Post-Merger Integration: Beginning or the end of the M&A journey

Why is M&A integration so important?

Professor Scott Moeller, Director of the M&A Research Centre at The Business School, highlighted in his white paper, that ‘the success rate is around 50% -- the same odds as guessing correctly the flip of a coin’. His paper explores some of the biases which are most prevalent in M&A deals and the impact that they can have. These biases influence not only getting the deal done but also crucially the post-merger integration strategy or lack of.

More often than not, integration is an afterthought. As deals get more complex, and buyers spends more time, money and resources on completing the deal, can a buyer really afford to not have a clear integration strategy from the outset? The short answer is no. The success of the deal is not just getting the deal done but also having a carefully planned integration strategy.

The stakes are high, the impact of failed M&A is not simply limited to the costs incurred in connection with the deal. Buyers will also need to consider the scope for reputational damage and the impact it will have on its brand. Like a divorce, the unwinding of the merger can be very complex, costly and emotionally draining. In some cases, walking away may not be an easy option.

Key Challenges

In our first article in a series on M&A integration, Bharti Moore, Senior Associate in RWK Goodman’s Corporate Team highlights some of the key issues impacting M&A integration. In our series of articles we will explores some of the key challenges in more detail and provide practical steps and guidance to directors, senior management teams or in-house lawyers to help them navigate and improve their integration strategy.

Planning and implementation

Integrations should be at the forethought of the senior management team’s mind. The planning should begin from the start of the journey not the end, which is often the case. The senior management teams should consider, why are they are buying, what are the drivers for the purchase? This would allow them to identify key objectives to align with the business strategy, process management and technical aspect.

Financial and Tax

We often hear that one of the key drivers of an M&A deal is the cost-saving opportunities and creating economies of scale. But in order to see the true value of the deal the integration of the finance aspect is critical to monitor and review KPI’s, help ensure compliance and controls, receive relevant information in a timely manner to monitor issues and opportunities and create operational efficiencies across the organisation.

Buyers should also carefully review the tax aspect of any integration plan to avoid any tax inefficiencies which may have an adverse effect to the value of the deal, the business and wider group as a whole.

Operational

In order to realise any cost-savings and streamline any processes; effective operational integration will be critical. An integration plan with clear operational objectives will allow senior management teams to review the key data to help them achieve the anticipated saving synergies and would enable effective decision-making.

Corporate governance and legal

Compliance issues are likely to be a key area to review as both businesses may not adhere to the same levels of compliance. Policies, contracts and guidelines should be reviewed and be aligned. These will be essential for the post-merged organisation to run smoothly, embrace best practices and effectively allow the business to “sing from the same hymn sheets”.

People and culture

A business is only as good as its people, research and studies indicate that high percentage of failed deals are attributable to people and culture issues.  Yet the due diligence phase of M&A transactions still focuses primarily on financial and legal aspects of the deal, and not people and culture.

Culture is treated simply as a buzzword and remains unaddressed until after a deal is completed. There is no “one-size fits all” approach. A culture clash in the Board room, within senior management team and with staff can have a huge impact of the success of even a relatively straightforward transaction.

IT and technology

Over the past few years we have seen a massive acceleration of digitisation, with technology playing a crucial role in day to day business. Looking ahead, any integration team should involve in-house IT teams or IT consultants to ensure that the IT infrastructure is synchronised. A lack of planning can be very disruptive to the business in managing the process which can slow down the decision-making and overall operations.

Stakeholders: customers, clients and the market

Communication with stakeholders will be essential to ensure accurate information is provided to direct any concerns and importantly that the theme and tone of the messaging is on brand. This dialogue can help the Board and the senior management teams to understand significant changes in the post-merger landscape, anticipate any future challenges and trends, and re-align the strategy.

Effective and timely communication will help to protect the brand and reputation of the business and build trust and confidence with the stakeholders and potential investors.

We are seeing a shift in M&A deals, as M&A lawyers we are playing a more strategic part in the due diligence process with greater consideration to integration from the outset. The challenges outlined above should not be reviewed in isolation, they are all integrated. To ensure success, any integration team should consist of individuals from all aspects of the business and suitable professional advisors.