Optimising the Post-Merger Integration Process

Mergers and acquisitions promise to create value for the business, but they are only truly successful when there is an integration practice after the fact. Bringing together two distinct organisations often means there are cultural and operational differences that must be overcome to prevent friction and get the newly formed enterprise off on the right foot. With the right processes in place, companies undergoing a merger can ensure a smooth transition into the future, avoid unnecessary complications and maintain a high level of morale among the rank-and-file. 

However, this can be easier said than done. Merging two companies together means harmonising numerous aspects of how they operate on a day-to-day basis. Following a post-merger integration checklist is necessary to make sure every element meshes as successfully and smoothly as possible. Read on to learn what the post-M&A integration process entails and the steps to take to set the new company up for success.

What Is a Post-Merger Integration?

The post-merger integration is a tiered set of processes during which the businesses are rearranged to reflect the new business structure. When companies merge, there are redundancies — both companies have accounting or finance departments, for instance. Both have administrative personnel, sales associates and customer databases.

Regardless of the industry, these examples show how the new business needs to streamline operation post-merger to efficiently respond to opportunities. By planning, both parties can determine where there are opportunities to leverage and where there are redundancies that must be eliminated.

While every post-merger integration strategy will look a little different, there are a few common stages for which companies can plan. These include the following:

• Value: Value is often a driver of the merger, so it is usually the first area to be addressed. Businesses can develop cost goals as well as revenue goals when determining value proposition. While many will look for synergies or efficiencies that can be leveraged to save costs, a company can act to expand revenue streams in the wake of a merger or acquisition.
• Organisation: Blending companies means blending corporate cultures and enterprise talent. While in an ideal world there would be a place for everyone, some reductions may be necessary. Corporations should focus on communication and company culture to help ensure the success of the new business.

When blending cultures, the key is to start early (well before the merger is complete) and keep the purpose of the business deal top of mind. When cultural changes can be tied directly to strategic initiatives, employees are more likely to support the shifts in their working environment.

• Direction: A merger or acquisition is an ideal pivot point for companies ready to change the way they do business. Whether it's a new philosophy, objective or design, companies should take time to think through how they want to operate after the merger. Consider it an ideal time to shed legacy habits that were outgrown in favor of leaner ways of operating.

While the integration doesn't happen until the merger is complete, planning should begin well in advance. By leaving several months before the deal to iron everything out; the companies can identify and work around areas of difficulty to achieve a successful M&A.

Identifying Common Challenges in Post-Merger Integration

There are many challenges associated with bringing together two distinct business entities, because each one has developed its own unique culture and methodologies over time. Bringing these into alignment successfully requires some careful planning and strategic management to overcome challenges including: 

• Culture clash: When two companies have wildly different cultures, it can lead to mergers becoming very messy. This impacts everything from the expectations on employees to how communication is handled to the overall values of the new entity. As part of the pre-deal due diligence, companies must be aware of any differences in cultures and develop a strategy for bringing them into agreement. 
• Operational differences: From customer service to supply chain management to sustainability practices, businesses become accustomed to doing things a certain way. This is why companies undergoing a merger need to establish a dedicated team to examine how responsibilities are handled and find a way to onboard everyone, so they know what is expected of them in the new organisation. 
• Technological incompatibilities: Whether it's automated manufacturing platforms or different email providers, any differences in technology used by each company can make post-merger integration more difficult than it needs to be. IT teams need to be brought into the process as soon as possible so they have time to examine what gaps may exist and develop solutions for resolving them. This will ensure that there are fewer unpleasant surprises as the integration begins in earnest. 
• Talent loss: One of the biggest challenges during a post-merger integration is the impact the transaction has on staff. In addition to redundancies, many employees may feel uncomfortable with the changes brought about by the merger and will take the opportunity to find other jobs elsewhere. Organisations can mitigate this potential loss of talent by being as transparent as possible throughout the process as well as prioritising training and development. 
• Poor communication: Mergers bring a lot of uncertainty and confusion as new processes and protocols take time to shape. This can lead to employees becoming frustrated or checked out, but there are ways to avoid this. The most important of these techniques is to maintain an open and regular dialogue with all stakeholders, making sure all changes are being communicated clearly to everyone, and employees have an opportunity to voice their perspectives. 

