You’ve closed the deal. After months of due diligence, followed by the thorny negotiation phase, you can finally announce your acquisition is complete. 

But is it? 

Truth is, you’re half done, half to go. Now begins the post-merger integration stage — a key period that as often as not determines the success or failure of your merger.

Will you achieve a smooth post-deal integration between the two companies, generate synergies, and increase value all around? As many as three out of every five M&A deals fail to implement an effective PMI plan, which can not only fail to deliver the expected value creation but drastically impact a company’s reputation and share value.

A lot depends on how you go about bringing everything and everyone together. Below, we’ll take a look at some of the key elements and players in the PMI process, including best practices and how you can leverage technology to help you along the way.

What is post-merger integration?

Post-merger integration (or PMI) is the process that immediately follows the closing of an M&A deal, as management seeks to integrate both companies as speedily and effectively as possible.

Integration can be “harder” or “softer”, depending on the extent to which businesses are integrated or preserve their autonomy. 

Four types of integrations

In general terms, integrations can be classed into four types:

  • Holding: The buying company only gains ownership over the target company, without integration.
  • Preservation: The acquired company is kept largely as a separate entity, but management answers to the acquiring company’s board and there is some minor integration on the finance/accountability level.
  • Symbiosis: Certain units/departments are integrated, with some autonomy retained.
  • Absorption: The acquiring company absorbs the target company in its entirety, merging all business processes, departments, etc.
    • Example: The Exxon-Mobil merger.

Main areas of integration

During hard PMI, companies are faced with the task of reconciling two different entities on every level, from human resources to corporate culture, information systems, accounting methods, and marketing. Integration often develops along a series of steps:

  • Strategic integration planning usually starts before the deal is closed. Here businesses align their goals, identify challenges and synergies, and develop a plan for the integration.
  • Communication and culture alignment: Management communicates their vision of the merger to all stakeholders, to generate confidence and assurance, while also starting to align the different corporate cultures at the employee and executive level.
  • Operational and IT integration: If necessary, company systems, products, and processes begin to be integrated.
  • Human resources: HR policies, benefits, and compensation packages are brought on the same page.
  • Finances: Businesses harmonize their financial systems, accounting practices, and reporting structures. 

Post-merger integration best practices

If it’s still true that most M&A deals fail — from 70% to 90%, according to an oft-quoted Harvard Business Review study, — what can we do to address the potential issues before they ever come up? 

There are a few pitfalls and best practices to keep in mind. Let’s consider some of the most essential ones below.

Have a clear post-integration plan

This should go without saying, but having a strategy is a must. Those 70-90% of failures are due not only to bad execution but also largely to its parent — bad planning.

Planning should begin long before signing the deal. The first steps in your general post-integration strategy should be clear already during your initial due diligence, before acquisition.

When planning, account for the following aspects of your deal.

Architecture differences and mismatches

Especially when acquiring businesses in different verticals or much smaller in size, your integration team should give special care to the issue of architecture — that is, the way each company is structured.

Smaller companies will often have fewer units, where employees can be charged with tasks that straddle several departments — finance, accounting, and so on. 

It’s important to understand the extent to which a mismatch in architecture could become an issue, and plan for it early on.

Establish a clear timeline — and expect it to fail

“It always takes longer than you expect, even when you take into account Hofstadter’s Law.” 

This humorous adage should be a golden saying of every M&A deal, in every industry. In practice, it simply means that even the best of timelines are liable to turn out too optimistic in the end. Unexpected software errors, legal or compliance issues, or macroeconomic factors are just some of the many reasons why your deal could end up taking a lot longer than originally planned.

With that in mind, do some careful planning for potential disruptions and consider from early on the impact an unannounced lengthening of the process can have on your bottom line.

Communicate early and often

The integration process can be a stressful time for everyone involved. 

From employees who wonder if they’re about to be laid off to shareholders trying to predict how the move will affect the company stock, and to clients whose product usage may be affected, this can be a tough period for all.

The best antidote against all the fear-induced confusion is transparency. Keep everyone on the same page, and do so through clear and consistent messaging.

