For most companies, mergers do not occur regularly or recurringly, bringing with them a host of uncertainty and doubt. When two companies merge, it is a unique experience for both companies requiring a particular course of action, capabilities, and skills.
The Burnie Group team has supported numerous post merger integrations from $10M up to $1B across various industries, including insurance and financial services, professional services, pharma, beauty and cosmetics, software and technology, and senior living, to name a few.
Here are ten critical things to get right in every post-merger integration (PMI), no matter the merger type, size, or industry.
1. Use the time leading up to the closing day wisely
The pre-closing period begins as soon as the due diligence is complete and both sides negotiate and agree upon the terms. Though this period may range from a couple of weeks to several months, we found that a typical pre-closing interval is between four and eight weeks. The pre-closing period is driven by the need to get all Day 1/Closing Day checkmarks in place, such as legal aspects, permits, financing, etc.
Knowing how much time is available before Closing Day will dictate the scope of work that can be realistically completed. From our experience, it takes at least a few days to get an integration project management office (PMO) and integration workstreams set up, including governance with roles and responsibilities.
Suppose you have only a couple of weeks. In that case, the scope of your pre-closing integration topics should focus on must-do legal aspects, financing, clear communication, and most urgent people-related topics.
If you have four to six weeks, a more detailed integration plan can be developed involving all relevant workstreams (e.g., technology, operations, sales and distribution, etc.)
If you have six to eight weeks, you will have the luxury of approaching Day 1/Closing Day in a very planned fashion. In addition to completing all of the above tasks, you can develop the target operating model for the integrated companies.
It is worth keeping in mind that the further out the Day 1/Closing Day, the more likely the merger news will slip through. Thus, the communication workstream should closely manage internal and external communication.
2. Integration spirit matters: friendly vs. hostile takeover
Integrations come in various forms and shapes. One of the key factors dictating the integration approach is the nature of the PMI: a friendly merger, where the leadership will be a part of the future team, a neutral takeover, where the leadership team is planning to depart on good terms after some time, or a hostile takeover where there will be no access to the leadership of the acquired company.
The less friendly the merger is, the more critical the pre-closing phase becomes. The pre-closing might be the only opportunity to access the acquired company’s leaders’ knowledge and know-how.
Human resources is a sensitive topic in a hostile acquisition. There is a risk of losing valuable resources through departing leadership and other employees who might follow the departing leaders.
Business continuity, access to data, and access to critical services should be handled carefully from a risk management perspective during hostile takeovers to ensure the clear transition of access rights and account passwords.
3. Some workstreams are more critical at the beginning than others
When companies go through an integration, all workstreams matter; thus, all functions and relevant businesses must be at the integration table. However, we found that some workstreams are more critical at the beginning of the integration process, and some are more important further down the road.
If we had to pick up key workstreams which are the most critical at the beginning, these would be
- Finance, especially as it relates to funding the deal.
- People or HR, as it relates to providing employees reassurance during a merger, to encourage the strongest employees to stay.
- Communication, as uncertainty, is the biggest enemy of a successful integration. Many groups of stakeholders must be informed and managed, including employees and leadership in both companies, external stakeholders, customers, authorities, etc.
- Legal, as it handles all legal aspects of the merger from corporate structure to making the deal happen according to the laws.
Other workstreams such as operations, marketing, sales, and distribution will become more prominent down the road once a design and implementation of the integrated target operating model will occur.
4. Consider key human resources topics
As mentioned above, the HR or people workstream is one of the most important during any integration, based on our experience. Several activities must occur before Day 1 (before the deal announcement) and post-Day 1 to ensure that the integrated company has a strong, well-motivated team.
Here are a few key topics to consider in each phase:
|Key pre-closing HR topics during a PMI||Key post-closing HR topics during a PMI|
5. Communicate clearly and frequently
Based on our experience, a merger has never failed due to too much communication. However, some have failed due to a lack of communication. If people are unsure of what the future holds for them, uncertainty will prevail, and the best team members might leave. Without clear communication, the morale of both organizations can be negatively impacted.
From our experience, a dedicated communication workstream must be in place to support the integration. Some of our clients choose to have two of them: internal communication and external communication. Here is a list of different types of communication that support integration; it is not an exhaustive list but offers a flavour for various communication forms.
Please note that communication types and strategies in a pre-closing phase will strongly depend on the type of merger (e.g., friendly, hostile) and how much deal information can be disclosed.
|Pre-Closing||Day 1/Closing day||Post-Closing|
6. Define the target operating model for the PMI
Though thoughts of a target operating model are not necessarily top of mind in the first weeks of the pre-closing phase, the topic’s importance increases exponentially as the integration progresses and the question is raised about how the integrated organization would function.
