By Frank Williamson, Oaklyn Consulting, and Ernie Lopez, MergerAI
The closing of an M&A deal is often a hard-earned milestone after a prolonged period of negotiations and uncertainty. Yet, once the paperwork is signed, the real challenge begins: integrating two organizations into a cohesive operation while minimizing disruption
Nearly every integration includes some post-merger hiccups. Although the severity differs by company, the biggest challenges tend to center on these five areas:
1. Cultural fit
“Company culture” can mean a lot of things, from work/life balance and cross-team collaboration to career growth and supportive leadership. There are a range of ways, both formal and informal, to learn about a company’s culture before a deal is final. Interviewing company leaders, such as the VPs of HR and finance, can be helpful for getting a pulse of a company’s inner workings. It can be equally helpful to pay close attention to a company’s daily practices, such as how they reward and incentivize people.
One underappreciated aspect of cultural mismatch is when it’s driven by a company’s leader. One story from personal experience is when a large software company attempted to integrate a much smaller business. The smaller business had a visionary product and a CEO who was critical to the integration’s success, but who wanted to keep his business intact inside the larger company. He dragged his feet long enough in integrating his product that, in the end, the integration effort was totally halted — a lose-lose situation for both companies.
Though cultural mismatches often become clear after a deal closes, we’ve never seen them stop deal negotiations. Almost always, the momentum of the numbers drives people forward. In practical terms, fixing a cultural mismatch comes down to identifying specific friction points (such as communication styles or management structure) and establishing basic alignment through shared behaviors and workflows. Deeper cultural integration takes time to develop, but it’s made easier by preserving strengths from both organizations and maintaining frequent company-wide communication to reduce uncertainty.
2. Talent retention
Once a deal closes and is announced throughout both organizations, it’s not uncommon to see key employees on both sides starting to eye the exits. The period of integration brings a certain amount of disruption and uncertainty, so it’s natural for employees to be concerned about potential changes to their role or level of compensation. Recruiters often see opportunity in these situations and can be successful at poaching top talent to work for competitors.
Employee departures tend to be driven more by uncertainty than change, which is why early and direct communication with key team members is critical for keeping them in place. Transparency around changes, timelines and expectations can help minimize discontent and reassure employees that they’re valued and appreciated.
3. Systems and technology integration
Perhaps the most underestimated integration challenge is in combining two businesses’ IT infrastructures, data systems and operational platforms. Senior leaders typically go into integration expecting easy and quick cost savings by reducing IT vendors or software, but the process sometimes ends up being more complex, time-consuming and expensive than expected when platforms don’t fully translate with each other.
There are two approaches to this problem. One is to give up on the part of integration that’s causing the roadblock. The other (often seen in roll-up situations) is to temporarily keep both accounting systems in place and add a wrapper on top to help create a consolidated financial report. The problem with kicking the can down the road is that after the deal is complete, management will eventually need to reapproach the problem and find a lasting solution that achieves full consolidation.
4. Customer and revenue retention
An organization is at its most vulnerable in the period immediately following a deal, a fact that competitors are more than willing to exploit. If a client feels overlooked, they’ll become more open to sales calls they might otherwise ignore. Companies wanting to preserve their existing relationships should reach out to key clients early and in person whenever possible, clearly communicating the changes to come and explaining how they will benefit customers. As part of this direct outreach, companies should provide a single point of contact to ensure continuity of service and relationships.
5. Realizing the synergies that justified the deal
Mergers are normally planned by a small team of senior executives and advisors, then executed by a broader functional team of department leaders and staff members. What can easily happen in these situations is that the small team’s high-level view of how the businesses could combine doesn’t line up with operational realities. Maybe consolidation of internal systems isn’t as seamless as expected. Maybe territories don’t overlap as much as they initially appeared. Or possibly, a longer development process is needed to get a new product offering into the market.
Rather than trying to force a square peg into a round hole, organizations should set realistic timelines for integration that take any unexpected complexities into account. In addition to assigning clear ownership for each synergy target to a specific person, leaders should build in regular checkpoints for teams to report on progress and adjust plans as needed.
Creating the Smoothest Integration Process Possible
Prior to closing, getting into the nitty-gritty of a post-integration plan can be a challenge. By definition, the circumstances that cause deals to fall apart arrive at the 11th hour, so digging into the necessary level of detail to plan integration requires a level of confidence on both sides that the deal is likely to close. Not only that, but because deal teams are often small, the department leads who would need to plan together may not even be aware that a deal is even happening.
With those caveats in mind, here are three best practices for organizations wanting to minimize their post-deal integration challenges:
- Start planning earlier than you think. The time to begin integration planning is not after a company is purchased and not the day before a company is purchased. It should start during due diligence. If doing so won’t risk a leak, begin bringing key people into the loop to start laying the groundwork for integration.
- Get your teams in place. Many of the most streamlined integrations involve two types of teams functioning in parallel. The first is a central leadership team, working under the CEO and board direction, that takes an enterprise-wide view of the integration process. This team’s job is to understand the business models of both entities and the overall rationale behind the deal. The heavy lifting is handled by a separate set of department-level teams who each manage their own areas. At each level for each function within the company, you’ve got to begin plugging the pieces together.
- Over-invest in communication. Maybe the single most important thing companies can do during integration is to communicate with employees at every level clearly and repeatedly. The employees furthest from the executive suite are also the ones doing the day-to-day work of integration, so a communication plan needs to reach those individuals with clear messaging that helps quell anxiety and combat worst-case assumptions.
How Oaklyn Consulting and MergerAI can help
Our respective organizations, MergerAI and Oaklyn Consulting, bring deep expertise across different aspects of the M&A process. Oaklyn specializes in guiding small and mid-sized organizations through complex transactions, while MergerAI’s innovative platform helps streamline diligence for organizations planning an acquisition or managing post-merger integration. If your organization is considering a merger or acquisition, we’d welcome the opportunity to discuss how we can assist.
About Ernie Lopez
As a former M&A manager at Adobe, Ernie supported due diligence efforts on large-scale deals and post-merger integrations of purchased businesses, overseeing the alignment of teams, processes and technology. His M&A expertise and passion for AI inspired the creation of MergerAI, which helps M&A leaders get deals done faster.
About Frank Williamson
Frank Williamson is the founder of Oaklyn Consulting, a different kind of investment banking firm for small- and medium-sized companies under private ownership. Oaklyn Consulting plans and executes its clients’ most complex transactions, including mergers, acquisitions, capital-raising, recapitalizations, and lender and investor relations. Oaklyn Consulting supports businesses, investment firms, nonprofits, co-ops and partnerships. By working as consultants, not brokers, Oaklyn Consulting helps in situations where traditional investment bankers typically cannot.