The Fundamentals of a Successful Merger Integration Strategy and Plan

Fundamentals of successful M&A integration

Introduction

A project-management approach should be applied to the integration process.  A project infrastructure should be established that will support flexibility and speed while also bringing discipline to the effort.  Now for a fuller explanation of the argument for moving through the integration with a strong sense of urgency.

Corporate marriages are rarely followed by honeymoons. Employees in the acquired organization, as well as those executives responsible for striking the deal, tell endless war stories of the problems, frustrations, and surprises that commonly follow on the heels of a merger. Once the marriage has been consummated, there is little time for celebration. If there is a honeymoon, it is short-lived. In the best of circumstances, it is followed by a “little period of adjustment.” Of course, a big percentage of the time, there is severe marital trauma, which lasts much longer than necessary.

The problems companies have in managing the change process are manifested in many ways during the months, and even years, that follow the merger event.  Almost always there is a lull, a loss of momentum in the acquired firm. Experience shows that in most mergers the greatest lull happens during the first few months.  Companies then slowly revitalize, taking a period of one or two years to fully recover.  Some, of course, never seem the same, although the initial intent was for the acquisition to represent some sort of synergistic hookup between the two organizations. 

This phenomenon is comparable to the postoperative period of recuperation experienced by the patient who undergoes surgery.  That person usually shows a drop-off in productivity.  His or her morale usually suffers until regaining physical and emotional strength.  And she or he will have difficulty mobilizing personal resources in order to perform effectively.

Acquired companies usually struggle through a similar adjustment process.  The severity of the episode depends heavily on the nature of the takeover—whether it was fiercely resisted or jointly sought.  But the results are almost always counterproductive so far as productivity, profitability, employee motivation, and morale are concerned.  In fact, post-merger drift has become such a common occurrence that it is basically viewed as an inherent reality within the merger process, as something that just goes with the territory.

The intensity and persistence of post-merger drift can be controlled and kept to a minimum.  But to overcome this interlude, the parent company will nearly always need to take a hands-on approach.  Top executives must move decisively and purposefully—not simply to make changes, but to make the right changes and then intelligently manage the organizational dissonance a merger creates.

If people are allowed to respond to their natural instincts, many of them will move into a holding pattern. Depending on the parent company’s reaction, the downward trend that develops usually bottoms out within a three- to nine-month period.  Then begins the gradual and often halting uptrend over the next year or so.  Eventually, corporate effectiveness should equal, and hopefully surpass, the premerger level.  Sometimes, of course, it never does.

During the first two years following acquisition, operating effectiveness suffers from the psychological shock waves and resulting reactions of employees.  Just how much deterioration there is in operating effectiveness, and how long it lasts, is dependent on (1) what kind of acquisition scenario is involved and (2) how astutely the company is managed after the fact.

The situation calls for proactive, take-charge management.  Problems always get a head start, and this means that managers and executives are always put in a position of having to play catch-up.  Another argument for fast action comes from the fact that people being acquired and merged expect change.  They become anxious and uncomfortable if the acquirer, having finalized the deal, pulls back and assumes a passive stance.  Granted, incumbents don’t want to be manhandled or overwhelmed with changes, but they don’t  want to be ignored either.  The most common complaint from people involved in a merger has to do with the acquirers’ lack of action or excessively slow pace.

Trust in Speed

In years past, the conventional wisdom on the integration process advocated a slow transition.  The rationale went like this: This is important.  We must move slowly, carefully, and minimize mistakes.  We can’t afford to overwhelm people with change. 

It all sounded so logical.  It seemed like such a caring approach so far as the people were concerned.  The problem is, the thinking was dead wrong.  Basically, employees hate a slow integration process.  The approach lets problems fester, and it fails to take advantage of the energy stirred up by a merger event.

Being careful during mergers and acquisitions means moving quickly.  Speed is your ally.  A rapid integration approach that reflects a strong sense of urgency holds far more promise than a strategy based on caution.  The mistakes that come from going fast are nothing compared to the problems of going too slow.  Just imagine the impact of a 20 to 30 percent drop in the effectiveness of a sales organization when the integration process drags on for 6 months or so. What if the transition lasts 24 months instead of 6?  What if the productivity drop is 50 percent instead of 30?  Slow transitions have significant damaging impact to the bottom line.

At the very outset, it is important to set the expectation for moving quickly through the integration process.  The parent company should convey an image of urgency, demonstrating that the new regime is action oriented.  The “opening moves” should be designed to illustrate the pace the acquirer intends to maintain.  Appropriate initial steps communicate that the new organizational framework will not be a do-nothing, life-as-usual setup.

It also should be emphasized here that the employees of the acquired company will draw their conclusions about the parent company by observing what it does, rather than from listening to what its senior executives say.  In fact, there will be a great deal of skepticism regarding what the acquirer says or writes, whereas anything actually done represents hard data.

The question that should be posed, then, is “What is fast?”  Some organizations might speed up noticeably yet still fall far short of showing the metabolism needed in the integration process . . .