Answers to 78 M&A Integration Questions
When should the M&A integration planning process start?
Planning should start two to three months before close or when the letter of intent is signed, whichever is earlier. It is difficult to deliver a smooth, effective Day 1 and achieve quick successes without adequate pre-close planning. Starting early creates the momentum to integrate after close.
What is the first step in integration planning?
During the initial step, executives agree on the integration's strategy, guiding principles, objectives, assumptions, and non-negotiables. The integration plans will draft of the direction set by senior management so there should be early discussions to identify and resolve divergent opinions
From Step 1: M&A Integration Video.
Should acquirers follow a well-defined process for an M&A integration?
Yes. When integration teams follow the same steps in the same sequence, use common tools, operate under a common framework, they accomplish more sooner and with less effort.
What are the steps in the M&A integration process?
- Define Integration Strategy and Guiding Principles
Facilitate executive session with senior leaders to determine planning direction and clarify integration goals, assumptions, non-negotiables, success metrics, and vision.
- Determine M&A Integration Governance
Define the hierarchy, structure, roles, and resources for the integration project .
- Conduct Joint Integration Management Office (IMO) Meeting
Plan and facilitate an IMO kickoff event to formally commence the integration process and officially onboard integration teams by reviewing pre-planning input, rules of engagement, objectives, and methodology.
- Provide Post Merger Integration Training
Teach integration teams a common methodology for the integration. Level set everyone with the same information.
- Develop Post Merger Integration Risk Management Plan
Create risk management plan that proactively addresses major events that could negatively impact the integration.
- Develop Culture Integration Plans
Perform culture analysis that isolates the cultural risk factors that pose the greatest integration challenges and develop plans to address them.
- Develop Post Merger Integration Communication Plans
Create detailed communication plans including detailed Day 1, week 1 schedule, and event sequence.
- Develop Post Merger Staffing & Retention Plans
Develop approach, process, and timing for “Newco” cost and organization structure recommendations.
- Develop M&A Project Integration Plans
Create a comprehensive project plan and timeline for all integration activities including a detailed integration road map that includes integrated schedule, budget, and milestones for each functional work stream.
- Execute Acquisition Integration Plans (Includes Day 1 Plans)
Implement plans and closely monitor the success of implementation with respect to quality, time, costs, and synergies.
- Capture M&A Integration Lessons Learned
Debrief to document and capture key learnings about the integration process.
What is an M&A integration playbook?
A playbook is a how-to step-by-step operating manual for an M&A integration. It clarifies what needs to be done, by whom, and by when. Plus, it defines the integration team processes for governance, reporting, communications, and risk and issue management. Effective playbooks bring consistency, predictability, and reliability to the integration process and shorten the learning curve for team members.
What is the single best predictor of M&A integration success?
The length of the integration. Disappointing deals are highly correlated with slow consolidation. Acquirers should combat the natural tendency to study the situation and try to craft a perfect integration plan. There are no perfect solutions in the game of mergers. Only good and timely ones. The conservative, slow, methodical approach typically doesn’t cut it in a merger integration. That can be the most reckless strategy of all.
From Burn up the Road.
Why is speed crucial in an integration?
One hundred days is the outer limit of shareholder patience, employee enthusiasm, and customer tolerance. You need to make major progress in the first 3 months post-close. The longer an integration goes, the harder it is for people to remain upbeat about the prospects of the merging company.
What can impact the length of a post-merger integration?
- Operating differences between companies
- Cultural differences between companies
- Extent of the integration
- Compatibility of IT systems
- Number of dependencies between integration teams
- Time dedicated by team members
- Level of integration experience and expertise of integration team members
What is the usual length of an M&A integration?
Given every deal is different, there is no typical length. However, if adequate time has been spent planning before close, if the integration is properly resourced, and if the company has its handle on IT integration so it does not slow momentum, then the apex of integration efforts is usually not later than 120 days after close. At that point, the level of integration activity begins to declines. Keep in mind, the 120 days is an average and there is wide variability around it. And different functional teams (IT, HR, Finance etc.) will probably finish their integration work at different times.
What are the most common complaints from employees during an integration?
Employee complaints sound like this: "Nothing's happening . . .Why don't they get on with it? . . .They're moving too slowly." Instinctively, the employees seem to know what’s best. Certainly, they know what they want, and that is for top management to get the merger over and done with instead of letting it drag on and on. Fast people can live with, but across the board, people hate slow.
From The Most Common Complaint During M&A Integration.
What is integration governance?
Governance is the set of rules and procedures on decision making, control, and reporting for an integration. A clear hierarchy of teams with well-defined roles and decision-making protocols facilitates effective governance.
What is the typical team structure for an M&A integration?
- A Steering Committee
- An Integration Management Office (IMO) led by an Integration Manager
- A variety of additional teams organized by function (i.e. sales, human resources, finance, and information technology, etc.) and/or by business unit, product line, process, or geographic location.
The various integration teams take their marching orders from the IMO. The IMO is ultimately accountable to the steering committee.
