Mergers and acquisitions are amazing opportunities when they’re handled correctly. However, there’s a major issue a lot of companies deal with. All the emphasis tends to be put on the M&A process itself, but it’s the post-merger process that tends to cause most of the serious issues with these deals.
A lot of deals that look perfect on paper end up falling apart in the weeks and months after the deal is closed. Usually, that’s because of poor integration strategies.
To help you avoid that problem and reap the rewards of your upcoming merger fully, we’ve put together this guide to five proven post-merger integration strategies.
Let’s get started.
Why is Post-Merger Integration So Important?
We touched on this briefly, but there’s a bit more to it. After a merger, one of the most complicated things to handle is the integration of both companies. It’s a massive undertaking. It’s like taking two well-oiled machines that have worked perfectly for decades and suddenly swapping parts between them to make something better.
Not everything matches perfectly, there’s a lot of trial and error to get it all working, and unless you’re willing to invest time, resources, and energy into the project, you will likely fail to finish it with great results.
That’s what a merger is. You’re taking two established companies, and you’re melding them into one. Not everything is going to fit perfectly, you’re going to have to make adjustments in various areas, and some parts of it might even need to be removed entirely to make it work.
The good thing about a merger is that you can make that process a lot easier.
First, ensuring the M&A process is handled properly and the two companies are compatible in the first place is crucial. However, beyond that, you also need a firm understanding of both companies and how they operate, and you need to have a solid plan that will guide each step of the integration process rather than just suddenly dumping the companies together and hoping for the best.
With a plan, you know what challenges you’re going to face, you have a good idea of what you can do to overcome them, and you have some general guidance that should get you through it.
5 Post-Merger Integration Strategies That Work
Now that we’ve got the briefing out of the way, it’s time to get to post-merger integration strategies. We have five strategies that are proven to work. Not every strategy is optimal for every situation, though. So, it’s best to look at your options and choose whichever one seems the most appropriate.
For the most part, one of these strategies will handle the majority of situations without much need for modifications or improvising, though.
1: Synergy Pursuits
First and foremost, identifying synergies and putting the bulk of your focus on pursuing those is going to be the core of most successful mergers. This is the most positive strategy when looking to integrate companies because instead of fixating on everything that goes wrong, you’re putting your effort into supporting what’s right.
This is a lot easier if you choose a good company to merge with. If there are no meaningful synergies, putting all your focus on a couple of factors isn’t going to make it successful. So, this is only relevant when the deal was right to begin with.
It’s a consensus between M&A advisors that there are two main synergies to look at and pursue.
Financial synergy is what most tend to notice first. Where do the two companies line up in a way that allows the new combined entity to make more money than before? Where can you work to close the gap and create synergy that boosts the financial success of the new company?
When you focus on those two aspects and support their growth, you undoubtedly bring in more capital to put toward the little problems here and there that will pop up, and of course, there’s the benefit of making larger profits in general.
However, focusing on how you can make both companies work together to make more money is just one part of this. You also need to see which synergies will help you cut back on costs. You can make $ 40 million in profits per year, but if your costs amount to ¾ of that, you’re still not doing well.
Positive cost-related synergies are typically things that allow each company to reduce costs for the other.
For example, maybe your company was spending a lot hiring an external shipping company for all your shipping needs before the merger. However, the company you merged with has an established shipping system in-house.
That’s a cost-cutting synergy if you can focus on integrating it into the bigger picture. It might not be easy, because that shipping system was built around the needs of the company before merging, but with a little reworking, you can have a massive cost-saving synergy.
Then, there’s the scale synergy of the two merging businesses. Are there areas in either company’s operations that will allow for scaling up? If the two companies are closely related, can the old location of one of them become a new location under the acquiring company’s name?
Are there markets that one entity has penetrated that allow the operations of the merging company to easily break into new markets? Finding synergy that allows for rapid growth is another way to safeguard the merger against challenges, and of course, grow in the long term.
Those are just examples, and there are many types of synergies that can help generate revenue and cut costs to help make the merger a success, but you get the point.
This is a strategy that you’ll likely want to implement even if you’re focusing on another integration strategy. Putting effort into supporting your synergies is simply a good idea regardless of what your other focuses are.
2: Developing a New Company Culture that Works
This is one part of post-merger integration that destroys a lot of great deals just because it wasn’t thought of as a problem.
