Statistically speaking, most merger integrations fail—between 70% and 90%, according to McKinsey and Harvard Business Review. What’s worse, those numbers are consistent in study after study… and they haven’t budged in years.
So what can companies do to reduce risk and increase their odds of success? Each deal is different, of course, and each has goals that might range from removing excess capacity to accelerating market access or obtaining skills and technologies faster or at lower cost.
So we put together 4 tips for a successful merger integration, that can impact merger integration success across a broad array of deals.
1. Think about perspective
During a merger, the interests of both companies are combined into a single, stronger unit. From a legal and practical perspective, however, one party is almost always deemed the acquirer and the other the acquiree.
It’s important to consider those perspectives in your analysis. At the end of the day, the distinction between acquirer and acquiree is less important than how the new combined company will move forward. But the acquirer generally takes the lead on the integration. If they don’t clearly communicate the go-forward strategy, employees at the acquiree will get nervous, and some of the best ones may decide to leave.
To prevent that from happening, make sure everyone understands how the new company strategy will benefit all, using all the necessary talent.
2. Bring in an experienced, neutral leader
Before integration work can begin, four questions must be answered.
- Which areas of the joint company should be integrated?
- Which areas of the joint company should remain as standalone entities?
- Which areas of the joint company should be spun off or sold?
- Who should lead the effort to help answer these questions and successfully join the two companies?
The answer to the last question is an important one. Many choose an internal executive to lead the M&A effort and appoint this person prior to the announcement. In my experience, however, it’s more effective to select a knowledgeable, neutral interim executive or an M&A leader from outside of either company.
Why? Because doing so gives the company access to someone with deep M&A integration experience and an unbiased approach to the strategy, process integration, organization design, change management, and IT support structure of the joint company—not to mention a neutral view of what might otherwise devolve into a highly politicized process.
3. Keep culture on your side
Introduce the prospect of a business acquisition into the company rumor mill, and anxiety soon sets in. The pace of work might slow, good people might leave, and gossip will distract everyone from their most critical tasks.
People are different, and so are company cultures. This can be a large hurdle to overcome without access to a change management expert who understands the differences and can provide insight into approaches that would benefit the whole. Getting the people side right—especially right from the start—enables you to create influencers whose contributions can ripple through the integration process. That’s especially true when someone who was once opposed to the change becomes a supporter, and helps drive synergies across the company.
4. Do it right, from the start
It’s always a challenge to streamline business processes, organization designs, and IT infrastructure. But taking the time to do things properly at the start helps ensure that subsequent steps build positive momentum for the joint company and the people who make it a success.
I call this the super glue method: do it once with forethought and with a focus on the goal. Unfortunately, many companies find themselves applying a series of temporary fixes as they determine the go-forward strategy and what areas need to be integrated. The analogy here would be sticky notes—always changing tasks and directions as new data emerges.
But with an experienced M&A leader and a team from both companies in the driver’s seat, you can move faster towards the goal of real, lasting culture and process change.
Increase your odds of merger integration success
Thanks to shifts in the global economy, there’s a greater impetus than ever to put corporate cash reserves to work through acquisitions.
Want to increase your odds of success, lower the cost of integration, and improve business performance ahead of schedule? Forget about who is the acquirer and who is the acquiree and focus on finding the right approach and the right leaders to focus and align the combined company for the future—it is ONE team now!!
Need an on-demand M&A consultant or team? We can help!
Ed Trevisani is a global business transformation executive with deep experience in the pharma, chemicals, manufacturing, and IT services sectors. He's helped BTG clients streamline digital media sales processes and implement enterprise-wide HRMS and FMS solutions.