Effective integration outranks sound due diligence in why mergers succeed or fail.
Post Transaction Integration
Post-transaction integration are those steps and processes taken to bring together two companies who have completed a merger or acquisition financial transaction to become one entity in order to take advantage of the new union.
The reasons expressed for the union when the companies were courting each other can include expansion into new markets, increasing the product portfolio, increasing market share, economies of scale, technology change and others.
Why Mergers Fail
When executives are asked, “What is the most important factor in achieving a successful M&A transaction for your company?” Effective integration outranks economic certainty, accurately valuing a target, proper target identification, sound due diligence process, and stable regulatory and legislative environment.
Companies seek to accelerate revenue growth or enter new markets through mergers and acquisitions. They spend a lot of energy and resources identifying the right targets based on synergy and combined financial models.
But oftentimes, the real value of the acquisition is not realized. M&A typically fails during integration. All that effort and capital spent on acquiring the target is wasted.
Finance Integration
The deal was completed in part for financial benefit, whether it be cost and efficiency gains, new market and revenue entry, performance enhancements or some combination of all of these. Finance and Accounting leadership has any number of issues to work through, including the following.
Day one and 100 day plans
All issues related to finance and accounting processes and systems like monthly closes, internal controls and financial reporting must be planned out, including what resources will do what work.
Performance Improvement
The acquiring company may have Key Performance Indicators in place to measure how well or poorly people and the company is performing. Articulating and bringing together best practices for how to judge the quality of work will be key.
Finance and Administrative Transition
Other, more detailed finance and accounting considerations administration issues include the following:
Systems & Technology Integration
There are multiple factors from a technology perspective that can cause problems for acquisitions. First, it is helpful to identify the various systems and tools that need to be integrated as part of an acquisition.
Core Systems
The items below represent the core systems and tools relevant to any acquisition scenario:
Dedicated in-house integration team?
Unless you are a large company that can afford their own in-house acquisition integration department, companies simply don’t have the internal resources to assign to an acquisition integration to do it right.
The existing management team fears creating a costly disruption in the acquired target.
The integration burden is placed on existing managers who already have a day job causing endless delay and lack of initiative.
The talent in the acquired firm is ignored and “stars” exit early, quickly causing a critical talent drain and loss of business know-how.
Product & Development Integration
If the acquisition is bringing together companies with either competing or complementary technology products, there were synergies anticipated in bringing the deal together. To realize those synergies will require many difficult decisions and development efforts to make the products in question work together.
If the acquisition is bringing together companies with either competing or complementary technology products, there were synergies anticipated in bringing the deal together. To realize those synergies will require many difficult decisions and development efforts to make the products in question work together.
However, unlike the “core” tools and systems outlined above, there is tremendous passion and pride of authorship around internally developed systems. And to make matters worse, since you have to figure out organizational issues as well (including potential elimination of positions), it is very difficult for employees to separate themselves from the emotion to provide objective input. This is why is it critically important to get outside help to do an independent assessment of these systems and the teams supporting them to help determine the plan forward.
There are multiple important questions to be answered such as:
- Which product(s) should be sunset?
- Who will lead the combined team?
- What does the new IT/Product Development organization look like?
- What toolset (Agile PM, defect tracking, build & release, etc…) will the combined team use?
- Which customers will be migrated to other systems?
- What is the right technology stack moving forward for the combined entity?
- Should the systems be integrated at all?
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