Who is on the integration steering committee and what is its role?
The steering committee, comprised of C-level executives, provides direction, guidance and oversight, approves plans, prioritizes initiatives, and makes decision whenever an impasse is reached at the lower levels of the integration hierarchy.
What is an Integration Management Office (IMO)?
The Integration Management Office (IMO) is the real workhorse responsible for driving the integration forward and keeping good project-management discipline in place. This team’s purpose is to provide the guidance and day-to-day decision making that will allow the integration process to move forward on a timely basis. This group also should include members of both organizations. A fairly balanced representation generally fosters better buy-in from the people in the two organizations while also improving the odds that plans for integration can be implemented effectively.
From IMO Charter.
What is the most consequential meeting in an M&A integration?
It is IMO kickoff meeting attended by the steering committee, IMO core team members, and functional team leaders. This meeting is crucial because it lays the groundwork for everything that follows. The subjects covered should include integration strategy, objectives, governance, non-negotiables, priorities, and timelines. The session is very empowering to functional team leaders because they are given the direction they need to begin to develop their detailed plans.
From Step 3: Conduct Joint Integration Management Office (IMO) Meeting.
What is the role of the Integration Manager?
The Integration Manager leads the IMO, escalates issues up chain of command for resolution, educates teams on the integration processes, balance and coordinates work across teams, and hold team members’ feet to the fire on deadlines.
What traits should an Integration Manager have?
The role of Integration Manager in M&A is a challenging but fascinating job. It calls for a versatile, multi-skilled person who possesses executive muscle and strong leadership ability. The Integration Manager must be able to take charge and bring order to an undefined, very fluid situation where a lot is at stake. These are the seven key attributes that an Integration Manager should have:
- Project management skills
- Power, authority, and executive credibility
- Social intelligence
- Tolerance for ambiguity and uncertainty
- Sense of urgency
- Strength of personality
- High energy level
What is the role of a functional integration team leader?
Functional integration team leaders are responsible for the quality, timeliness and consistency of the deliverables for their teams. Those deliverables will include plans, status reports, risks and issue logs, and communications.
What are the characteristics of an effective functional integration team leader?
- Subject matter expert
- Flexibility and the ability to improvise
- Strong interpersonal skills
- A willingness, and ability, to take charge
- A knack for keeping many balls in the air simultaneously
- A keen sense of urgency
- High tolerance for stress and pressure; psychological resilience
How much time should integration team members dedicate to an integration?
This depends on the size, complexity, extent of the integration, the timeline, the goals, and operating differences between the companies. Given those factors, which can vary a lot from deal to deal, functional leads will usually need to spend 20% to 100% of their time on the integration to be effective. Typically, the integration manager should dedicate 100% of his/her time. There is usually just too much going on for a part-time player to handle this role well.
When should you invite target company’s personnel to be members on integration teams?
After the acquirer’s executive team agrees on key integration goals, strategy, priorities, and non-negotiables, the target company can be invited to participate in planning. Of course, if a deal is subject to regulatory approval, that could limit the target’s involvement before close.
What questions should you answer when forming your integration teams?
- What key talents/strengths should members of the integration teams possess?
- What functions should be represented?
- Who should be involved in the selecting the team members?
- Will special compensation or bonuses be given to the integration team members?
- How long will each of the team members be assigned to the integration?
- Will this be a full-time commitment, or will they be required to also carry on their normal job responsibilities?
- What company knowledge and technical skills will be needed for the teams to be effective?
- By what date should team selection be completed?
- How frequently should the teams meet?
- Who should be the Integration Management Office leader?
- What qualifications and skills, should this person possess?
- Will the teams have members from both companies.
What is an M&A integration team charter?
A charter specifies the baseline expectations on the goals, timeline, and priorities for each integration team. It should be developed prior to beginning detailed work plan development.
From Charter Examples.
What is a post-merger integration end state?
The end state is the point at which the integration teams will disband. When teams struggle to complete their plans, it is often because their end states have not been determined. They do not know what they are integrating to. There is no defined finish line.
From What is a Symptom of Poor End Game Definition.
When should M&A integration teams be disbanded?
When a team's end state is reached, the integration teams should hand off any remaining integration tasks to the business line leaders. Then, the team members can be redeployed back into the business full time. It is not a good use of their time for them to be engaged during the long tail of the integration.
From The End State Transition.
Are most integrations under-resourced?
Yes. It is very common for acquirers to pay a premium price for a business and then get tightfisted on money during the integration. Often, the same people responsible for running the business are tasked with also planning and executing the integration. Sometimes, this double workload can burn people out, slow progress, and reduce the chances for success.
When should you hire M&A integration consultants?
If employees are stretched thin, or do not have much integration experience, then consultants can offer valuable assistance. Their expertise and experience can help acquirers expedite their integrations and avoid common problems. (See next question).
What are the most common causes of M&A integration problems?
- Lack of Pre-Planning
When integrations fall short of their objectives, inadequate pre-close planning typically contributes to the failures.
