How to make Post merger integration successful?

According to a 2021 McKinsey report about the Mergers & Acquisition Practice’s, the global M&A market continued its spectacular climb in last year’s second half, outwitting observers who thought it nearly impossible to defy gravity for so long. The value of large deals increased 67 percent for the year, peaking at $5.9 trillion, as corporations, private equity (PE) firms, and special-purpose acquisition companies (SPACs) toasted nearly 11,000 large deals—up 37 percent from 2020.

Still according to estimations by HBR and other significant publications the success rate of M&As is less than 50%. The measurement of course being the expectations communicated when closing the deal.

We have seen that integration approaches of buying companies often focus the parts of organizational integration, merging IT systems, alignment to structures etc. However, issues beyond these areas, namely the integration of people is often neglected. Of course, there are meetings on management level where both parties spend time to get to know each other. Their strategies, plans and ambitions are presented and overlaps as well as areas where the companies complement each other are discussed. So far so good.

COD has been involved in supporting post-merger integration processes (PMI) in more proactive and holistic ways. The companies where we are engaged see the necessity to deeply involve people in their own areas of responsibility. They want everyone to contribute to a successful integration. The acceptance of new common direction, focus and structure will become much higher when people from both sides are invited to build a common understanding on how to move forward together, to make joint decisions, and to organize a follow-up structure for the execution of the plans.

Of course, common ways of working make this much easier. Therefore, the training of methods to be used in the interaction is crucial.

But let us go through this step by step.

It is obvious that certain messages create confusion in the early stages. Too often management is tempted to communicate to the organization not to worry and to continue with business as usual. Understandably their hope is that this will give them time to prepare their plans and necessary steps. The idea is that communication only makes sense when you have a final solution and answers to questions. However, the message is instead interpreted on the receiving end as the opposite. People in both companies start to worry.

There is a window of opportunity for this process. In the beginning the news of two companies merging is mostly received with curiosity, interest and very often optimism. This perception will last for about 3-4 months. If not addressed during this phase people’s views turn into something less positive, and finally becomes reason for frustration and rumors.

This is when people start looking for new jobs in other companies.

Unclarity is of course part of the process. So why not use the situation to involve people into generating a common view of the situation and challenges ahead. When COD is getting involved, we do this with an organized approach of individual interviews. The questions are coordinated with the process owners and are meant to address key people and representatives of both companies. People involved need to be selected with a purpose to get perspectives from different levels, functions, and geographical parts of the organization. To gather the views, the questions need to be open. The interviews which are done online need to be kept neutral, and answers treated as anonymous. Finally, the input from all interviewees is summarized in a brief report which gives the overall shared view of the situation, opportunities, and challenges with the PMI ahead. This report offers a great possibility when used as starting point for all the common work that needs to be initiated on all levels. It is the basis to make the joint future a success.

Since interviews will involve only a few representatives of both organizations the next step is a survey which addresses the same areas as the interview questions, but now formulated as statements. All co-workers are digitally invited to give their view on the topics using a scale of for example 1 being low and 5 being high. This is called a zero-point measurement and the results obviously needs to be shared with all co-workers. By the way, when repeated after 6 or 12 months the progress of the integration work is visualized and when combined with the development of KPIs one can truly identify best practice and areas where there is a need for support.

However, before that, the very next step after the interviews is a workshop with the expanded top management teams of both parties. In this meeting the initial step is to jointly understand the starting point. After reading the report both parties get to present what they bring into the future collaboration. Based up the analysis and conclusions, a common direction and roadmap for integration process is developed and decided.

The direction is formulated as a story in prose, starting with the background, followed by a description of the desired state and the actual status of today. The story is the main document to guide all other teams’ integration work since it gives guidance to each team to identify their own gaps.

The roadmap displays the main focus areas for the management team. Consequently, it needs to be redone in all teams since they will have other gaps to close. The roadmap of each team is used to guide their decisions and action plans. The work packages and workstreams are all part of the joint decisions made by each team.

It is a management task to coordinate the different teams’ development and integration work. To their support we provide a digital platform based upon MS Teams. Here all teams transparently document their roadmaps, focus areas, meeting structure and frequency. Here they keep action plans updated and make their progress visible.

By involving all teams from both companies in the integration work, the acceptance and proactive contribution grows immensely. When people are involved in their part of the integration process, they are most likely building relationship with their new colleagues and the often very high expectations from both sides are managed realistically and professionally.

The risk that people who do not understand and are not involved start to think about other companies and jobs is of course reduced significantly by this approach.

The alternatives you have at your hands is to fix the integration for your people or with your people.

What do you choose?

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