With shareholders

At the shareholder level, make sure you convey your vision for the future of the merged company as soon as the deal is announced. Answers questions such as:

  • In what way will the integration generate value for the shareholder? 
  • What is your timeline for completion and how will you keep to it?
  • How do you expect the integration to affect your bottom line and margins for the next few fiscal quarters?

With employees

It’s normal for employees to feel under a lot of stress during the transition. On the one hand, there’s the uncertainty — this is often a period when talk of layoffs and pay cuts is rife. On the other, there can be added and new workloads in many departments. 

There are a few things you can do to make sure you keep your employees happy and productive:

  • Hold group calls early on to explain how the integration will impact everyone, and what they can expect from it
  • Consider organizing a “meet & greet” between employees of both companies, if relevant, so they can get to know their new coworkers and break the ice
  • Hold one-on-one interviews with key employees to make sure they’re on board with the changes

With clients/users

Clients are often overlooked during drawn-out transition processes. Depending on your main product or service, this can be an extremely dangerous moment, where once-loyal customers can become frustrated with the lack of support and be tempted to look elsewhere.

To avoid gifting a share of your client base to the competition:

  • Put together a task force with the sole purpose of ensuring clients’ needs are being answered and the transition is creating no loss of value for them
  • If the transition creates hurdles for your clients, as often happens during software provider mergers, consider sweetening the deal by offering special discounts or packages to your users
  • If necessary, organize webinars and well-explained FAQ pages so your clients can get a clear grasp on the PMI and its implications for them
  • Be extra supportive and make sure your team answer promptly any customer queries or assistance requests

Post-merger integration checklist

Checklists have been called the “secret productivity hack of Fortune 500 CEOs“, but in point of fact, they’re not all that secret.

With any large process involving multiple players and factors, the variables are just too many and demand a disciplined approach. This is where post-merger integration checklists come in, serving as a roadmap of all the steps to ensure a successful post-merger integration.

Below, you can see an example of an integration checklist organized according to the integration stage and department sphere.

Phase 1: Post-merger integration strategy

This preliminary stage predates even the due diligence (DD) stage and is particularly important in large acquisitions.

1. Governance and IMO

  • Establish an Integration Management Office (IMO) with defined roles and responsibilities
  • Develop a governance structure to oversee the integration process

2. Legal

  • Conduct a legal review to identify potential regulatory hurdles
  • Research and align compliance frameworks and policies

3. Finance

  • Assess and report on financial implications and risks associated with the integration
  • Develop a preliminary financial plan for the combined company

4. People 

  • Evaluate differences in company culture and potential integration challenges
  • Begin communication with employees about the potential merger

5. Marketing and communications

  • Develop a communication plan for stakeholders, including board members and shareholders
  • Align marketing strategies to convey a cohesive brand image and leadership

6. Technology and IT

  • Assess the compatibility of IT systems/infrastructure and prospect potential integrated solutions
  • Develop a roadmap for IT integration

7. Sales and distributions

  • Evaluate potential impact on customer/client relationships
  • Develop strategies to retain the client base during the transition

8. Operations

  • Conduct a thorough operational analysis to identify potential bottlenecks and inefficiencies.
  • Conduct a thorough operational analysis to identify potential bottlenecks and inefficiencies.
  • Identify key performance indicators (KPIs) to measure the success of operational integration.

Phase 2: Due diligence with a focus on post-merger integration

At this stage, you will be conducting due diligence as usual, but with a sharp focus on the post-merger integration phase.

1. Integration governance

  • Evaluate the alignment of roles and responsibilities within the current IMO and propose adjustments for a more streamlined structure 

2. Legal

  • Perform a detailed legal audit to identify any potential contractual discrepancies and improve the general understanding of all legal implications during the integration

3. Finance

  • Analyze financial data to generate synergies, as well as focus on cost-saving opportunities and potential risks arising from the post-acquisition integration. Report on debt and liabilities, cash management, and similar aspects

4. People

  • Conduct a thorough cultural assessment that identifies potential pitfalls and opportunities during cultural integration

5. Marketing and communications

  • Report on the current market positioning of both companies, establishing a balanced messaging for key stakeholders to maintain consistent and positive messaging throughout the PMI process

6. Technology and IT

  • Evaluate the compatibility of IT systems and infrastructure, with a strong focus on the usual challenges and security risks associated with system integration, including merging or associating tech platforms

7. Sales and distributions

  • Analyze customer and client relationships to identify opportunities for cross-selling and retention strategies, ensuring a smooth transition for clients during integration.

