Answers to 50 M&A Integration Frequently Asked Questions


Free M&A Integration Resources

Where can I download a presentation to quickly learn a lot about how to manage an M&A
integration?

The downloadable presentation, The 10 Critical M&A Integration Best Practices, is jam-packed with useful insights.

Where can I find useful M&A integration guides?

PRITCHETT, LP has sold more books on post-merger integration than all other firms and authors combined. Several of our titles are currently available for free.

M&A Integration Teams

What is the typical team structure for an M&A integration?

Usually the structure is a 3-tiered hierarchy:

  1. A Steering Committee
  2. An Integration Management Office (IMO) led by an Integration Manager
  3. 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.

What is the role of the integration Steering Committee and who is on it?

The Steering Committee defines and communicates integration objectives and strategies, approves recommendations from planning teams, prioritizes initiatives, monitors progress, and makes decision whenever an impasse is reached at the lower levels of the integration hierarchy. The Committee is usually comprised of C-level executives.

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 provides the guidance and day-to-day decisions that ensure the integration continually makes progress.

What is the role of the Integration Manager?

The Integration Manager leads the IMO, conducts the Integration Team Kickoff Meeting, educates teams on the integration process, balances and coordinates work across teams, ensures exit criteria are met, and captures lessons learned and recommendations for future acquisitions.

What traits should an Integration Manager have?

The role of Integration Manager in M&A 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:

  1. Project management skills
  2. Power, authority, and executive credibility
  3. Social intelligence
  4. Tolerance for ambiguity and uncertainty
  5. Sense of urgency
  6. Strength of personality
  7. High energy level

What is the role of a functional (workstream) integration team leader?

Functional (work stream) integration team leaders: 

  • Meet with extended teams (cross-functional and cross-organizational) to manage cross-functional dependencies
  • Create and maintain functional integration project plans, status reports, risk and issue logs, and meeting notes
  • Attend IMO meetings and provide updated status reports and supporting materials 
  • Provide information necessary to secure decisions on changes to project scope, timelines, and budgets

What are the characteristics of an effective functional integration team leader?

  1. Subject matter expert
  2. Flexibility and the ability to improvise
  3. Decisiveness
  4. Strong interpersonal skills
  5. A willingness, and ability, to take charge
  6. A knack for keeping many balls in the air simultaneously
  7. A keen sense of urgency
  8. High tolerance for stress and pressure; psychological resilience

How much time should integration leaders 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 80% of their time on the integration to be effective.  

When should you invite the target’s leaders to join the integration teams?

After the acquirer’s executive team agrees on key integration goals, strategy, priorities, and non-negotiables, the target company should be invited to participate in planning. Of course, if a deal is subject to regulatory approval and/or confidentiality constraints, the target’s involvement before close might have to be very limited.

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 are integration guiding principles for teams?

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

M&A Integration Plans

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 M&A 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.

What are the key elements in 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: Post-Merger Integration Framework

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 is an M&A integration team charter?

A charter specifies the baseline expectations on the responsibilities, objectives, deliverables, success measures, and timeline for each integration team. Charters should be developed prior to beginning detailed work plan development.

From How to Create an M&A Integration Team Charter.

What is a 100-Day Integration 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. Development of this plan should begin before close, no later than when the letter of intent is signed.

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.

What is an M&A 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.

Day 1

What is Day 1?

Day 1 is the day the deal is closed.

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 they begin carries heavy influence over how they will finish. 

What should be communicated to employees on Day 1?

Acquirers should inform employees about the rationale for the deal, the complementary strengths of the two companies, who the new leaders will be, and the acquisition's impact on brands, jobs, and employee compensation and benefits. 

What should executives not say?

1. “We will not make any changes.”

2. “This is a merger of equals.”

3. “We plan to take the best of both.”

4. “It will be business as usual.”

5. “The cultures of our two companies are very similar?"

Why are early wins soon after day 1 critical to success?

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.

The Need for Speed

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.

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.

Why should acquirers usually act quickly to make changes?

