Post Transaction

Effective integration outranks
sound due diligence in why mergers succeed or fail

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M&A typically fails during integration, wasting all the effort and capital spent on acquiring targets

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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.

Why? There can be several reasons:

Lack of Internal Resources

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.

Fear of Disruption

The existing management team fears creating a costly disruption in the acquired target.

Delay

The integration burden is placed on existing managers who already have a day job causing endless delay and lack of initiative.

Talent Exodus

The talent in the acquired firm is ignored and “stars” exit early, quickly causing a critical talent drain and loss of business know-how.

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:

  • Closing vs. Opening Balance Sheet Development

  • Purchase Price Allocations and Booking

  • Pro forma historical and segment financials

  • Post-closing Purchase

  • Price Adjustments

Sales & Marketing Integration

In the area of Sales & Marketing, the acquiring company needs to identify the critical issues prior to the closing in preparation for “Day One.”

Day One is an important milestone and should be well coordinated. It’s the best day to communicate to employees, the sales team, vendors and customers (in that order). If you don’t communicate what is happening right away, they will make stuff up – and that’s always worse than the real story.

At the heart of the merger is the story…not as stated in the press release, but as interpreted by existing and potential customers. What is the resulting value that the combined entity should contribute to the customers’ experience?

Delivering this value should guide merging companies on the following:

Marketing Messaging and Alignment

The Day One messaging must include compelling statements to provide assurances, generate enthusiasm and hope, and keep nerves subdued.

What value is in the acquisition for current and potential customers? The combined entity is doomed to failure if an acquisition doesn’t create a 1+1=3 scenario. So, it starts with the messaging that will shape the picture in the minds of customers, partners, employees, vendors, and the marketplace.

Day One messaging must include a very clear, credible, and compelling market promise. Acquisitions are a very anxious time for all stakeholders. And, this is no time for “good enough”. If the market promise is unclear…well, as they say, “if you don’t know where you are going, any road will take you there”. If the market promise is clear, everything else below is easier to create. So, take the time and be thoughtful here. If you need help, go and get it. And, get it long before Day One.

Sales Organization

Are we merging sales leadership by identifying the best talent or are we subordinating the target sales team under our sales leadership? Either approach has merit, but it requires leadership and clarity at the highest level.

Many companies put off this crucial sales organization integration decision until days or week after the closing, creating disruptive sales force confusion which can lead to sales “stars” exiting on both sides.

Channel Partner & Vendor Programs

Acquisitions are an especially anxious time for Channel Partners, Vendors, and anyone else (like a sales professional) who has an established territory.

These stakeholders will defend, and rightfully so, the significant investments they made in the past and relationships they have established. When the merged entity depends on these stakeholders, navigating how future territory lines are drawn can be a political power struggle.

Sales Incentive Program

When acquisitions happen, sales professionals get nervous. And, most Sales People…hate change. The perception is that their job, their established customer base, and their opportunity to earn is all in jeopardy. In most cases, few promises can be made on Day One to quell these nerves. However, it is a widely held belief that the sales incentive plan drives the sales culture. If it is possible to layout what the sales incentive plan going forward will be or to set expectations of little change or positive change, some fears can be quelled.

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:

  • ERP/Accounting/Expense Reporting
  • CRM / Marketing Automation / Chat & IM
  • Phone Systems
  • Internet & Networking
  • Email / Spam Filtering
  • Single Sign-On (SSO)
  • Network Drives / File Sharing
  • Backup Systems
  • Internal Servers / Hosting / Website
  • DevOpts Tools (Remote Desktop) / Internal Servers / Hosting
  • HR Systems / Project Management Tools / Helpdesk

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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