As discussed in a previous blog post, a successful post-merger integration (PMI) can allow an acquirer to realize the full value of the transaction. However, PMI is often an underestimated challenge. Recent publications released by Mergermarket and PwC consolidate the views of M&A experts and discuss best practices when engaging in the PMI. Below we discuss these publications’ key takeaways.When should integration begin?
The best practice is to start thinking about PMI as early as possible, even before proposing the transaction. Considering PMI during the inception of the deal and during due diligence will allow dealmakers to identify sources of value and risks that may be lurking post-closing. PMI is especially important in the case of a strategic buyer (one attempting to fold an acquired business into the buyer’s organization) and in transformational deals (where the combined entity acquires new markets, channels, products, or operations in a way that is transformative to organization).Who should lead the PMI?
The person best suited to lead an integration is a capable leader who has broad knowledge of the operations of the company. Ideally the leader would be well-respected, able to mobilize and motivate others, and well acquainted with the deal rationale. Practically speaking, the PMI leader needs to be freed up from regular responsibilities and needs to have capabilities to oversee the multi-dimensional role of PMI leadership.What approach should the combined entity take with its communications plan?
The experts agree that a good communications plan is important, especially when implementation of a PMI plan affects a large number of people in several business lines from both companies. Full communication, even at the outset of PMI when systems may not be integrated, is important to ensure issues are identified and addressed as early as possible. The risk is that poor communication leads to uncertainty, which breeds disruption. On the other hand, a successful communications plan can significantly improve the speed at which decisions are made and general confidence in the combined entity.Where do the biggest challenges arise?
Transitioning IT systems, combining business operations, aligning organizational structures, and managing multiple locations pose the biggest challenges in PMI. Those companies which need to combine R&D functions also have a heavy task. Although the tendency is to focus on operational challenges, one of the biggest challenges in PMI is cultural integration (a topic we discuss here). The combined entity should take steps to integrate employees into new or modified methods of working.What additional factors must the combined entity consider in cross-border M&A?
Overwhelmingly, the experts agree that cross-border PMI must take into account the new legal and regulatory regime to which the combined entity will be subject. For example, the combined entity should think about labour and employment laws, compensation and benefits arrangements, permits and licenses, and financial arrangements. The company must also consider those things which add complexity to operations: foreign languages, cultural nuances, and time zones. This applies equally to dealings with the target and with the combined entity’s new customers, suppliers, and business partners.
Despite a robust due diligence process, challenges invariably arise during integration. The result?A longer-than-anticipated integration period. However, PMI planned early in a deal, led by adept leaders, and with strong communications plans will allow companies to avoid many of the risks involved with complex PMI.
The author would like to thank Denise Gan, articling student, for her assistance in preparing this legal update.