Key Steps in a Post-Merger Integration

There are two sides to a post-merger integration: what the new business will look like, hierarchically, and how the new business will operate on a day-to-day level. Focus on how the post-merger integration plan will work for the business, rather than homing in on only the new corporate structure. Develop a short-term and long-term plan for how the new business will operate by addressing areas such as:

• Human Resources
• Identifying redundancies
• Addressing benefits packages
• Handling layoffs and severance as necessary
• IT/Technology systems
• Merging systems
• Eliminating technical redundancies
• Management
• Developing training plans
• Outlining key roles and responsibilities
• Building new internal procedures
• Managing employee retention and turnover
• Shifting organisational culture

While the bullets can be handy as a checklist approach, keep in mind that this is a time-consuming affair that should be addressed as soon as the merger occurs. One of the first action items parties need to consider is what success after a merger looks like. This may seem obvious, but many companies leave this discussion off the table only to realise that the vision of success they're holding is not the same.

Companies may be negatively affected after a merger by failing to focus on the right activities and not addressing corporate cultures.

To keep emotion out of a discussion of the facts, look at financial documents. A profit and loss statement can shed light on opportunities and liabilities.

Once everyone is on board with key priorities, they can tap into existing resources. Priorities will differ with every company, but example priorities could be:

• Aligning business strategy
• Retaining core customers
• Integrating different company cultures
• Preserving the well-being of employees
• Maintaining stability in a changing market

Mergers tend to be “all hands on deck” affairs. Thus, the following people and departments will share the responsibility of integration in the wake of a merger:

• Top executives
• HR department
• Business lawyers
• Business consultants
• Specially appointed due diligence team

Effective Cultural and Financial Integration Strategies

Blending different cultures and financial practices together calls for strong leadership. A successful integration means being able to smooth out any potential rough patches before they have a chance to cause friction and halt progress. For example, overcoming cultural differences requires effective and transparent communication between management and employees. On top of this, leadership should introduce cross-department training and education programs to foster better collaboration and spur cultural alignment. 

Communication also is key for synchronising financial practices during a merger. Leaders need to be clear about what the expectations are and how teams can achieve them within the new framework. A strong process for monitoring performance also is necessary, and the integration team needs to make this clear at the onset. Implementing a plan for consolidating financial systems is critical because it will ensure the smoothest possible transition from legacy systems to the new way of doing business. 

Fortunately, many tools exist today that can make these processes easier for leaders. Project management software and communication platforms such as Slack or Microsoft Teams can help break down barriers that may exist between teams. This can help bring everyone together on the same page and facilitate a better flow of information throughout the post-merger integration process. 

Measuring Success: Performance and Synergy Realisation

Although the bottom line is the primary consideration most companies have in mind when undergoing a merger, it's not the only measure of success. Each merger is unique, and you may have different objectives than others going through the same process. As the integration progresses, it's important to keep track of your KPIs so you can determine which areas of the integration are proceeding as intended and where you may need to focus more attention. This is why determining your KPIs as part of your due diligence before the deal takes place is so important. 

Understanding which KPIs to track means taking a close look at your reasons for the deal in the first place. If, for example, you're merging with another company to gain access to new markets, you should be tracking how well your new entity is retaining and attracting customers throughout the integration process. Listing and tracking KPIs is paramount for determining how successful your merger will be and how well the integration is being handled. 

Get Help With Post-Merger Financial Statements

After a merger, the company is required to file post-merger financial statements with the SEC. Given how much work companies are already doing in the wake of a merger, keeping up with SEC regulations may not be top of mind. DFIN offers technical solutions for due diligence and the post-merger integration, include our core product, ActiveDisclosure^℠.

ActiveDisclosure^℠supports team-based workflows and allows for XBRL tagging, for easier compliance and regulatory reporting.

In 2020, the SEC updated its rules regarding post-merger and acquisition financing reporting for the first time in 30 years. The new rules are in effect as of January 2021. Our personnel can guide you through the latest changes as well as all required post-merger and acquisition financial performance analysis. You’re free to concentrate on the post-merger process to help ensure long-term success of the venture.