by Galina Wolinetz
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Despite the complexity of Post-Merger Integration (PMI), the process often does not receive the attention it deserves. This neglect unfortunately can contribute to the commonly referenced statistics of deals failing to generate their predicted value.
In order to avoid such disappointing outcomes, Virtas Partners has cultivated a set of best practices for PMI. Specifically, we break the process down into three phases and center practitioners around three priorities; if you get these three right, you can consider the integration a success.
Three Phases of PMI:
Phase 1: Development of the integration thesis
Phase 1 is equivalent to building a house: here you are laying a robust foundation. The development of the integration thesis goes back to the overarching deal strategic rationale and company M&A strategy. During this phase, you develop an integration philosophy (i.e., the level of integration you want to pursue for this acquisition), stand up the integration team and governance, as well as the program management tools and develop functional playbooks. Initially, you develop a relatively standard set of functional workplans that could apply to all upcoming acquisitions. But these need to have the flexibility and be structured with the ability to customize so that they can be tailored to each specific deal and target.
Phase 2: Integration Planning
Best practices call for a member of the integration team (someone well-versed in integration) to be a part of the due diligence team. This due diligence/integration role should be its own function and keep everyone on the diligence team focused on looking forward to integration as new information is uncovered. During diligence you may discover the target is incompatible with you as the acquirer from a cultural perspective, and you might be better off moving to another target. Therefore, the due diligence/integration role must have the acknowledged voice to pull the plug on a deal.
Phase 3: Execution
During the execution phase, you utilize the structure established in Phase 1 so that you can move quickly.
Finally, if you are engaging in a roll up strategy, or if you are a serial acquirer, you definitely want to strive for repeatability within your process and utilize lessons learned after each deal.
Three Keys to PMI:
If each function focuses on the following three areas, integration will go well. These three keys force teams to go granular, which is part of their power.
- Creating Value: Value creation begins with articulating what you are hoping to achieve and the synergies you are hoping to capture (e.g., cost reduction, growth, or consolidation).
- Flawless Day 1: Day 1, the day after the transaction closes, sets the tone for everything that follows; therefore, making it a positive day is vital. Remember: suddenly you have employees, customers, and suppliers who are reeling from this major change; they have had something done to them that is disruptive. In order to reach a flawless, positive Day 1, you must craft a communication plan for all key stakeholders, and it is critical that you devote a great deal of time to getting this communication plan just right. Leveraging target loyalty to influential employees and/or leaders can be helpful here. For instance, conducting focus groups with influential employees and keeping the former owner fully onboard can be important steps to achieve this strong, effective communication plan, assuring overall acceptance and adoption of the ways of the new organization.
- Future State: Outlining the future state is key and again ties back to the deal rationale; you want to define the organizational structure, define the culture, and define future state activities.
How Technology Can Support the Three Keys of PMI:
End-to-end M&A Software supports the three keys to post-merger integration success in a number of ways. Utilizing a process management tool has helped specifically with:
- Defining key functional areas and key milestones, as well as the tasks that support these milestones
- Defining what Day 1 looks like for each functional area
- Defining the future state of each functional area
Because the above are all collaborative efforts, another M&A Software benefit is the ability to improve transparency and communication between stakeholders and functional areas. Our clients at Virtas like the clarity it provides throughout the deal process that the software provides, namely via their “program issues” report, which focuses not only on identifying problems, but also more importantly on solving them. Also, the “project dashboard,” which provides the pulse of the deal and allows for easy identification of delays and roadblocks, allowing you to “manage by exception” and best utilize your time.
Furthermore, if you are engaging in a roll-up strategy, the easy repeatability of the process when performed with a process management tool provides another critical advantage.
Capitalizing on the three keys to PMI is central to integration success and capturing deal synergies. These three keys can be further supported by tapping into experienced integration experts and powerful M&A software.