Strange Bed­fel­lows — Min­imis­ing risks in Post Merg­er Integration

In Brief

Recent stud­ies have shown that close to 50% of post merg­er inte­gra­tions fare poor­ly. While there are no hard and fast rules that will guar­an­tee a suc­cess­ful merg­er, in this arti­cle we look at the risks involved and some of the ways to min­imise those risks and ensure a greater like­li­hood of a suc­cess­ful integration.

Whether through a share pur­chase or the acqui­si­tion of a busi­ness and its assets, a merg­er presents both oppor­tu­ni­ties and chal­lenges. The biggest of those chal­lenges is arguably the inte­gra­tion of the two busi­ness­es and their per­son­nel fol­low­ing the merger. 

Recent stud­ies have shown that close to 50% of post merg­er inte­gra­tions fare poor­ly. There are no hard and fast rules that guar­an­tee a merg­er will be suc­cess­ful, but it is pos­si­ble to iden­ti­fy the main risks to a suc­cess­ful post merg­er inte­gra­tion (PMI). These can be broad­ly cat­e­gorised as:

• per­son­nel risks;
• syn­er­gy risks;
• struc­tur­al risks; and
• project risks.

Per­son­nel risk is the cat­e­go­ry that most peo­ple are famil­iar with. Fric­tion between employ­ees and man­age­ment of the merged busi­ness­es, dis­con­tent regard­ing a loss of auton­o­my or respon­si­bil­i­ty and staff con­cerns regard­ing job sta­bil­i­ty all influ­ence the lev­el of sup­port for or hos­til­i­ty towards suc­cess­ful inte­gra­tion. Deal­ing with dif­fer­ent cul­tures, man­age­ment sys­tems, per­for­mance lev­els and egos can make inte­gra­tion dif­fi­cult.

Syn­er­gy risks relate to the actu­al plan­ning and imple­men­ta­tion of the PMI. Estab­lish­ing bud­gets, tar­gets and KPIs are all vital to a suc­cess­ful PMI, and each of these is depen­dent upon obtain­ing accu­rate finan­cial infor­ma­tion in a time­ly man­ner in order to plan how to take advan­tage of syn­er­gies in the inte­grat­ed busi­ness.

Struc­tur­al risks gen­er­al­ly involve mis­match­es in the organ­i­sa­tion­al struc­tures and process­es of the merged busi­ness­es. Align­ment of the prof­it and cost cen­tres of the merged busi­ness­es is vital.

Project risks com­prise spe­cif­ic project-relat­ed obsta­cles. A merg­er will only be suc­cess­ful if own­er­ship of and respon­si­bil­i­ty for the inte­gra­tion is tak­en by stake­hold­ers, so it is vital that appro­pri­ate resources are allo­cat­ed to this. It is usu­al­ly help­ful to appoint a project man­ag­er to super­vise inte­gra­tion issues and ensure line man­agers are a pos­i­tive influ­ence. Ensur­ing that man­age­ment and employ­ees with PMI expe­ri­ence are direct­ly involved, and pro­vid­ing them with ref­er­ence mate­ri­als which doc­u­ment past PMI expe­ri­ences are also ways in which merged busi­ness­es can reduce the project risk to a suc­cess­ful PMI. 

There are var­i­ous ways to mit­i­gate these PMI risks:

• It is essen­tial to take PMI issues into account when the merg­er is planned. Effec­tive due dili­gence at any ear­ly stage can iden­ti­fy poten­tial inte­gra­tion issues which may adverse­ly affect the prof­itabil­i­ty of the merged business.
• Allo­cat­ing a dis­tinct bud­get to PMI issues can be help­ful, because line man­agers gen­er­al­ly react neg­a­tive­ly if their depart­men­tal bud­gets are reduced due to unplanned PMI expenses.
• The use of a merg­er agree­ment or project imple­men­ta­tion plan can also assist. This type of doc­u­ment can address some of the issues out­lined above, so that time-con­sum­ing PMI issues can be avoided.