations and realignment of businesses. Yet value is not delivered until an acquired entity has been successfully merged into its new operating environment. This is the aim of post-merger integration (PMI).
New Harbor Consultants recently had an opportunity to debrief with senior executives in companies that have recently borne witness to post-merger integration efforts – including several with at least three integration experiences in as many years. These “serial acquirers” have seen the good, the bad and the ugly, either as leaders in the affected organizations, as PMI project leaders, or as members of executive steering committees overseeing such efforts. They all emphasized the importance of a game-tested project plan or “Playbook,” incorporating both theory and practice, executed by seasoned professionals from both the acquiring and acquired organizations. But even then all projects did not go according to plan.
We offer seven common post-merger integration “tips” – common themes from these conversations: Seemingly fundamental steps, yet often executed poorly.
- Set realistic performance targets, linked to the acquisition business case, but be flexible
The first takeaway is that a post-merger integration project needs specific, measurable goals to guide the effort and assess performance. Often, this is lost in the rush to do the deal, merge in the new business and move on to the next.
While holding the executive team accountable to the business case that yielded board approval for the acquisition, flexible goal setting at the project team level drives better outcomes. Dogmatically sticking to targets (whether financial results, market share or customer service metrics) developed many months earlier is not recommended. The world has likely changed and the original business case goals may have become either unrealistic or slam-dunks. Adjustments are often warranted. Then delegate to the PMI team the authority to make the decisions that will deliver the targeted results.
Flexibility was also cited as a key success factor when the PMI process uncovers new information not revealed in the pre-acquisition due diligence. Even the serial acquirers admit information gaps can occur despite their experience with due diligence processes. For further insights, please see the New Harbor Consultants Brief, “Middle Market Missteps: Lessons from acquisition due diligence.”
- Pick an operating standard early, then level-up best practices in phases
Operating practices and systems typically span both merging companies and may likely have played a major factor in the acquisition valuation and business case. But seeking to determine and impose the absolute best practice on every function of each company during the initial PMI project will bog down the integration effort. Don’t let the quest for “perfect” trump the “good.” Early on, set the initial operating model for the merged companies. Postpone refinement and adoption of best practices to later phases. This will drive progress faster and more sustainably.
- Do not underestimate the challenge of aligning job grades, titles and compensation
Even within a narrow industry, these can vary considerably. And can quickly become highly-charged emotional issues with the staff, even spawning legal disputes and anonymous postings on job and recruiting websites. These challenges must be addressed expeditiously and with the expertise and experience required to navigate the pitfalls. Often this alignment process warrants outside assistance for all but those “serial acquirers.” Postponement tactics like maintaining separate legal entities with separate HR policies, only adds more time for personnel to worry about how the eventual alignment might “hurt” them.
The tip is to get on top of this challenge quickly (and it is often possible to do so when such disparities are identified in the pre-acquisition diligence process). Speedy policy alignment, transparency, honesty, and fairness mitigate the risks and keep the workforce focused on the business and its customers.
- Focus on the customer (culture matters)
Serial acquirers agree that the right company culture has a big impact on success. Yet simple solutions are elusive. The common theme is a relentless customer focus throughout the PMI process. This entails cultural integration and alignment, from goal setting to customer communications and doing all that’s necessary to maintain high customer service levels while so much change is taking place internally. Often, competitors see a merger announcement as an opportunity to dislodge incumbents who lose focus on the customer and operational excellence, as they shift attention to internal integration efforts and preserving their jobs.
- Retain your hidden talent early
Move quickly to identify key people in the merging companies – those essential for short- and long-term organizational success – not just at the top, but throughout the organizations. A staffing contingency plan needs to identify overlooked talent or positions that will be difficult to replace, particularly in cases of in-depth customer-specific or process knowledge isolated inside the heads of individual “gurus.” Should this hidden talent depart, customers may see and suffer from the loss as well.
Talent retention plans are best put in place early, before uncertainty, rumors, discontent, and executive recruiters begin to drain the organization. Maintaining these actions in a “Risk Registry” and revisiting them throughout the project helps assure this pool of talent remains visible and in the company.
- Communicate, communicate, and communicate some more
This begins with setting the right goals and expectations. Provide transparency about the “whats” and the “whys.” Listen to your stakeholders and communicate frequently. Townhall-style updates with ample Q&A time conducted at regional offices and operating sites are cited as effective for both providing information and listening. These standard playbook procedures can be further strengthened by staffing the project team with stakeholders and influencers from across the merging organizations. And if the strategic intent is to establish the acquired entity as a standalone operation with minimal integration, communicate that promptly. Rumors invariably fill any information void and can prove destructive, particularly when they reach the customer.
- Move quickly but prudently
Stakeholders expect change, positive change, from post-merger integration efforts. Slow, indecisive, or non-existent PMI programs create organizational confusion, uncertainty, and frustration. Expect customers and internal talent to abandon ship when they see missed opportunities and organizational paralysis. Prompt integrations also tend to force out due diligence gaps or share purchase agreement warranty/representation issues which are best addressed on a timely basis.
With the pace of innovation quickening in most industries, we expect M&A activity to follow suit. New Harbor Consultants’ recent project experience underscores the importance of post-merger integration best practices. These real-world “tips” can help managers in acquiring and acquired companies to better realize the full potential of an M&A transaction.
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Contact us to explore how we can support your strategic, operational, and investment needs: info@newharborllc.com
Dave Frentzel is a Partner at New Harbor Consultants. Dave brings 25 years of management consulting and hands-on executive leadership experience to improve business outcomes. He has extensive global management expertise having spent more than ten years living and working internationally helping companies with their global go-to-market, organizational, sourcing, manufacturing and supply chain strategies and operations. Dave’s experience spans a wide range of industries, working with companies in the 3PL, after-market service, apparel, CPG, eCommerce, food & beverage, healthcare, hi-tech, industrial, and retailing industries.