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What is post merger integration and what are typical steps?

Mergers and acquisitions (M&A) are significant undertakings that can reshape your business’ future. However, the real work begins after the deal is closed.

The work we are referring to is post-merger integration (PMI), which entails rearranging your businesses to achieve your M&A objectives. It involves ironing various aspects of business, including operations and strategies, to form a cohesive and efficient organization.

Successful PMIs lead to the growth you expect; failed ones, on the other hand, spell financial and operational losses that can be hard to recover from. The fact that 70% to 90% of M&As fail at this makes the need for solid PMI strategies all the more paramount.

In all our years as mergers and acquisitions advisers, we’ve seen how a fundamental understanding of PMI and the steps it involves is instrumental to its success. This guide discusses some of our most pertinent learnings to aid you in achieving more successful PMIs.

What is a Post-merger Integration?

Post-merger integration (PMI) combines and rearranges the operations, cultures, and systems of two merging companies into a single, unified entity. It begins once the deal is finalized and requires detailed planning and execution to ensure operational efficiency and effectiveness.

This plan typically outlines the steps involved and the risks and benefits associated with the process. It is a critical component of mergers and acquisitions, as it can determine the success or failure of the transaction.

Typical Steps in PMI

PMIs involve care and due diligence to ensure success. If you’re approaching this phase or trying to plan for one, here are the steps you’ll need to take note of.

Phase 1: Planning and Preparation

This initial phase sets up the stage for a successful integration. Here are the critical components involved in the planning and preparation phase:

Conduct due diligence.

Due diligence is the cornerstone of the planning phase. Here, you must conduct a comprehensive analysis of the merging companies to identify potential risks, synergies, and challenges.

You will also need to evaluate some integral aspects of each business, including financial statements, operational processes, legal obligations, and cultural considerations. Thorough due diligence helps you understand each entity’s strengths and weaknesses, providing a solid foundation for informed decision-making during the entire process.

Example 1: Reviewing the financial records of hospitals going into mergers to uncover any hidden liabilities or potential cost-saving opportunities.

Example 2: Assessing operational workflows in a manufacturing company merger to identify areas where process consolidation can increase efficiencies.

Setting clear goals and objectives.

Without clear, aligned goals, PMIs can become fragmented and less practical, undermining the potential advantages of the merger. Below are the common goals of a PMI that you must consider during your planning:

  • Operational Efficiency: Focuses on streamlining processes to eliminate redundancies and improve efficiency and productivity.
  • Cultural Integration: Involves merging organizational cultures to create a cohesive, unified work environment, enhancing collaboration and innovation.
  • Financial Alignment: Aligns budgets to ensure smooth financial operations, enabling better financial planning and control.
  • Strategic Synergies: Leveraging the strengths of both companies to create additional value that would not have been possible independently.

Establish an integration team and define roles.

A dedicated team is essential for managing the complexities of PMI. This team should include representatives from both companies and be composed of individuals with diverse finance, operations, human resources, IT, and communications expertise.

Clearly defining roles and responsibilities ensures that all aspects of the PMI are covered and that accountability is established at each step.

Phase 2: Communication Strategy

Given the complexity of PMIs, maintaining clear and open communications is critical to their success. Managing expectations, mitigating uncertainty, and fostering a positive culture within the newly formed organization is crucial. Here are the vital components of a successful communication strategy:

A group of people discussing communication strategies for an upcoming post-merger integration

Develop a communication plan.

A comprehensive communication plan is a roadmap for all communication activities during the PMI. This plan should outline the communication channels and timing, among others. Below are some other things you need to iron out in your communication plan:

  • Target audiences: Identify stakeholder groups, including employees, customers, suppliers, investors, and regulatory bodies. Tailor your messages to address the specific concerns and interests of each group.
  • Distribution channels: Determine the most effective channels for reaching each audience. This may include emails, town hall meetings, internal newsletters, social media, and press releases.
  • Timing of your communications: Establish a timeline for when and how often communication will occur. Ensure updates are regularly provided to keep stakeholders informed.