8. Operations

  • Conduct an operational analysis to identify inefficiencies and operational redundancies, to improve workflows and save time

Phase 3: Pre-close specification

During this phase in post-merger integrations, your team should look to:

  • Confirm business case and synergies
  • Report on potential risk management, outlining potential pitfalls
  • Attribute synergy responsibility to workstream owners
  • Confirm owners and teams
  • Generate detailed plans for successful post-merger integration to share with stakeholders

Phase 4: Getting the PMI started (kick-off)

The kick-off phase can be broken down into a few steps:

  • Establish mutual consensus on the PMI plan and processes in collaboration with the target company
  • Provide a clear risk assessment report, with clear ownership assigned for identified risks
  • Reach an agreement on the business case in collaboration with the management of the target company
  • Collaborate with target workstream owners (partners) to finalize and align on synergies
  • Initiate the integration of PMI workstream teams, ensuring a cohesive and coordinated approach

Phase 5: Long-term integration review (6+ months later)

A successful post-merger integration process can sometimes take years to fully conclude, which makes it even more important that the integration plan should rigorously adhere to the outlined agenda. 

After six months or more after the start of the integration process, conduct a review with a focus on the following aspects:

  • Monthly reports on PMI workstreams
  • Confirmation of workstream-level integration
  • General review and evaluation report on the integration progress as a whole, providing recommendations for the near-term

Who is responsible for the integration process?

The post-merger integration process is usually assigned to a diverse team, led by the Integration Management Office (IMO) leader. Key roles and responsibilities include:

Integration Management Office Leader

  • Key objectives: Oversee the process as a whole while ensuring alignment with planned goals
  • Responsibilities: Develop the integration strategy, coordinate workstreams, and provide regular updates to stakeholders

Workstream leaders

  • Key objectives: Team leaders focus on the specific areas for the several functional integration teams
  • Responsibilities: Develop and execute integration plans within each leader’s domain to ensure optimal integration benefits and synergy

Legal and compliance teams

  • Key objectives: Mitigate legal risks, and ensure compliance throughout the integration
  • Responsibilities: Conduct legal due diligence, align regulatory frameworks, obtain regulatory approvals, navigate legal hurdles

Finance teams

  • Key objectives: Conduct financial analysis and manage related aspects of the integration
  • Responsibilities: Conduct financial due diligence, develop financial plans, and monitor relevant metrics

Human resources (HR)

  • Key objectives: Help with the human-related transition side of the PMI, including aspects connected to key personnel and company culture
  • Responsibilities: Assess and manage workforce integration, communicate changes to employees, establish necessary cultural integration points

How can VDRs help during a PMI?

Over the past few years, there’s been a clear trend shift towards increased productivity and speed in business deals such as M&A, restructuring, bankruptcy, and so on. 

Riding this wave is a new type of electronic platform — virtual data rooms, or VDRs, which are quickly becoming a mainstay of today’s business landscape.

Essentially large data centers where companies can store, share, and manage their files easily and securely, data rooms bring a series of benefits to the post-merger integration process, including:

  • Increased security architecture over e-mail or other unsecured communication and file-hosting services, helping teams prevent leaks and preserve the confidentiality of shared info.
  • Tiered file-hosting and user compatibility, allowing for scaling up or down as needed. This brings flexibility to the PMI process, while also ensuring you get the best bang for your buck in subscription terms.
  • Agile workflows, including time-saving functions such as file indexing, e-signatures, and integration with video-conferencing platforms, all of which help integrate your teams better and keep the integration moving up to speed.

Conclusion

A successful integration hinges on a lot of factors. The good news is that you can significantly increase the chances of conducting a successful merger if you create a good plan and stick to it, using integration checklists to ensure you and your team stay on track.

Just remember to have all of the key players on board to help you design your post-merger plan, make sure your post-merger integration framework factors in the several integration phases, have a competent diligence team, and get started with plenty of time to spare before the deal closes.

And, finally, don’t forget to leverage technology to your advantage. That’s what virtual data rooms are here for!