Because being acquired or merged destabilizes the organization. Things get knocked around in this time of upheaval. The organization is in a state of flux—up in the air—and there is a brief opportunity to reshape many aspects of the company before things settle back down and crystallize into the same old routines. But the window of opportunity is open only for a brief and unspecific period of time.

Culture Integration

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.

What are questions you could ask when performing a cultural assessment of the acquired company?

  1. How do people feel here about being merged/acquired?
  2. What would be your (or others’) major concerns about being acquired or merged?
  3. What are the defining characteristics of your company? (What’s distinctive? What differentiates you from other organizations in general? From the competition?)
  4. Describe the company’s core values. (What does it believe in?)
  5. What do outsiders not know/realize about this company?
  6. What are its idiosyncrasies? (What are the most peculiar
  7. What are the unwritten rules around here?
  8. What aspects of the culture are most important to people here?
  9. Where in the organization do the dominant subcultures exist?
  10. What are the company’s negative or undesirable cultural attributes? (What aspects of the culture need to change?)
  11. What are the cultural strengths? (What aspects of the culture should be protected/ sustained?)
  12. Is the company getting stronger, weaker, or just holding steady? What trend lines do you see? (What do you feel?)
  13. What do you see as being key to the future success of this company?
  14. How does the organization need to change?
  15. 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?)

Management of the Acquired Organization’s People

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.

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.

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. 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.

What are several talent retention methods?

  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 are stay bonuses and do they work?

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. 

Stay bonuses absolutely work. 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—can lead people to make decisions not in the company’s best long-term interest.

What is a highly effective way to improve employee morale in an acquired company?

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?

  1. Retention of talent 
  2. Rapid engagement 
  3. Accelerated productivity 
  4. Cultural alignment 

Why do so many employee retention efforts during integrations fail?

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. 

How should acquirers approach staffing decisions in a merger? 

  1. Always operate with the assumption that there will be turnover which directly results from the merger.
  2. Plan on taking advantage of the opportunity the merger presents to get rid of marginal employees.
  3. Look for opportunities to consolidate and streamline for a more efficient organization.
  4. 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. 

What percentage of employees in an acquired company usually support the deal?

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. 

M&A Risks

How can you mitigate risks if your integrations under-resourced?

  1. Follow a streamlined, easy-to-learn integration methodology
  2. Concentrate on what's truly pivotal
  3. Give your integration teams clarity

Why do risks increase if you do not follow an effective project management approach?

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 factors that impact the M&A integration risks?

  1. Amount of expected consolidation or integration
  2. Alignment/compatibility of the two organizations’ business strategies
  3. Extent to which the two organizations have been competitors
  4. Financial pressures confronting the new merged organization
  5. Level of confusion or ambiguity regarding the merged organization’s power structure
  6. Geographical distance between the merging organizations
  7. Overall market conditions confronting the merged organization
  8. Cultural differences between the two organizations
  9. Amount of expertise your organization has in merger integration
  10. Other major demands on your organization concurrent with the integration
  11. Degree of resistance to the merger within your organization

When are risk levels so high that you should consider hiring M&A integration consultants?

When these criteria are met:

  1. The acquirer's employees are already carrying a heavy workload
  2. They don't have a streamlined, proven integration methodology to follow
  3. The acquirer lacks integration experience on deals like its next one
  4. The stakes on the next acquisition are higher than they have ever been before or the frequency of acquisitions is increasing

Why are “merger of equals” often riskier than other types of deals?

When companies announce their deals are a “merger of equals,” it creates confusion as to who is calling the shots. Also, the attempt to be equal and therefore build a consensus on issues slows down decision-making and momentum. In reality, there is no such thing as a "merger of equals" because there is always someone in charge who has final say. Power is never distributed equally.

What is gun jumping and how do you prevent it?

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 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.

Table of content

Free M&A Integration Resources

M&A Integration Teams

M&A Integration Plans

Day 1

The Need for Speed

Culture Integration

Management of the Acquired Organization’s People

M&A Risks