WOW! The closing is done and the new owners are ready to take over. So, what happens once the deal is closed and the two companies have merged into one? Well, they aren’t really one company yet. In essence, they’re still two companies with a common owner. Therefore, the next step is what is called post-merger integration.
This step in the process of a merger is one of the most important steps because if done properly, the shareholders realize the value to the transaction. So the process begins as soon as the acquirer decides they will be acquiring the target company. This tends to be sometime during the due diligence stage of the process. Believe it or not, this part of the process is usually put on the back burner and not even seriously considered until after the closing, by some. Then everyone on day one of the merged companies says, “okay, what do we do now?” Lack of post-merger integration planning is the biggest reason for failure of transactions.
During due diligence all areas of a company are examined— some more than others —depending on the company. Here’s what areas of a business are thoroughly researched:
● General background, management and shareholders
● Product lines and markets
● Industry conditions and competition
● Human Resources
● Financial reporting and processes
● Management styles and practices (culture)
● Research, development, and engineering
● Legal matters
Reviewing the various areas of an acquired company during the diligence period allows the acquiring company to begin formulating a plan for post integration of the two companies.
Once the initial review of diligence is in process and the management team (of the buyer) has decided to move forward with the acquisition, it’s time to get the post integration team involved. The post integration team plans the combining of the companies in order to hit the ground running on day one after closing. This means that the post integration team is charged with organizing and analyzing the data to formulate a plan and layout the strategy to be successful as one company moving forward.
The post-merger integration process can be broken into three phases as follows:
● Phase I – Define strategy and organizational structure;
● Phase II – Planning
● Phase III – Implementation (execute and monitor the plan).
Phase I is to define strategic objectives and communicate those objectives throughout the company. It’s also for creating the organizational structure and the synergies to be achieved along with communicating those synergies to both management and the appropriate staff.
Phase II is all about identifying, prioritizing, and creating a road map for achieving those synergies.
Phase III is about execution, monitoring of the plan and achieving results.
Most companies identify the following areas important for achieving synergies:
● Human Resources
● Financial and Processes and procedures
One of the key areas during diligence and post integration is analyzing human resources and formulating an organization chart for the combined company. This is an integral part of achieving efficiencies and savings for the new organization.
Moving forward to markets and competition, the company looks at the markets they’re in, the combined capabilities of the companies and explores new or additional markets that may be available to the combined entity.
During due diligence there are usually processes, procedures and other things that have been identified that would allow the combined entity to adopt, improve, or change for improved and more efficient operations.
Coordinating financial systems, reporting, and processes is necessary for a company’s success. This step is generally identified early in the process during due diligence and the planning of combining systems begins once a commitment is made to moving forward with the transaction. Here again both companies’ systems are reviewed to adopt the most efficient one or to design a new one.
Companies looking to grow through acquisition should be prepared to form an acquisition and post-merger integration team in order to maximize and capitalize on their investment. This team should be made up of both internal and external resources. There are many company resources that can be used along with advisors that provide expertise that does not exist within the company. The real benefit to using a combination of the two is to obtain objective views while removing emotions from decision-making.