Ensure transparent and open communication with stakeholders.

Transparent and consistent communication is crucial for building trust and maintaining credibility. Ensure that stakeholders receive accurate and timely information about the progress and challenges.

Here, it is paramount that you send regular and detailed updates that you:

  • Provide regular updates and discuss all progress in detail, highlighting key milestones and addressing any potential issues to keep stakeholders engaged.
  • Maintain honesty and openness to foster trust and credibility, and be honest about any challenges or setbacks encountered.
  • Encourage feedback and stakeholder questions for more effective problem-solving with inclusive strategies.

Address employee concerns and foster good morale.

Employees are often the most affected by mergers and acquisitions. As you go through one, you must ensure you are prepared to address their concerns to maintain morale. What’s more, you must also foster a positive work culture to encourage acceptance of the transition.

Anxieties surrounding job security, uncertainties about roles and responsibilities, and other adjustments are to be expected. Your role is to acknowledge and address these concerns by providing clear information, reassurance, and support.

Engaging and involving your employees is also critical in this phase. You can achieve this by simply seeking their input and feedback. This will make them feel valued and invested in the new organization’s success. By being consistent in these efforts, you will also promote a unified culture.

Apart from involvement through consistent communication, you can also organize team-building activities, workshops, and other initiatives that encourage collaboration and understanding among employees from both organizations.

Phase 3: Executing the PMI

Now, we’ll discuss specific actions and steps you must take during the PMI. As you work on each specific area, you must maintain consistent and streamlined efforts to ensure success.

Additionally, you must be thorough and account for all the details that indicate that the PMI is completed. Below, we provide a rough checklist for each aspect of the execution phase.

Operational integration

  • Process standardization involves evaluating and harmonizing the different workflows, procedures, and practices of both companies. Here, you must:
  • Conduct a thorough analysis of existing processes in both organizations.
  • Develop standardized operating procedures (SOPs) that incorporate the best elements from each company.
  • Provide training to employees to ensure they understand and can implement these new procedures effectively.
  • IT systems integration entails consolidating software applications, databases, and IT infrastructure so that data and communication flow seamlessly within an organization. For this step, you must:
  • Perform an inventory of all IT assets, including software, hardware, and data management systems used by both companies.
  • Develop a detailed plan that addresses system compatibility, data migration, and security concerns.
  • Assign a dedicated team to oversee the process and resolve any technical issues that arise.
  • Supply chain and logistics coordination involves aligning procurement practices, inventory management, and distribution networks to optimize supply chain efficiency. You must:
  • Map out supply chains to identify synergies and potential bottlenecks.
  •  Analyze supplier contracts and relationships to determine the best path forward.
  • Consolidate procurement functions to leverage better pricing and terms.
  • Integrate inventory management systems to maintain optimal stock levels.
  • Streamline distribution networks to reduce costs and improve delivery times.

Financial integration

  • Consolidating financial systems involves merging accounting software, financial databases, and reporting tools used by both companies. Here you need to:
  • Conduct a comprehensive audit of the financial systems and tools.
  • Develop a detailed plan for integrating these systems, including data migration, system compatibility checks, and user training.
  • Assign a dedicated team to oversee the process and address any technical challenges.
  • Alignment of budgets and financial reporting entails standardizing financial statements, reporting schedules, and budgeting processes. You should:
  • Review the budgeting processes and financial reporting standards.
  • Develop standardized financial reporting templates and establish a common budgeting process.
  • Ensure that all financial reports are aligned with regulatory requirements and provide a consistent view of the company’s financial performance.
  • Ensure regulatory compliance involves reviewing and updating compliance policies, procedures, and controls to meet all relevant legal and regulatory standards. Here you must:
  • Conduct a thorough review of the regulatory requirements that apply to the merged entity, including industry-specific regulations and international standards.
  • Update the compliance policies and procedures to reflect the new organizational structure.
  • Provide training to employees on the updated compliance requirements and establish a monitoring system to ensure ongoing adherence.

