Merger & Acquisition Integration Plans
The M&A term sheet has been negotiated, due diligence has been completed and the valuation plus the timing has been agreed upon by both sides. The transaction documents are almost through their first iteration by the attorneys. In your mind, the hard work has been done and you need to negotiate the finer points of the legal docs. The light is at the end of the tunnel, and you are presuming it is not a train. Or is it?
Why Mergers and Acquisitions Fail
Numerous academic resources, including the Harvard Business Review, estimate that merger and acquisition failure rates range between 70 and 90%.
Examples of a failure include:
- Failure to produce expected financial results (or synergies) within expected timeline
- Failure to return cost of capital
- Failure to return any shareholder value
Other items can be measured as failures such as management attrition, employee disengagement, customer churn, etc. Lack of an M&A integration strategy is a sure-fire way to fail.
Mergers fail because of a wide variety of reasons, but, in general, the following categories are prevalent:
- Over-optimism of performance
- Conflicting goals and strategies
- Personnel Conflicts (Management and in the rank and file)
- Misaligned/Disparate Cultures competing for dominance
If a weather forecaster presented those odds the night before for adverse weather, a rational person would pack an umbrella and coat before setting out. However, most M&A consulting advisors fail to talk openly about the odds…and the one step to take in order to dramatically reduce the failure rate. Successfully threading the needle on merger integration is extraordinarily difficult. Even if you have made good assumptions on everything and your M&A due diligence was flawless, you should consider taking your proverbial umbrella and coat into this storm.
What is an M&A Integration Plan?
In order to ensure that the goals of the combined entities are captured, addressed and strategically planned for, you need an “M&A Integration Plan”[1] that outlines exactly how and when complicated processes, resources, assets, and, most importantly, people of the acquiring and acquired companies will be combined.
Before the transaction documents are executed, having a post-merger M&A Integration Plan in place is imperative to define the steps, activities, and responsibilities of all parties. This will enable the Employees and Leadership in both organizations to see the work ahead laid out in actionable steps with timelines assigned as logical and achievable as well as how they fit into the plan.
Key Elements of an Integration Plan
Each M&A Integration Plan is unique to the circumstances and should address common goals, ideals (especially involving corporate culture), and areas of focus. The following key areas are the most complex in any M&A integration. They should always be adequately addressed in the plan. Each category should have key people, metrics, milestones, merger contingency plans and timelines assigned to them.
- Human resources integration
- Sales force integration
- Information technologies integration
- Marketing integration
- Accounting integration
Pitfalls in Merger Integration Planning Process
The following are areas to avoid in the development and implementation of your M&A Integration Plan:
- Inadequate due diligence in the planning process (this should be incorporated into the transaction due diligence process.)
- Insufficient communication with Employees
- Lack of support from senior management for Integration Team members and objectives
- Too many outside consultants
- Allowing politics to disrupt or creep into execution of the plan
- No urgency or lack of timeline milestone accountability
- Not involving employees in the pre and post integration planning process
- Too much paperwork
- Not allowing for the employees on the integration team to do their “day job”
As Ben Franklin once quipped, “Failure to plan, is planning to fail.” If you are on a team that is responsible for the transaction, and it fails in 12, 24, or 36 months – with hindsight being 20/20 – who is to blame? Is it the people that failed to plan or the people that failed to execute? Without a plan, there is no merger integration strategy to execute. If you are on the buy-side, your combined company’s earnings are at stake. However, if you are on the sell-side, your earnout is in jeopardy. A clear, carefully crafted M&A Integration Plan aligns expectations and replaces employee skepticism with optimism, while at the same time giving you your best shot at being one of the 10-30% of transactions that survive and thrive post integration.
[1] Also referred to as “M&A Playbook” or “M&A Integration Playbook” or “Merger Integration Plan”
———-
vcfo’s seasoned M&A team has helped numerous clients evaluate their options for growth or set the stage for a successful exit. When working with our corporate finance consultants, you will receive the assistance before, during and after the transaction to increase value and mitigate risks. Request a consultation today from a vcfo expert who will bring their expertise, wisdom and experience to bear for you.