- No Formal Integration Strategy
Acquirers should define a clear integration strategy early and before their teams begin to develop plans.
- Failure to Prioritize Work Streams
Without prioritization, every work stream will be considered as important as the next, and it will be difficult to maintain focus on actions that will deliver the most value.
- Senior Leadership Void
The Integration Management Office (IMO) should report to a Steering Committee of C-level executives so integration work receives its due attention and unresolved issues have a defined escalation path.
- Weak Communication Planning
Communication is usually the worst managed aspect of integrations. People are often left out of the loop or receive mixed messages.
- Poor Synergy Program Management
Synergies should be validated, and then rigorously tracked and reported.
- Inadequate Resourcing
Poorly resourced integrations take longer, cost more, delay synergy realization, and often burn people out.
- No End-State Transition
The process for handing off integration work (when the end state is reached) should be well defined and communicated.
- Slow Organizational Planning
Slow decision-making on organizational design leaves employees in limbo and damages productivity and morale.
- Lesson Learned Not Captured
Feedback from stakeholder groups should be documented to improve the integration process.
What deserves special attention during an M&A integration?
The most vulnerable areas are sales, service, and information systems—that is, the key contact points with the customer and the infrastructure that supports them. Many organizations experience a drop in sales and increased complaints about customer service shortly after a merger. It’s something merging organizations can ill afford to let happen. Special attention is needed to protect sales and maintain service standards. The situation calls for new initiatives—high-powered programs that catch people’s attention and produce results. This might include short-term sales incentives or merger training and information for customer service personnel at help desks and call centers. Another possibility might be special advertising aimed at communicating to customers the newly merged organizations’ commitment to service. Whatever the particular prescription, actions to boost sales and service must be deliberately planned and quickly executed.
From 10 Guidelines for a Successful M&A Integration.
What should be the priorities during a post-merger integration?
Concentrate on things that:
- Shorten the transition period
- Stabilize the organization rapidly
- Strengthen the talent level in the organization
- Reposition the organization to better serve the defined marketplace
- Protect the bottom line
Activities that don’t directly contribute to these objectives are likely to be off target and a poor investment of time and energy.
From The 5 Guidelines for Setting M&A Priorities.
Why is project management during M&A integrations so important?
Merging is confusing enough even when good project management practices are in place. Without that kind of discipline, the situation can all too easily spin out of control. This is a highly charged political climate where people operate with very different, personalized agendas. There are so many pressure points, conflicting views, and management distractions. Unless you employ a carefully orchestrated project management approach, it is almost impossible to get through the integration without damaging the potential of the deal. Treating the transition period like a special project helps management adhere to the schedule, balance resources, focus on priorities, and manage risk effectively.
What are best practices for M&A integration projects?
- Establish clear objectives, scope, and timeline.
- Assign synergies to initiatives and owners.
- Align individual performance incentives/bonus programs with integration goals.
- Assign resources with strong project management skills to key areas.
- Implement a disciplined program management process to monitor progress against the key milestones, raise and resolve issues, address risks quickly. and efficiently, and make cross-functional decisions rapidly.
What is an M&A Integration Plan?
An integration plans identifies the integration tasks, and the owners, timing, risks, and dependencies associated with those tasks. A plan should always include these 5 elements:
1. End States - Integration complete" should be defined. If it isn’t, teams will feel like they are in a race without a finish line.
Related presentation: End-State Transition
2. Governance - Determine the integration hierarchy, decision-making protocols, and escalation routes so problems requiring senior-level input can be quickly addressed and resolved.
Related presentation: Approach and Structure for a Successful Integration
3. Communications - Planning communications in M&A takes much more effort than it does under more stable circumstances.
Related playbook: Day 1 M&A Playbook: Employee Communications
4. Tasks - Each task in a team’s plan should have an assigned owner and start and completion dates.
Related playbook: M&A Integration Playbook
5. Early Wins - Acquirers can help silence the skeptics by achieving goals that provide hard evidence the merger is rapidly bringing benefits.
Related article: Engineer Early Success in Your Merger
What should be communicated to employees on Day 1?
Acquirers should be prepared to inform employees about the rationale for the deal, the complementary strengths of the two companies, how the integration process will unfold, the timing of the integration, what employees can expect, the new organization chart, and the merger’s impact on brands and employee compensation and benefits.
Why is Day 1 so important?
The acquirer’s opening moves are critical because first impressions can be lasting impressions. Acquirers need to get out the gate cleanly. How you begin the integration process carries heavy influence over how you will finish.
From The Power of Opening Moves.
What is a 100-Day Plan?
A 100-Day Plan includes the steps, their timing, and the necessary resources to achieve the integration objectives for the period ending 100 days after the close of the deal. The development of this plan should begin before close, no later than when the letter of intent is signed.
From 100 Day Integration Plan.
Why are early wins critical to success?
