Key Elements to a Successful Post Merge Integration (PMI)
Congratulations! After months of intense, day-long negotiations, you have finally come to terms for a merge with another company in an adjacent market space. Estimates of higher revenue growth and increased profits have been well received by your investors and they are eager to begin seeing the new company take form. So what's next?
Mergers and Acquisitions (M&A's) are increasingly being used as a strategic lever to create value and drive growth. However, if not done correctly this strategy can backfire and result in significant headwinds with respect to reduced profits, anemic revenue growth, negative workplace culture and employee retention issues. In fact, some statistics suggest that nearly 60-75% of M&A’s fell short of their objectives.
Studies also show that companies that do not regularly complete M&A integration activities are at a much higher failure level compared to those companies who have embraced integration capabilities as part of their organizational DNA. Once the deal on the merge or acquisition is completed, the work associated with the integration can become overwhelming and complex. Below are the key steps that are essential to ensure a successful merge or acquisition of any size.
The Key Steps Essential For A Successful Post Merge Integration
1. Align on The Future State
Start by asking some principal questions: Is the nature of the transaction to achieve growth by combining complimentary product lines or is it to achieve reduced costs due to increased volumes? Is the transaction intended to bring on new manufacturing capability or to obtain vital intellectual property. Is the merge truly a merge or is it a take over?
Achieving clarity and alignment on the desired future state by executives from both companies will be critical for setting the stage for any post merge integration activities. Many transactions may have the dual purpose of driving higher value while also reducing costs. Cost cutting is always easier than growing share and often becomes the future state focus. Merger of equals can be difficult to achieve due to culture clashes, ultimately resulting in a power shift towards one company.
Obtaining alignment on the purpose of the merge will serve as a platform to communicate with shareholders, customers, and the organization on the future state of the company. It will also help identify priority areas, key deliverables, leadership assignments and frame out key aspects of the communication plan. Misalignment, especially at the executive level, will create power struggles, organizational resistance, and employee retention risk. The result will be delays and increased probability of failed or problematic integrations.
2. Start Integration Early
Once alignment has been achieved on the future state of the organization, work can begin assembling the integration team responsible for achieving the key objectives of the transaction. Select members of the executive leadership team are chosen to serve as the Program (or Project) Management Office (PMO). Individuals may or may not be from both companies depending upon the purpose of the merge.
The role of the PMO is to ensure that the aligned future state objectives of the new company are achieved. They identify the project leader and work together to identify key functional leaders that will comprise of the integration team and lead the corresponding workstreams. Workstreams are typically organized by function to facilitate prioritization of key project deliverables while identifying areas for cross functional collaboration. The earlier workstream leaders can be identified, the more likely you will see quick traction on assessing and completing post merger integration activities.
The PMO is also responsible for determining whether the project can be completed successfully with available internal resources or whether there is a need to secure additional help through outside consulting services. Depending upon the size of the event, project leaders and/or workstream leaders may need to be assigned full time. Typically, these employees are considered top talent and therefore it is important that the PMO has developed options to re-absorb these people into the future state company in a manner to help them progress along their desired career paths.
Another critical role of the PMO is to ensure that the overall project is proceeding on time and that the project team has appropriate authority to make and implement decisions to facilitate progress. By providing an overall cadence on deliverables and timing, the PMO usually delegates most of the work to the project teams but plays a key role in removing barriers and working through conflicts as they arise.
3. Layout the Plan
Now that the teams are in place, the PMO conveys the key deliverables for each of the functions impacted by the transaction. Deliverables will include synergy targets, revenue growth targets, new organization designs, timing requirements, etc. Each function should have clear and documented metrics. Plans should support the future state objectives and demonstrate when a workstream is finished with integration activities.
Numerous issues around business processes and systems will arise if both companies have competing solutions and should be included as part of the integration plan. Examples include financial reporting metrics and systems, ERP/CRM systems, procurement processes, demand planning systems, business processes and metrics, handling of intellectual property and many more. Functional leaders and their teams need to assess the options available to them and decide the best solution for the new function and company. It is critical that the future state objectives previously discussed are communicated to the integration teams so that resistance is minimized, and teamwork is optimized.
4. Drive Towards Results
Teams have now been formed and the plans have been set. You're optimistic that you are off to a good start. Now what?
Unfortunately, chaos is not uncommon and should be expected to some degree. During the planning process, certain assumptions were made but now that people closest to the issues are working them, new data is revealed which can invalidate assumptions or raise unforeseen problems. Assuming the teams understand the end objectives, then they should be able to re-assess the situation, develop options, and choose the best one. Depending upon the magnitude of the problem, the PMO may need to step in to provide support and/or approval of the proposed solution.
Project tracking and updating, although important and necessary, can become excessive and may not provide much value to achieving desired results. Instead, focus should be placed on prioritizing the most important milestones, ensuring sufficient resources (people and supporting infrastructure) have been deployed and appropriate leadership members are engaged to facilitate and support as needed.
5. Communicate, Listen, Repeat
Developing and implementing a well thought out communication plan is imperative to create buy-in. Everyone in the organization will have at least one question: “What does this mean for me?”. While it is impossible for any communication plan to answer this question at the individual level for everyone, it is important to anticipate the question and answer with transparency. If jobs will be eliminated, then indicate that this will be part of the integration activity. Describe areas of uncertainty (i.e. how many jobs and from what organizations) and let the organization know that more information will be forthcoming and shared when available. Most organizations have a keen sense of suspicion when information is being withheld which can create morale and retention risks, so it is important to be transparent.
Listening goes a long way to building credibility and trust with any major change event. Communication strategies should include multiple venues and formats to address questions while reporting back on outstanding questions that could not be previously answered. Formats can include town halls, round tables, online polling, etc. One-on-one discussions with immediate supervisors can be highly effective if the supervisor has been sufficiently informed to answer questions.
Communication plans should also include regular updates on the progress of the integration, relevant organizational changes, and consistent messaging re-enforcing the vision, mission, and business strategy of the new entity. Establishing trust and credibility with transparent and thoughtful communication will help transition difficult situations more effectively.
Extracting and delivering expected value from any merge or acquisition is hard and complex work. It requires careful planning, efficient project execution and thorough communication across all functions impacted by the transaction. Executive alignment, active leadership and strong teamwork by functional project teams are essential to help manage the unexpected events and situations that are bound to be uncovered during the integration process.