The situation is well known. The share purchase agreement has been signed and all closing conditions have been fulfilled. You have finally closed the deal your company and your team of advisors and lawyers have been working on for the last couple of months and now they have left. But how to prevent the merger or the acquisition from failing? How to prevent billions of dollars in shareholder value being destroyed as in the most prominent post-merger failure of Daimler-Benz and the Chrysler Corporation in 1998, where Germany’s Daimler-Benz lost EUR 40bn for their “US Adventure”? What happens to multinational corporations is of course also applicable and a real threat for small and medium-sized enterprises. Not every anticipated synergy will be achieved and even the self-proclaimed perfect merger of equals can fail. Only less than 50% of all M&A deals achieve their strategic objectives (Ashkenas & Francis, 2000).
Interestingly 53% of all M&A deals fail in their integration phase and not during negotiations or due diligence (Habeck, Kröger & Träm, 2000). During the integration phase, we will find obstacles such as the lack of obtaining buy-in from employees, obstructive middle management, cultural differences, lack of sufficient commitment from the top management as well as losing top-performers and knowledge.
What is crucial after the deal is to keep the speed and level of commitment as in the pre-closing phase. The whole integration itself can last up to two years depending on the complexity of the transaction. But without any doubt the first 100 days are important to avoid mistakes and to get quick wins with signaling effects for all stakeholders involved. The integration management has to start as soon as possible. The following points are areas of consideration for the rather complex integration process.
Identifying and retaining of key-performers
It should be a given fact that uncertainties and new circumstances during and after an M&A deal will make employees and management members rethink their positions and job security. Good people might leave for a new and better offer just to avoid being asked to leave or avoid more uncertainties. To stay away from those worries, it is essential to look at the role and performance of employees from a neutral point of view as soon as possible. Essential here is to look at the importance of the employee for the new company moving forward (Bekier & Shelton, 2002). Once identified, key performers have to be informed in due time about their perspectives and responsibilities in the future. The selection process should be based on choosing people from both companies that share the same aspirations as well as performance, competencies and qualifications. As a result of this assessment, top management members will have to be from both companies and are able to take fundamental decisions at any point in time.
Communication of a strategic vision
Essential for the merger success is the communication of the management’s plans with measurable and realistic key performance indicators. This plan has to be communicated to the whole workforce (Stieler, 2003). Communication, as one of the key success factors, has to be open and honest. This is to avoid rumours and uncertainties. Knowing that office grapevine is faster then the intranet information has to be communicated on a constant basis (Stieler, 2003).
Using the right schedule can ultimately lead to 90% higher synergy effects. Taking this into consideration difficult decisions have to be made immediately. Concepts for organisational issues, human resource, locations or production have to be tackled and implemented in due time (Stieler, 2003). Those decisions also include the establishment of integrated and holistic structures and processes. This also encompasses a common company and performance culture.
Avoidance of cultural convergence and strengthen the sense of unity
It is a common mistake that the management assumes that the culture will be adapted over the years automatically and two cultures can last in one company for years. Saying that it is important to create and strengthen the sense of unity in both companies. This unity is the basis for the success of all other measurements, as all actions taken have to be supported by all employees. This sense of unity will require trust and collaboration and the acceptance of other cultures prior a joint one. This common culture encompasses alignment of values and objectives. The aforementioned Daimler-Chrysler deal faced the clash of the American business culture (people-oriented, fast decisions by the empowered middle management, high set of objectives) and the German one (result driven, hierarchy structure, long decision processes based on detailed planning, a prudent set of objectives). Taking this into consideration it is vital to analyze the cultures of both companies and utilize those parts that lead to higher success or fulfilment of deal objectives for the newly formed company. It is then the management’s responsibility to act as a role model and to direct the cultural transformation process.
The brief snapshot above shows that the efforts after the deal are just as important as the efforts before the signing or closing and need proper planning. A good “integration office”, which could consist of representatives from top and middle management of both companies as well as advisors, will make the deal successful and ensure a smooth integration process. The integration phase gives the unique opportunity to realign the company and to question existing long-standing processes.
- Ashkenas, R. N., & Francis, S. C. (2000). Integration managers: special leaders for special times. Harvard business review, 78(6), 108.
- Bekier, M. M., & Shelton, M. J. (2002). Keeping your sales force after the merger: Merging companies should look to their revenues, not just their costs. The McKinsey Quarterly, 106-116.
- Habeck, M., Kröger, F, Träm, M.. After the merger. FT Press, 2000.
- Stieler, F. (2003): Die acht Erfolgsfaktoren eines Mergers (Eight success factors of a merger). In: Zeitschrift für Organisation (Magazine for Organisation), No. 5, page 280 – 284. In German.
Jan Weidlich is a manager at BDO Consultants Pte Ltd. He has advised companies on the buy and sell-side in Asia and Europe.