Management should identify some easy ways to capture successes. Early wins build confidence in the deal. They give people a sense of accomplishment and build momentum. Critics will point to any lack of progress as evidence the deal is a bad one. Wins help offset their skepticism.
Are cultural differences the #1 reason mergers fail?
Probably not. In the same way irreconcilable differences do not fully explain why marriages fail, cultural differences do not fully explain why acquisitions fail. Mergers disappoint for all sorts of reasons such as bad due diligence, poor strategy, weak planning and implementation, overpayment, etc. It is usually a confluence of mistakes, not any single one, that taken together wreck a merger.
From What is the #1 Cause of Merger Failure?
Should you try to build one common culture during an integration?
No. A few shared values...a couple of operating principles common to all parts of the new merged organization...a small handful of company-wide standards. That’s okay. That makes sense. That much you can get across to everybody and try to uphold or enforce during an integration. Beyond that, you should manage the merger toward corporate culture diversity. Toward peaceful coexistence of the many tribes—different people, working in different ways, converging on common goals...not conforming to a pervasive corporate culture. That’s reality-based management. You can actually pull that off successfully. And that cultural mix positions you best to beat the pants off the competition.
Do most acquirers perform formal cultural assessments on target companies?
No. In fact, only a mere 4% of the executives surveyed in a PRITCHETT study indicated their organizations include culture-specific questions in their due diligence checklists. Similarly, only 5% of the respondents say they conduct a “culture gap analysis” or compatibility study using a structured survey form to determine cultural fit. There seems to be a lot more talk than action on the culture front. Executives pay lip service to the importance of culture in mergers, but they routinely fail to back it up with dollars. Culture is the pauper when integration budgets are allocated. Due diligence should scrutinize cultural aspects of the deal with the same discipline given to financial and legal issues.
From Corporate Culture: The X Factor in Merger Success and Failure.
What questions should you ask when performing a cultural assessment of the acquired company?
- How do people feel here about being merged/acquired?
- What would be your (or others’) major concerns about being acquired or merged?
- What are the defining characteristics of your company? (What’s distinctive? What differentiates you from other organizations in general? From the competition?)
- Describe the company’s core values. (What does it believe in?)
- What do outsiders not know/realize about this company?
- What are its idiosyncrasies? (What are the most peculiar
- What are the unwritten rules around here?
- What aspects of the culture are most important to people here?
- Where in the organization do the dominant subcultures exist?
- What are the company’s negative or undesirable cultural attributes? (What aspects of the culture need to change?)
- What are the cultural strengths? (What aspects of the culture should be protected/ sustained?)
- Is the company getting stronger, weaker, or just holding steady? What trend lines do you see? (What do you feel?)
- What do you see as being key to the future success of this company?
- How does the organization need to change?
- Considering the culture of the acquirer/merger partner, what do you see as the most salient differences? (Where would the friction or flash points be?)
How are mergers different today?
Success, to a much larger degree, depends on good integration management. The new game mandates operational effectiveness. So, growth via mergers and acquisitions becomes a winning proposition only if the companies can be consolidated successfully. And only if the whole truly is greater than the sum of the parts. Or faster. Or cheaper. Or reaches more customers. Financial gains are still the final target, of course, but they aren’t achieved when the deal is cut. Today’s acquirers don’t simply strip away assets and maximize shareholder value in short order. Current mergers are looked at as longer-term challenges.
What are the five types of integration strategies?
- Autonomy: Acquired company retains its independence.
- Best of Both: The best policies, procedures, processes are selected from each company are implemented.
- Transformation: Both companies operate in a fundamentally new way.
- Absorption :Acquired company conforms to parent.
- Reverse Merger: Acquirer adopts the acquired company’s processes.
Acquirers often employ a hybrid of the above strategies on each of their integrations. For example, they may integrate the acquired company’s back office (Absorption) but leave its R&D operation alone (Autonomy).
What is the rationale for mergers and acquisitions?
- Economies of Scale: Improve profit margins by removing duplicate departments or operations and/or producing more at the same fixed costs
- Cross-Selling: Extend complementary product offerings to new/existing customers
- Economy of Scope: Increase market power and share by absorbing a major competitor and setting higher prices
- Geographical Expansion: Expand into new markets and regions
- Diversification: Extend the breadth and depth of product or service offerings
- Vertical Integration: Capture more of the value chain by merging with upstream or downstream firms
- Defense: Match a competitor’s offer suite for customers, acquire key assets ahead of the competition, or defend existing assets from encroachment or erosion
To what extent should acquirers integrate?
That depends on the rationale for the deal. For example, if an acquisition is being made to achieve economies of scale, then a full integration may be the best approach. However, if the deal is done to expand into new regions or acquire new talent, then the best way to create value may be to selectively integrate in only areas that overlap.
Is it more difficult to integrate a “merger of equals” than other types of mergers?
Usually, it is. When merging companies announce their deals are a “merger of equals,” it creates confusion as to who is calling the shots. The attempt to build a consensus, which may be impossible, slows down decision-making. In reality, there is no such thing as a true "merger of equals" because there is always someone in charge who will have final say when an impasse is reached.