It is important to define the target organization structure and adjust the target operating model for the entire integrated company. That includes looking at all the operating model dimensions, including processes, technology, data, channels, physical locations, shared services, people, and governance.
In many cases, we found a need for an interim target operating model that must be in place before the target state can be implemented. Some initiatives can be deployed relatively quickly, such as organizational changes. Others might take a fair amount of time, such as the consolidation of IT platforms as part of IT strategy.
7. Think carefully about the brand
In most cases, companies are acquired for their successes and not for their failures. Consequently, one of the core assets of an acquisition is the acquired company’s brand (or brands). That is where careful considerations are essential, as it is by far easier to damage a brand than to build it. There should be a robust discussion and decision-making around key topics, such as:
- How does the new brand and products or services of the acquired company fit into the overall company strategy?
- Are some existing and acquired brands competing or cannibalizing each other?
- What is the target brand strategy, e.g., separate brands, a single brand, an umbrella brand, etc.?
- What elements of the target operating model should be put in place or left untouched to preserve the brand?
8. Once Day 1 has passed, that is when the work starts
In the weeks preceding Closing Day, there are many preparation activities in the organization. Everybody is pumped up with excitement and energy leading to Day 1. Once Day 1 is over, the candles are out, the balloons are gone, and the level of energy goes down as people have a feeling of, “We have accomplished it!”.
After Day 1, the real work begins; the integration must cascade out into planning and clearly defined packages for various workstreams.
Another aspect of every integration is delivering on integration benefits and synergies. All workstreams must work towards a clearly defined target operating model and workstream objectives. Our experience is that successful integration is not a sprint that only takes a few weeks. Typically, it is a marathon that can take from 6 to 18 months and requires active involvement, collaboration, and hard work from all key stakeholders.
9. Extract PMI synergies
As mentioned earlier, integrations occur not for the sake of integration but because there are expectations around benefits or synergies from every integration. The nature of these benefits and synergies might vary enormously: from growth, entering new markets, getting access to the know-how, to driving scale and efficiencies.
In most cases, the initial estimation happens in a very top-down way. It is important to understand how benefits and synergies were estimated and the drivers behind their value creation, and then track the progress towards realizing value.
It is also important to set up key metrics across the organization, enabling the integrated company to monitor how value is captured, e.g., delivered savings, growth, profitability, and unit costs changes. It is also essential that the company does not lose sight of other crucial metrics, such as employee satisfaction and attrition or customer satisfaction and retention. The integration PMO is a logical place to track benefits and capture synergies.
Since the very initial estimation often takes place without knowing all the details, it can be discovered further down the road that some benefits or synergies might not be achievable. At the same time, other synergies and benefits will likely be found and unlocked along the way, such as sunsetting redundant applications, changes in procurement rates, natural attrition, use of robotic process automation or intelligent automation, advanced workforce management, etc.
10. Importance of dedicated integration resources
Integrations mean a lot of work: from the initial preparations to the post-merger integration phase. In our experience, working through a merger cannot be done alongside other everyday tasks. Thus, we always recommend a full-time integration lead supported by a few team members to form an integration office. This core integration team might be composed entirely of internal resources or augmented with experienced external resources who have experienced multiple PMIs.
In addition to the core integration team, there should be a clear responsibility assigned for each integration workstream, including HR, Communication, Legal, Finance, Marketing, Sales & Distribution, Ops, and more. Some workstreams will be very busy initially, while others will be busy further down the road. We recommend budgeting 100% time for the following workstream leads in the pre-closing phase:
- Human resources, including organizational design, employee retention, contracting, benefits, employee and management-related communication, and severance
- Internal and external communication
The workload in other workstreams can vary depending on the desired scope of tasks that must be completed by Day 1. In addition to the workstream lead, we recommend that each workstream has a dedicated or semi-dedicated subject matter expert (SME) to support integration efforts.
Senior leadership should also budget a reasonable amount of time to steer the integration, connect for regular integration touchpoints and ensure speedy decision-making.
How we support post merger integrations
We hope you find these PMI insights helpful as we have compiled them over the numerous integrations we have supported. Every merger is unique, and we would be happy to connect about your merger plans to ensure its success. We can provide necessary post merger integration support tailored to your needs, including:
- Supporting your integration in a pre-closing phase and preparing you for Day 1
- Developing 30, 60, 90-days plans to support integration post-Day 1
- Developing interim and target operating model for your post-merger integration
- PMI and PMO support
- Providing lean post Day 1 integration support in the form of thought leadership and overall PMI guidance
To learn more about Burnie Group’s PMI capabilities, contact us.
By: Alexey Saltykov, Practice Leader, Digital Transformation