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Home > Mergers and Acquisitions Best Practice > Merger Integration and Transition Management: A New Slant for Finance Executives

Mergers and Acquisitions Best Practice

Merger Integration and Transition Management: A New Slant for Finance Executives

by Price Pritchett

Executive Summary

  • Negotiating a good deal is a dangerous act if management isn’t solidly prepared to make the deal work.

  • Mergers are a fast-growth strategy—and they require fast management.

  • The pre-close period is the staging platform for effective integration.

  • A merger is always based on a financial proposition, but success invariably rests on the human proposition.

Introduction

Merger success—defined as value creation—depends heavily on how well conceived the deal was to begin with. But a good outcome is even more dependent on having a well-designed and carefully implemented integration strategy. To put it simply, no deal is a good deal if management can’t make it work. Studies over the past several decades prove, however, that far too often companies lack the ability to design and execute a viable integration plan. Over half of all mergers end up as disappointments or outright failures that destroy shareholder value.

Many things contribute to the high casualty rate, but the myriad risk factors can be greatly reduced and in some cases eliminated. The odds of success dramatically improve when management adheres to some fundamental rules for effective integration.

Nevertheless, merger and acquisition (M&A) remains a high stakes game that is undertaken in pursuit of uncommon growth. As such, it calls for uncommon management.

Transition Management Should Begin Early

The merger transition period starts long before the deal gets final approval and actually closes. Weeks and months can pass as negotiations, due diligence, and the regulatory approval process proceed. Problems, however, don’t wait around on management to close the deal. As soon as people pick up the scent that their company is in play, they begin to think and act differently. Their attitudinal shifts and behavior changes create leadership challenges that are unique to mergers. This explains why status quo management stops working.

The troublesome organizational dynamics that kick into gear need immediate attention, so transition management and integration planning should begin at least as soon as the deal becomes public knowledge. The pre-close period is a crucial phase. It’s the mobilization zone for merger success where you set the stage for an informed, well-executed integration.

Particularly during the pre-close period, there are far more questions than answers, so the major workforce issue that needs to be addressed is uncertainty. People in leadership roles will need the merger management skills necessary to:

  • navigate uncertainty and prepare for change;

  • deal with people’s negativity and resistance;

  • keep employees engaged and retain talent;

  • protect productivity and client relations.

A lot of damage can occur even before the deal papers are signed if managers at all levels don’t respond appropriately to the new organizational dynamics.

Governance of the Integration Process

The transition management infrastructure should be set up, staffed, and functioning prior to the closing date. One person—a credible, experienced senior manager—should be appointed as integration manager with responsibility for overseeing integration planning and implementation. This position provides a single point of accountability for integration success. Given the unique demands of the job, the integration manager needs to possess a high energy level, strong sense of urgency, tolerance for ambiguity, and strong project management skills. The role also calls for in-depth knowledge of the business, good communication skills, plus the ability to create structure and process.

Typically a project management office is established to support the integration manager in running the integration effort. This will consist of a small group of people who meet daily, or at least weekly, to facilitate work streams, set priorities, coordinate schedules, etc., to ensure that the project runs in a disciplined manner.

An executive oversight body ordinarily serves as a steering committee. Members of this group (some drawn from the acquired company) might include the CEO, president, legal counsel, CFO, a senior level human resources executive, a senior communications officer, plus the integration manager. The steering committee designs the high-level merger integration strategy, sets timelines, and decides on synergy targets. Additionally, this group removes roadblocks, resolves sensitive merger issues, and serves as the final sign-off authority on expenditures and key staffing decisions.

A number of merger integration teams should be formed to conduct the analysis and integration planning for combining the various functional areas. Also, additional teams usually are needed to address cross-functional issues or company-wide matters such as communications, culture integration, etc.

In small mergers with limited staff, integration planning and execution is ordinarily handled by the managers who are accountable for the various functional areas. But even in small deals the integration should be conducted with strict project management discipline and a single person in charge as integration manager.

Of course, legal restrictions or the realities of competition can limit merging companies’ ability to plan and organize prior to finalizing the deal. But preparation pays huge dividends, so management should make maximum use of the pre-close period.

Day 1—that point on the calendar when the merger goes live—is a day of reckoning. The acquirer’s “opening moves” reveal the quality of pre-close planning and make a defining statement about management’s ability to execute. Day 1 activities also are scrutinized for what they might imply about the future, so what’s said and done should be carefully orchestrated to manage people’s expectations appropriately.

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Further reading

Books:

  • Pritchett, Price. The Employee Guide to Mergers and Acquisitions. Dallas, TX: Pritchett, 1986.
  • Pritchett, Price. Making Mergers Work: A Guide to Managing Mergers and Acquisitions. New York: McGraw-Hill, 1987.
  • Pritchett, Price. The Employee Handbook for Shaping Corporate Culture: The Mission Critical Approach to Culture Integration and Culture Change. Dallas, TX: Pritchett, 2002.
  • Pritchett, Price. The Unfolding: A Handbook for Living Strong, Being Effective, and Knowing Happiness During Uncertain Times. Dallas, TX: Pritchett, 2006.
  • Pritchett, Price. Hacking Uncertainty: A Counterintuitive Code for Resilience During Disruption and Change. Dallas, TX: PRITCHETT, LP, 2011
  • Pritchett, Price. After the Merger: Managing the Shockwaves. 3rd ed. Dallas, TX: Pritchett, 2014.

Journals

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