What is a M&A integration checklist?
A checklist is a list of tasks to ensure integration teams (i.e. HR, Finance, Accounting, Information Technology, Sales, Marketing) cover their bases and do not miss any key integration activities. The downside of checklists is that they do not usually identify the dependencies or timing associated with each task.
From Post Merger Integration Checklists.
What are integration guiding principles?
Guiding principles serve a basis for decision making during the integration. They are directional advice that help ensure teams act in alignment.
What are examples of guiding principles?
- Follow a balanced, robust “due diligence” process that examines both financial and operational issues
- Start integration planning during due diligence
- Be ready to roll on Day One
- Translate M&A value drivers into metrics
- Involve HR and IT early in the process
- Communicate decisions about structure, layoffs, and integration objectives as soon as possible
- Provide frequent, candid and regular communications during all stages of the integration to all employees
- Use a defined integration method (processes, tools, and templates)
- Establish strong program management and governance
- Facilitate knowledge capture and cross-functional information sharing
- Document results and conduct a lessons learned debrief
What is gun jumping?
Prior to close, gun jumping rules prohibit merging companies (over a certain size) going to market together and from sharing competitively sensitive information before receiving regulatory clearance.
What guidelines should be followed to prevent gun jumping prior to the close of the deal?
- No exercise of control over the other company
- No exchange of competitively sensitive information
- Must operate as separate entities until the transaction closes
- No joint pricing, promotions, expansion plans (or influencing each other on these)
- No coordination on competitive practices, decisions, or strategies
- No participation in or influence over each other’s day-to-day operations
- No joint decision-making on purchases or dispositions
- AA employees cannot act on behalf of BB employees, or vice versa
- No coordination on sales, purchasing, or contracts with suppliers or vendors
- No division of customers or markets between the companies
- No implementation of integration plans prior to closing
- No broad unfettered access to each other’s systems (email, reports, etc.)
- No access to office space or sales, marketing, or operational personnel
What are factors that impact the M&A integration risks?
- Amount of expected consolidation or integration
- Alignment/compatibility of the two organizations’ business strategies
- Extent to which the two organizations have been competitors
- Financial pressures confronting the new merged organization
- Level of confusion or ambiguity regarding the merged organization’s power structure
- Geographical distance between the merging organizations
- Overall market conditions confronting the merged organization
- Cultural differences between the two organizations
- Amount of expertise your organization has in merger integration
- Other major demands on your organization concurrent with the integration
- Degree of resistance to the merger within your organization
What is usually the most dangerous phase of M&A integration?
The 3 months period starting 100 days after close. This is when executives drop their facades and politeness fades. The thinly veiled issues and problems that were previously glossed over have to be dealt with, and the “nice” behavior exhibited right after close gives way to open disagreement, strained relations, and power struggles. Nerves are on edge. Tempers flare. Cliques and alliances form. The leader’s authority may be challenged. With so much energy and attention devoted to infighting, the team’s performance deteriorates and some executives seriously consider leaving. This is the shakiest point in the integration process and senior managers usually do not see it coming.
Do some acquirers and consulting firms over-engineer and over-complicate post-merger integrations?
Yes. Some organizations (including consulting firms) embrace a bureaucratic approach to integration. They’re slow-moving, territorial, and procedure-oriented, putting undue faith in the myriad merger rules they’ve concocted to regulate the situation. Executives justify this approach on the grounds that it’s prudent . . . that it reduces risk. But their preoccupation with process results in in a sluggish integration that actually increases the odds of failure. Execution suffers as managers grind along according to their precious rules and politics, sacrificing all-important speed and flexibility on the altar of the bureaucratic cookbook.
How can you tell if a merger integration is being mismanaged?
You will see several of these major problems and the costs that accompany them:
- Lost Talent: Bailing out by managers and executives is one of the first signals that a merger is being run poorly.
- Productivity Decline: When the merger is marked by weak leadership, poor communication, and a lack of decision making, productivity takes a beating.
- Weakened Competitive Position: Employees who are poorly led show little determination. They lose their fighting spirit. Sales drop off. Customer loyalty deteriorates. Competitors smell blood and rush in for the kill.
- Disillusioned work force: Employees often become preoccupied with their own problems and demoralized about their work when management does not address their concerns.
- Miscast Managers: If important management and executive slots are filled by misfits, the chances for success are dismal.
What is usually the worst managed aspect of integrations?
Communications. It is commonplace for an acquirer to assume that it has done a satisfactory job of communicating to people who’s in charge, who reports to whom, and what’s expected of everyone. But people constantly complain about confusing lines of authority and an ill-defined power structure. Employees feel they are operating in too much of a fog. The situation breeds frustration and tangled relationships, with the result being a blow to employee motivation.
What should executive not say when announcing the deal to employees?
1. “We will not make any changes.”
Why wouldn’t you? During a merger or acquisition, people are primed for change. They expect it. So, you should use this window of opportunity to make needed changes.
