From Acquisition to Integration: How to Ensure Your Merged Business Maximizes Shareholder Value

A merger of companies is an extremely complex and challenging process. You are combining two businesses, each with its own people, processes, technology, culture, resources, and structure—and the first 100 days after the acquisition are critical to your success. Some 70% to 90% of acquisitions fail, primarily due to poor or nonexistent integration planning.¹ Developing a plan to integrate the two businesses is essential, starting with the pre-acquisition stage (a topic addressed in detail in our previous article, Planning Your M&A Integration) and continuing throughout the post-acquisition stage, a period that can be both unsettling and electrifying.

Here are some tips for executing your integration plan successfully, so you can survive the first 100 days after acquisition—and then look toward your longer-term strategic goals.

Communicate Clearly with Employees and Treat Them Fairly

Following an acquisition, employees from both companies will have a lot of questions. Many will be fearful about their employment status, salary, benefits, and so forth. Anticipated changes and unknown factors can cause apprehension throughout the entire workforce. Communicating with the firm as a whole is important in order to transform any trepidation into confidence and excitement. The success of your new business relies heavily on the people who work there, and a mass exodus of trusted employees resulting from lack of such communication (as well as from any other cause) is one of the quickest ways to destroy shareholder value.

Inevitably, when two companies merge, some job functions will be redundant. If possible, assist these employees with placement elsewhere, whether in another role within the company or at another firm. Give severance bonuses to released employees, so they have income while seeking other employment. Such good-faith treatment by the integrated company will aid in alleviating the aforementioned apprehension that will accompany the merger.

It’s important that communication be constant, with the integration team keeping employees informed at every turn, with strong messages that exude confidence and clarity. Remaining employees should be reassured with details about how the acquisition will benefit the business and offer future opportunities for career and professional development. When in doubt, remember that more communication is always better than less.

Set Incremental, Tangible Goals

The decision to acquire another business is made by the board of directors and the executive management team, which typically are neither as involved with day-to-day operations nor consistently in contact with employees. Your middle management team works with and supervises the employees on a daily basis, however, and must be empowered to disseminate and enforce the integration plan little by little. Each company’s management team should set a specific agenda of daily tasks and weekly milestones that must be achieved within the first 100 days. Integrating the two businesses quickly and effectively will give the merged business the best odds of achieving its big-picture, strategic goals—but first you’ll have to shoot for a multitude of these short-term targets.

One aspect of an integration to address early and clearly is the new management reporting structure. In order to take action, employees must know whom they report to, and managers must know whom they are responsible for. Step by step, as you communicate this modified structure and implement these incremental changes, the two businesses will become integrated and start to achieve your new company’s larger ambitions.

Develop a Unified Identity

Companies are made up of people, and those people have developed the specific corporate culture at each of your firms. Yet many times, during the acquisition of a business, the human factor is overlooked. Your employees helped shape the businesses into a capable, qualified acquirer and a high-value target for the purpose of acquisition. Now is not the time to look at employees as nothing more than numbers on a spreadsheet.

Striving to understand the corporate cultures of the two businesses is essential in creating one unified identity. As the businesses integrate, set a clear vision for what the new company is seeking to create—and how everyone can serve as a valuable member and driver of success. Your human resources team will be vital to this employee integration. When going through this process, communicate each message with empathy and solidarity. Management’s ability to handle employees tactfully—again, even those who will be let go—will have a significant impact on morale and the ability to work toward a shared future.

Reassure Your Customers

Customers can get nervous when they learn that their product or service provider is going through an acquisition. Before the merger, each company provided certain offerings and had its own relationship managers. Customers will be concerned about what is next: How will product and/or service offerings change? What will happen to the existing relationship? And how will this affect their business? Although some attrition can be expected during an acquisition, the loss of too many customers will lead to a failed integration. You must limit the number of lost customers, so the importance of a seamless transition for the customer cannot be overstated.

Communicating with your customers early in the process, and providing the support they need to address any changes, is paramount in maintaining the relationship. Emphasizing improvements to the customer’s business will even strengthen that relationship. Customers need to be reassured that the acquisition will benefit them because, for example, the larger organization will be able to provide more resources. Customer service is an integral part of any business, so providing the highest standard for your customers—old and new—is a must.

Realize Potential Synergies

Part of your integration plan lays out the various synergies you expect for your new company in terms of revenue, expenses, or both. The integration team’s job is to see that those synergies are realized, starting in the pre-acquisition planning stage with the identification of certain unnecessary operating expenses. Now that the target has been acquired, you need to be certain of the implications of eliminating those expenses, including any damaging (or beneficial!) effect on your employees or customers. If either the acquiring firm or the target firm has a better relationship or contract with certain vendors, then transition to those selected vendors in order to boost profitability—and be sure to communicate that plan clearly and monitor purchases in order to recognize the cost savings.

Acquiring new customers from a merger also offers a tremendous opportunity to cross-sell your existing products or services; by developing a compelling sales program to execute on a cross-selling initiative, you may be able to boost revenue with this existing customer base. In some cases, the target company’s growth may have been constrained by lack of capital, resources, or labor. If the acquiring company can provide the necessary support, the combined business will benefit from additional customers.

Focusing on capturing these types of synergies is important, but never lose sight of business continuity. Don’t throw out the baby with the bathwater! Make any necessary changes while still keeping whatever works, so you can continue to operate the business as seamlessly as possible.

Integrate IT Sensibly

Most companies operate using many different information technology (IT) and software solutions, and integrating these systems can be challenging. Especially when developing and implementing an IT plan that influences the customer, there can be no mistakes, as negative technology experiences can have a seriously damaging effect on the customer relationship. Having an IT expert on the integration team will be a very important part of the process.

As your business works through integrating the systems and migrating the data, some employees will be forced to change the software or systems they are accustomed to operating. When this occurs, be sure all employees are properly trained on the systems that will help your company move forward as one.

Look Toward Long-term Value

From the complicated process of integrating two companies must emerge a combined entity with all the best characteristics of each business—a true balancing act. Many acquisitions never reach full integration but instead operate as two entities that are only somewhat integrated—not all synergies are captured, and shareholder value is not fully maximized. That’s why you must track the progress of your integration and hold accountable those who are managing that process. Communication, too, needs to be clear, confident, and constant.

The success of your acquisition will rely heavily on the integration plan developed during the pre-acquisition stage and the execution of that plan in the post-acquisition phase. With proper planning and execution, you will increase shareholder value and achieve your end goal: the creation of a bigger, better, more vital business.

 

Michael Poole

Investment Banking

mpoole@pcecompanies.com

Orlando Office

407-621-2100 (main)

407-621-2112 (direct)

407-621-2199 (fax)