Cultural integration

  • Understanding and reconciling cultural differences involves identifying the core values, beliefs, and practices of both organizations and finding ways to blend them effectively.
  • Conduct cultural assessments to identify the similarities and differences in the organizational cultures of both companies.
  • Develop a plan to reconcile cultural differences by integrating the best practices and values from both organizations.
  • Create new shared values and norms that reflect the combined entity.
  • Promoting a unified organizational structure requires deliberate efforts to align the values, mission, and vision of the new organization. This can be achieved through consistent communication and leadership alignment. Additionally, you must:
  • Develop and communicate a new mission statement that embodies the combined values and goals of the merged entity.
  • Ensure that this mission statement is reinforced through regular communications from leadership.
  • Align leadership across both organizations to model the desired cultural values and behaviors.
  • Organize workshops and training sessions to help employees understand and adopt the new culture.

Depending on how complex your PMIs are (eg. there are stark contrasts in processes or cultures), this list can run much longer. What’s more, the process doesn’t just end at the implementation.

You will also need to monitor and evaluate the results of the PMI, identifying key exit criteria that will signal that the process is complete and successful.

Phase 4: Monitoring and Evaluating the Success of the PMI

A team of people studying and analyzing data reports on the performance of a post-merger integration.

The last crucial step to ensuring that your PMI is completed successfully is actually closing it. But how can you tell that the project is ready to close? Simple: By checking back on your overarching goals and objectives and comparing the current results and progress of the PMI.

In broad strokes, you’ll need to conduct regular reviews of the PMI and validate success once all of your goals and milestones have been achieved. Let’s tackle a few specifics below.

Conduct Regular Reviews and Assessments

Regular reviews and assessments are crucial for evaluating progress toward meeting the exit criteria and making any necessary adjustments. These reviews should involve key stakeholders and provide an opportunity to address any issues that arise during the PMI.

Schedule regular review meetings with the execution teams and key stakeholders to assess progress towards the exit criteria. Use the reviews to evaluate the KPIs, discuss any challenges, and adjust plans as needed to stay on track.

Validate Completion of Your PMI

Once the exit criteria have been met, it is important to validate the completion of the PMI. This involves confirming that all objectives have been achieved and that the new organization is operating smoothly.

Conduct a final review to validate that all exit criteria have been met and that the objectives have been achieved. Prepare a comprehensive report that documents the achievements of the process and provides evidence that the exit criteria have been satisfied.

A validated completion of the PMI process gives confidence that the new organization is well-positioned for long-term success.

Final Thoughts

Post-merger integrations are a critical phase in mergers and acquisitions that can determine the ultimate success or failure of the transaction. Hence, it’s vital to stay focused and diligent during the entire process to ensure the merger doesn’t fall through. To achieve this, remember to:

  • Maintain a keen awareness of your primary purpose for the merger. This focus allows you to create accurate strategies leading to the merger’s success.
  • Plan for every detail. From the most significant legal and cultural considerations to boosting morale and consolidating data. So many things can go wrong during a PMI; preparation is paramount to minimize as many risks as possible.
  • Aim for continuous improvement. Successful mergers aren’t just accomplished during the PMI period; they extend beyond the point of normalcy and acceptance. Hence, it’s important to strive for continuous performance monitoring and build on top of your own best practices to continue benefiting from the merger.

For guidance and professional support in your post-merger integration journey, contact Lake Country Advisors to help you ensure your merger or acquisition realizes its full potential. Reach out to us today to learn how we can help you navigate the complexities of PMI and drive your business forward.

 

By |2024-07-11T05:12:21-05:00July 11, 2024|Mergers & Acquisitions|0 Comments

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