2. “This is a merger of equals.”
The phrase gets misinterpreted. Employees decode it to mean that both companies will be treated as equals so far as integration decisions are concerned.
3. “We plan to take the best of both.”
This won’t happen. It never happens. It’s an idealistic statement and you simply will not be able to deliver on it.
4. “It will be business as usual.”
No way. At the very least, being acquired or merged changes things psychologically. It affects people’s perceptions, their career outlook, as well as corporate politics.
5. “The cultures of our two companies are very similar?
Perhaps so. But people will focus on the differences. Being human, they’ll aim their attention toward those cultural flash points where the two companies’ behaviors and beliefs don’t align.
From Five Things You Should Never Say in Announcing the Deal.
What are the problems caused by poor communications during an M&A integration?
- Cultural clash: Some cultural friction to be expected, but it is exacerbated by poor communication.
- Customer attrition: Customers have a good excuse to defect when they are not kept apprised of what is going on.
- Rogue planning efforts: Employees kept in the dark will start doing their own “integration activities” that can be detrimental to the business.
- Stalled productivity: Employees lacking information, including about their own situation, may delay decisions and stall a company’s productivity.
- Unexpected costs: Decisions made without accurate information are more likely to be costly.
- Poor morale: A result from any of the above.
Why should staffing decisions be made early in an integration?
Sometimes, top management in the acquiring firm decides it is best to allow some time for them to get to know the abilities and potentials of the management team in the target organization. But that assumes that those people will hang around long enough for such a familiarization process to occur. Often, they do not. Furthermore, while taking the slow route, a part of this getting-acquainted exercise may consist of seeing bad management decisions being made, mistakes that could have been prevented. Likewise, key opportunities may be lost. All in all, this can prove to be an expensive and time-consuming education process. This approach also drags out the integration of the two firms. It forestalls needed resolution and leaves questions unanswered, prolonging the anxiety and ambiguity, thus contributing to the chronic problem of post-merger drift.
The situation feels like benign neglect to people in the acquisition, as if they are being left to dangle helplessly in the wind. In their opinion, it would be better to get closure, to be appraised promptly and fairly, so that they can get on with their careers either secure in the merged firm or somewhere else.
What is leadership soft due diligence?
Soft due diligence is the systematic assessment of the competencies of key in the new merged organization. You should not automatically assume that people who have been successful in a pre-merger environment will perform with the same effectiveness under a new regime and in a different corporate setup. People’s strengths often become weaknesses during a merger transition period. Soft due diligence work involves identifying those individuals who can tolerate ambiguity and uncertainty, facilitate the change process, take appropriate risks, communicate effectively, and generally enjoy the challenge of the merger with the opportunities it will provide.
From The Case for Leadership Due Diligence in M&A.
What are three constructive moves to make when merging boards?
1) Bring outsiders onto the board right out of the gate. This means you need to leave some seats open, rather than stack the new board full of legacy directors from the two organizations. It may seem counterintuitive, but odds are your newly configured board will coalesce quicker and be more effective with brand new directors in the mix.
2) Disregard the urge for pro rata board representation. You might feel pressure to allot directorships on a proportional basis, but board seats should not be dictated by the respective sizes of the two merging firms.
3) Use an expert board facilitator, an outside consultant, to advise and guide the board into the transition. Such a person, with deep know how and no axe to grind, can make a huge contribution in the merging process at this highest level of governance.
From: Pride and Prejudice: The Politics of Merging Boards.
When does employee turnover peak in an integration?
It peaks at two times in the typical merger scenario.
1. The first vulnerable point is early on—during the first several weeks—when the integration process is just getting under way.
2. The second exodus occurs some months later, as the new organization finally takes shape and people get an accurate sense of what it’s going to be like to work in the merged organization. At this point the wait-and-see period is over. Now comes the second turnover surge, as some of the people who were patient enough to “give it a shot” decide the merger hasn’t worked in their best interests. This crew is harder to re-recruit. The secret lies in starting early and being willing to invest as much time and effort as you would have to spend in attracting replacement personnel.
What are several talent retention methods during a post-merger integration?
1. Make the target person feel special, not taken for granted.
2. Keep the communication lines open and active.
3. Take the person into your confidence, asking for his or her ideas and opinions.
4. Try to give the individual a key role, a special assignment that makes it clear that he or she is a highly valued individual.
5. Consider giving a raise, a higher-ranking title, or a “stay” bonus.
What is an M&A stay bonus?
A stay bonus is an incentive paid to an employee who remains employed with a company for a certain period of time after the close of an acquisition. These bonuses are usually reserved for employees who have critical skills or possess key information needed during the integration.
Do stay bonuses work?
Yes. Absolutely. They motivate people to stay. However, it is a mistake to assume they motivate people to do good work. Near term rewards tend to focus people only on what’s immediately before them rather that what’s off in the distance. This myopic attention to short-term gains—the bonus—may lead people to make decisions not in the company’s best long-term interest.
From Do Stay Bonuses Really Work?
