6 Tips for a Seamless Merger Integration

The celebratory closing dinner is the culmination of many individuals' dedication and commitment to a transaction. While it may feel climactic, this is typically the kickoff event to the real work of driving benefits through completion of integration activities. It signifies the beginning of a thoroughly planned integration—a process focused on delivering the economic and strategic value anticipated in a deal. A successful transaction is comprised of small victories in its component parts, each building upon the others and certainly worth celebrating along the way.

Companies that deliver successful inorganic activity have cohesive models for sourcing, transaction execution, and integration. Managing merger risks begins well before the closing table, and it is a theme carried through synergy realization in successful deals. Experienced teams measure important initial activities, therefore ensuring their completion while also maintaining vigor beyond the closing date.

Here are six tips for a seamless integration:

1. Develop Step-By-Step Action Plans – Detailed action plans foster a common understanding and can be used to obtain buy-in from all participants, ensuring that they understand their roles in the process. Milestones and objectives then help to manage some of the emotion often associated with transactions. Many organizations utilize integration templates or "cookbooks" that include key steps. One of the first tasks of the integration manager is to update the cookbook with the specifics of the transaction, including timing, personnel, key tasks, and metrics.
2. Communicate Honestly and Effectively – Timely communication allows the involved organizations to continue functioning through the pre-close and post-close transition periods. A carefully crafted internal and external communication plan is an essential component of a successful transaction. The plan must introduce and support any new leadership or transitional leadership in their integration tasks. External communication to the market and customers should address concerns consistently and sincerely. Opening the customer list to a potential acquirer is a touchy concept, but communication and even contingency plans need to be part of diligence and integration planning efforts in the event that a merger creates trade relationship concerns or possible customer loss.
3. Clearly Define Success – Operations and finance are responsible for managing quantitative success during an acquisition. Key performance indicators (KPIs) should proactively drive organizational behavior. However, the operations department often relegates KPI definition and planning to an accounting activity rather than applying a true multi-disciplinary process that defines, validates, and agrees to their use as measurement tools.
4. Align Incentives Properly – Measure what is important and reward what is measured to ensure timely completion of critical tasks. Execution on value-adding deliverables should be rewarded. However, imagine that an integration team leader is rewarded for task completion while their CEO has no skin in the integration game. It is less likely that the CEO will spend time supporting the integration leader in their communication or other tasks. The trick is ensuring that rewards are aligned appropriately with business needs across the board.
5. Completely Integrate the Target – While it is true that the work does not begin at the closing table, it cannot stop there or even 100 days later. Revenue goals and cost synergies are intuitive metrics to focus on post-close, but transactions require a great deal of attention to work through and integrate seemingly less important components. A successfully completed transaction consists of many small accomplishments upon which to build rapport with existing managers. Legacy accounting and operational systems need to be integrated and legal entities must be rationalized. Old processes must be updated and staff trained, otherwise the organization will continue to operate in a divided fashion. These activities should be completed to ensure that the organization does not suffocate from a deal's uncompleted tasks.
6. Recognize Team Workload – Understand that the existing team's day job presumably created the value that allowed the acquirer to purchase the target and make it attractive. Pacing integration is crucial, so as not to burn out those who are integral to the long-term success of the combined entity.
   In addition, one strong and diplomatic leader with a sincere endorsement from senior leadership should be given time to ensure integration success. Managing the adoption of core business practices and operations is this individual's primary task. However, this does not mean that an organization needs to make the acquired company conform to all of its operational norms. Value-adding pieces of the target's past, such as appropriate work practices and corporate culture components, are integral to the success of a deal and help individuals cope with the transition associated with a transaction.

While the senior ranks are likely fleshed out as a component of integration planning and transaction execution, certain middle management layers can be addressed after closing. This inherent uncertainty in any merger or acquisition may cause middle managers to seek certainty in positions outside the company. Depending on the position, this loss of institutional knowledge can take up significant management time and derail other integration projects. If the position was a planned and communicated synergy, assume the individual is probably focused on identifying their next career move and may be unhelpful to the integration process. Minimize the impact of planned and surprise departures through recognition, both for those leaving and those staying.

With each transaction, companies become more familiar with the merger and integration process. Successful serial acquirers take time throughout each phase to debrief on lessons learned about the process itself. They capture ideas for improvement and action items to accomplish them, creating efficiencies in future transactions. The process will evolve and adapt following each acquisition, but the aforementioned principles should be incorporated in every transaction.

This list is not all-inclusive and deals can fall apart for a variety of reasons. However, rigorous due diligence and thoughtful execution will identify and limit risk. Once across the finish line, maximize the probability of success through timely execution of a planned and measured integration.

Scott Bryant is the director at MorganFranklin Corp., a business and technology consulting firm that focuses on financial management, performance improvement, and national security systems for government and industry clients.