Frequently Asked Questions about M&A Integration Risks
What are factors that increase post merger 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-complicate M&A 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 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 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 close?
- 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
Which is easier - making the deal or making the deal work?
Out of every one hundred companies that cut a deal, about fifty get cut to shreds in the months that follow. Making the deal is just a warm-up. The real job is making it work
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.