What are the rules to follow when integrating small well-run companies?
- Turn off "integration autopilot"
The same tactics should not be blindly applied to all deals, no matter their size.
- Don't "wing it"
A light touch integration strategy does not mean no touch. Processes always should be implemented, even on little deals, to define goals and time frames, track progress, and hold people accountable.
- Watch the us-to-them ratio
In initial integration meetings, don’t send an army of their specialists to meet with just a handful of managers from the other side of the deal.
- Concentrate on the most pivotal goals
A sustained focus on top priorities provides the best chance to achieve major targets on time, on budget, without burning people out.
- Eliminate demands for "didley" data
Don't ask an acquired business, especially one with very limited resources, to collect trivial facts and figures.
- Cut people some slack
Reduce the bureaucracy shock in the acquired company by giving new employees the latitude to bend a few rules that are unimportant.
- Don’t stick founders in ceremonial roles
Allowing any employee, including former business owners, to collect a paycheck and contribute nothing sets a bad precedent.
- Reduce the number of marathon meetings
Generally, people in small organizations are less accustomed to meetings that drag on for hours.
- Don't jump to conclusions based on job titles
Executives in small organizations often perform a wider, more diverse range of duties. Learn who actually does what before making staffing changes.
- Be realistic about converting mavericks into company men
Entrepreneurs tend to rely on their intuition, improvise, and take major risks. Sometimes, trying to make them work in a highly structured, disciplined way, is like trying to change their DNA. Good luck with that!
What is the best way to improve employee morale in an acquired company?
Succeeding provides the most positive influence on the dispirited and disaffected. Morale, trust, loyalty and commitment, work stress—these are very important attitudinal components. They all count. If any one of them is out of whack, the organization suffers. Collectively, they carry enough punch to make or break your teams. But you need to see them as symptoms—like fever, a headache, or nausea. And instead of popping pills or slapping on Band-Aids®, you should focus on fighting the causes of those organizational aches and pains—poor organizational performance. Achieve good results and see how the unpleasant symptoms disappear. That’s good medicine...and good M&A integration management.
What are the key benefits of an effective M&A integration employee onboarding program?
- Retention of talent - A robust onboarding process will mobilize a carefully targeted rerecruitment activity designed to identify flight risks, reduce the fear and uncertainty, ensure that key players feel valued, and cast the newly merged company in a favorable light.
- Rapid engagement - The mechanics of a comprehensive onboarding program can minimize resistance to change, facilitate bonding with the new organization, plus redirect energy away from anxiety and toward the job at hand.
- Accelerated productivity - Onboarding provides role clarity, valuable connectivity with new coworkers, necessary new skill development, plus a sharper understanding of the merged organization s strategy and business plans. This enhances job commitment and personal effectiveness.
- Cultural alignment - Socialization and acculturation activities aid assimilation by helping acquired personnel crack the code of the parent company’s culture. This helps people know how to align with and adapt to new ways of working.
Onboarding should be a key component of your change management efforts during the integration process.
Why do so many employee retention efforts during integrations fail?
Acquirers do not invest the necessary time to develop and execute a compelling retention strategy. There are many other competing demands for management's time so far too often, there is virtually nothing done by way of deliberate retention, except for scattered attempts to hang on to a handful of upper-level executives. Usually, the measures taken to retain key talent are superficial, poorly coordinated, and carried out with a serious lack of urgency. This helps explain why so many merger/acquisition situations are marked by a mass exodus of valuable talent, and why so many mergers end up in the failure statistics.
What are the steps in the employee retention process after an acquisition?
- Assess Impact of Loss – Identify how critical each individual is to the business.
- Define the Role of the Individual – Are they critical to the transition, in the long-term, or both?
- Identify Key Motivators – Determine the top two or three motivators for each person to stay (both physically and mentally) with the organization and perform to expected standards.
- Take Action – Remember, actions don’t have to be monetary. A conversation, a title change, a promotion, even a call from a company founder or CEO can serve to “re-recruit” people to the new organization.
How should acquirers approach staffing decisions in a merger?
- Always operate with the assumption that there will be turnover which directly results from the merger.
- Plan on taking advantage of the opportunity the merger presents to get rid of marginal employees.
- Look for opportunities to consolidate and streamline for a more efficient organization.
- Move rapidly to retain good employees.
It’s much easier to succeed with a team comprised of quality players that you select deliberately rather than try to win a game with those who randomly show up to play. Take charge of the situation . . . make sure the new organization is staffed for success.
Why should employee issues be addressed quickly after close of a merger?
Because the first two letters in merger is “me”. Until important personal career issues have been resolved satisfactorily, employees are too preoccupied with their own situations to focus effectively on their work. Company interests take a back seat to personal interests. Employees worry, gossip, and trade rumors rather than concentrate on their jobs. The longer people have to go without closure on their “me” issues, the more likely a work group will lose momentum. Get these questions answered in a hurry, so people can get on with business.
How can Human Resources gain more influence in M&A?