Just as every person is different with their own unique personality, every business has its own culture. Some are more relaxed with more focus on individualism and talent, and some are more focused on hierarchy and doing things by the books.
Some push hard schedules, and some try to ensure employees are working at peak conditions rather than just putting hours in. If there are tons of conflicts, that becomes a major problem.
In an optimal situation, you’ll know about cultural conflicts before the merger, and you’ll avoid merging with any company that has excessive cultural differences. That type of deal is simply too likely to fail.
However, if there is some ideological alignment, a great strategy to make the integration process work is to build a new company culture that combines the best traits of both cultures.
For example, maybe a strict hierarchal environment really does work better for the majority of employees, but the more relaxed scheduling of the other company allows employees to put their best into the job rather than being drained all the time. Creating a new culture that is both hierarchal and balanced in terms of scheduling can make a great solution.
This takes time, and unfortunately, you don’t have tons of that after a merger is completed. If issues prevail for months on end, you’ll be losing too much money on the deal. However, implementing cultural changes early, building up the new culture over time, and acclimating your teams to the new environment can help dramatically.
3: Step-by-Step Planning with Communication
This should be a smaller core concept as part of a larger, multi-faceted, strategy, but it’s important enough to put it here separately.
As we said earlier, just merging the two companies and hoping for the best isn’t the right route to take. It might work wonderfully, but usually, you’ll be caught off guard by every little mishap.
Instead, getting with the other half’s leadership and creating a step-by-step integration plan should be a focus. You’ll discuss how you’re going to move workforces around, shift assets, remove unneeded company features, develop synergy, etc.
This plan is best handled by setting goals and milestones. Where do you need to be by such and such date? How long do you need to give yourself for each step? Which steps should be prioritized and handled first?
Not only will you have a solid understanding of what to expect, but you’ll likely identify a number of challenges you’d have otherwise missed, and they won’t catch you off guard.
Sometimes, there’s an opportunity to not only expand and thrive with a merger but to reposition entirely. Once changes are made, it might be better to position the company toward a different target audience, move into a different market entirely, or otherwise change the focus of the company to take advantage of various synergies that make it a likely success.
For example, maybe there’s an opportunity, both with current economic situations and in-company synergies that support it, to move from a higher-end B2B market to an average consumer market with greater results. You now have the means to meet massive demand requirements, market your products to average consumers instead of other companies, etc.
In that case, transforming the business can be a difficult but fruitful strategy.
Doing this will require practically all the other strategic elements we’ve mentioned to be leveraged, though. It complicates post-merger integration since so many changes are being made, and it does pose new market-related challenges, as well.
5: Start in the Due Diligence Phase
The due diligence phase is part of the actual M&A process. However, it’s integral to the post-merger integration phase.
If you begin to look at the various strategic moves you can make from the very beginning, you gain two main benefits.
First, the M&A process is easier. You’ll be targeting companies that meet the requirements of your plan going forward rather than stumbling upon opportunities and then seeing if there’s a possibility to merge. This leads to fewer deals falling through, stronger arguments in favor of the merger, and an overall easier process.
However, it also means that, when it is time to integrate, you’ll have filtered out companies that could have caused difficulties in the integration phase, and the whole process will go more smoothly. This helps you focus on the quality of the companies you approach for a merger, and like most things, going for quality over speed, quantity, or other traits can mean a world of difference.
Again, this is a strategy that is used in conjunction with the other strategic ideas we’ve presented, but you have to start early with this. The due diligence phase is early in the M&A process, and if you’ve already gotten close to the end of a merger, it’s a little late for this strategy to be implemented.
Getting Help with Mergers and Acquisitions
There’s a lot that goes into post-merger integration strategies. As such, these five strategic ideas can help, but they won’t guarantee you a successful merge.
Instead, it’s best to have guidance throughout the entire process. Final Ascent is here to help.
We specialize in being a one-stop shop for all things M&A in the middle-market business world. Whether you’re merging with another company, acquiring the assets of a company, or selling your business to make a graceful retirement exit, we stick with you from start to finish.
Starting before you even begin looking for merger opportunities, we can guide you through the channels you need to take for marketing, identifying which route will be best for your business, the resources you need to look into during the merger, and even all your post-deal worries from integration to retirement plans.