Business news is rife with reports of mergers and acquisitions, companies being sold for millions or billions of dollars in deals that make shareholders squeal with joy and c-suite executives give praise for their golden parachutes. The M&A strategy has become commonplace, Strategy+Business reports that 51.3% of mergers have demonstrated that such actions result in underperformance and reduced profit, which likely results from planning the way in which they execute implementation after the deal.
Once the decision to merge has been finalized, it’s important to stack the deck in favor of success.
● Create value greater than the purchase premium. The merger itself is not the business goal, but a step on the way toward achieving that goal. Leverage the value of the merged companies by combining their strengths, whether that be depth of market penetration, management team capabilities, or other factors.
● Develop a post-merger process that captures well-defined sources of value and guides sustainable exploitation.
Just because buying the competition appears easier than organic growth doesn’t mean that it’s the best direction. However, once the deal’s made and money has exchanged hands, it’s too late for employees. They will benefit–as will your shareholders and customers–from a thoughtfully prepared vision of the newly merged business enterprise. That vision will need leaders from both the acquiring company and the acquisition target who can lead the combined enterprise through the process of integration. Before the merger breaks down before it’s had a chance to function and thrive, leaders may consider hiring a navigator to lead them through the post-merger sea.
Best practices for post-merger integration consist of the following elements:
● Change architecture
● New company structure
Navigation of post-merger process requires detailed planning. It builds a model for timing, cash flow, and resources. It establishes human resources policies that will be applied evenly throughout the combined company. It mandates frequent, honest, and clear communication to both employees and vendors. The post-merger architecture may not resemble what was planned, but the plan will help achieve the goals that the merger was supposed to accomplish.
Part of those goals includes identifying sources of value. Growth-oriented sources encompass new products or services, increased speed to market, improved efficiency, increased sales force, etc. Efficiency, while laudable in itself, cannot be defined as a concrete goal. Efficiency must be improved through other factors: supply chain, procurement, production, distribution, sales force, consolidation, etc.
Regardless of the architecture, the principals of the merged company must act. A thoroughly vetted process focusing on post-merger integration provides the analysis that yields the information management needs to make informed business decisions to act or not act. Action may entail walking away from a deal, testing assumptions, evaluating the organization’s competitiveness. Both action and inaction may result in improving or reducing shareholder value, which further necessitates a thorough planning and analysis process to ensure the merger’s success.
The Heggen Group has successfully guided diverse companies through the post-merger and acquisition process to capture increased market share of their industry niches and improve shareholder value. By combining two entities into one cohesive and functional business, we enhance the profitability and success of the companies we serve.