- Preemptively prepare for M&A. Anticipate. Provide in-depth training for HR staff on the fundamentals of M&A integration, how to reconcile culture differences, etc. Ensure that the HR Team is very sophisticated on merger dynamics and positioned to serve as a merger-savvy resource to people in other functions.
- Rethink HR's conventional wisdom on how success should be measured. HR is the guardian of workforce issues such as morale, trust, job satisfaction, stress levels, and employee loyalty, but those metrics will take wicked turns for the worse during a merger. Success is better measured by tracking productivity, quality, market share, customer satisfaction, and-above all-profitability. This is highly counterintuitive for HR people, but these are the critical markers for the integration process.
- Be commercial-minded. Remember-M&A is always based on a financial logic. Align with that mindset and monetize your thinking. Support HR's opinions, problem solving, and recommendations with sound financial reasoning rather than "soft," people-oriented appeals.
How many people in the acquired company can you expect to support the merger?
We are talking in generalities here, but about 20 percent of the employees in the acquired company will be “merger-friendly.” They will be clear advocates who embrace the deal. They will help drive the program. Another 50 percent will be fence sitters. They will initially assume an impartial stance trying to determine which way to lean. They will not be openly opposed to the merger, but they will not be helping like they should. The remaining 30 percent will be resisters. They’re opposed toward combination and will try to make it flop. Guess which group makes the most noise? And who do you think soaks up the most management time and energy during the integration? The resisters.
What are the 10 M&A change management best practices to reduce resistance?
1. Explain the reasons for the change.
Make sure people in the organization have a good understanding of the rationale for the changes. The people in charge should be very open, very willing to share their perspectives or the line of reasoning that led to the changes. When this sort of information is communicated, the odds increase that everyone else will come to see the move as appropriate.
2. Level with people about the pathway to change.
There is a need for people to understand what the road to change looks like—that typically the pathway is a sequence of events where things get worse before they get better. Growth—and mergers usually imply organizational growth—generally carries a little bit of pain and discomfort with it, and these growing pains are part of the process that people need to understand and expect.
3. Arrange for participation and involvement.
Involve the right people. When that happens, people do end up with a better understanding of how complicated the situation is. And if there are no perfect solutions—which there almost never are—then they are probably going to be much more inclined to live with “reasonable” solutions that are fair minded and that they have helped to shape and bring to life.
4. Provide a clear sense of direction.
Employees need an aiming point. They need a target to shoot at. Otherwise, there is a tendency to wallow or flounder in the waves of change. People will resist the changes because they cannot determine where the new forces are carrying them.
5. Give leadership.
When things are changing, when an organization is destabilized, people need someone to follow. It has to be someone they have confidence in, someone they feel has the ability to lead them out of the struggle safely. When leadership is missing, resistance festers and spreads.
6. Move rapidly in making the changes.
Make the needed changes rapidly and get them over with. Sure, it should be done in an informed fashion and not willy-nilly. But the company should move with real dispatch rather than dragging things out. The kindest sword is the one that cuts quickest and cleanest. So, don’t “hack around,” making the changes over a long period of time.
7. Provide appropriate training.
Frequently, people are against change not because they are opposed to it per se, but rather because they lack the skill, talent, or simply the understanding needed to cope with it very well. If they are given the necessary training and coaching on how to handle change effectively, the resistance can disappear.
8. Create a supportive environment.
Change is accepted by people more readily in a nurturing, supportive environment. When this kind of atmosphere exists, people are more willing to take some risks and experiment with new ways of doing things.
9. Monitor the change process carefully.
Top management should go looking for trouble and be particularly alert to bad news. People should be encouraged to come forth with their complaints, concerns, and gripes—that’s how management ends up with the information needed to fine-tune the situation.
10. Exhibit managerial courage.
When things aren’t working, managers have to have the nerve or managerial courage to report problems to their superiors. And they may not want to hear that upstairs. It takes real inner strength to blow the whistle on a problem and to ask for what’s needed.
From Change Management in Mergers & Acquisitions.
How can acquirers protect the work force’s productivity during the integration?
- Operate with very short-range goals or objectives.
- Initiate new, merger-specific incentive programs for the transition period.
- Monitor performance more closely.
- Provide employees quick, accurate feedback regarding shortfalls in their performance effectiveness.
- Pass out more “psychological paychecks” (i.e. sincere appreciation, praise) to people who are excelling.
- Move quickly to clarify roles and responsibilities for each employee.
- Even though you may secretly be expecting less from your people, ask for more. Actually, raise the performance standards.
Our experience indicates that employee productivity in a newly acquired or merged company gets cut in half during the first several months of an integration.
From M&A Failure Feeds on Itself.
What are key questions to ask during a post-merger integration audit?
- How were the events, decisions, communications, and actions surrounding the merger handled?
- What could have been done differently to make the integration easier?
- What remains unfinished?
- How have shareholders, customers, and employees perceived the merger?
- If the company were to merge/acquire again, what should be done differently?