5 Common Mistakes in Early M&A Integration: Getting Setup for Success at the Start
Mergers and acquisitions (M&A) can be a great way to grow your business, but if the integration process is not handled correctly, it can lead to disaster. The key to successful M&A is effective integration, which requires careful planning and execution. Unfortunately, many companies fail to adequately plan for integration, resulting in culture clashes, duplication of effort, and loss of key personnel.
The integration process is often more difficult and costly than anticipated and can even damage the very thing you were trying to achieve through the M&A in the first place. To avoid these pitfalls, it's essential to acknowledge the challenge and proceed with the long-term goals in mind while keeping an eye out for common mistakes that undermine value.
This article will discuss five common mistakes made during M&A integrations and how to avoid them. By knowing what to watch out for, you can increase your chances for a successful integration!
What is M&A integration?
Mergers and acquisitions (M&A) are a common occurrence in the business world. When two companies decide to merge, or one company acquires another, there is often a transitional period as the two organizations adjust to their new relationship and settle into their identity and operation as a combined company. This process is known as M&A integration, and it can be a complex and challenging undertaking. Many factors need to be considered, including organizational structure, culture, systems and processes, and employee morale. Effective M&A integration requires careful planning and execution to ensure a smooth transition for all parties involved.
What are common mistakes in M&A integration?
One of the most challenging aspects of any merger or acquisition is integrating the two companies and building the new normal of the combined organization. Although there are many potential benefits to combining forces, ensuring that everyone is on the same page can be difficult. Unfortunately, this often leads to integration mishaps that can cost the company dearly in the long run. Here are five of the most common mistakes that occur at the outset of an M&A integration:
1. Positioning the M&A Activity
Who is buying who?
When two companies merge or one company acquires another, it is crucial to know who is buying whom in the deal, and how the deal will be positioned to employees, customers and the market. Positioning is vital in a merger or acquisition. If this question goes unanswered, employees will fill in the blanks with their perception or what they would like to see happen.
The acquiring organization usually has the upper hand in an M&A deal, as have the money and the resources. However, the target company may have a strong brand, which can be a valuable asset. It is crucial to consider both of these factors when determining who is buying who in an M&A deal. The acquirer needs to ensure that they are gaining a valuable asset, while the target company needs to ensure that the deal does not damage their brand. Clear positioning is essential for both parties to ensure a successful M&A outcome.
Employees of both companies will be watching closely to see how the deal unfolds and who comes out on top. Therefore, it is crucial for the companies involved to have a clear strategy for positioning the deal. Otherwise, they risk losing the support of their employees, customers and the market.
Be bold. Decide, commit and communicate the basics of the deal. Who is buying who? A good statement covering this key point could read: "Smarsh is acquiring Digital Reasoning." These statements should be consistent and communicated transparently to employees, customers and the market. Statements of who is/has bought who is often how a press release will start, so be sure to get it right and stick to the decided positioning of the deal.
2. Positioning Key Leadership
Who will lead the combined company?
After two companies merge, it is essential to know who will be in charge of the newly combined company. The CEO of the acquiring company will often become the CEO of the new company, but there may also be a new Board of Directors that is a mix of members from both pre-merger companies. It is also important to know who the major shareholders will be. For example, if the acquirer company has a lot of debt, the creditors may control the new company. Alternatively, if the acquirer was a private equity firm, then the new company may be controlled by the private equity firm's partners. In either case, it is essential to know who is in charge after an M&A deal to avoid any power struggles or conflicts.
The CEO of the target company will likely hold a position in the new company, but it is not always guaranteed. In some cases, the CEO of the target company may be replaced by someone from the acquirer company, or the target company will be fully integrated into the acquiring company's existing hierarchy. It is important to have a clear plan for who will lead the combined company so that there is no confusion or conflict.
Bonus: Both management teams need to be on the same page from the start. Clear and concise communication is required throughout the integration process. In addition, it is crucial to carefully consider which employees are most critical to retain to ensure a successful integration outcome. Retaining key employees from the acquired company can help ensure a smooth transition. Making sweeping changes too fast can seriously inhibit the long-term growth and sustainability of the business.
3. Confirm the Initial Desired Operating Model
How will the combined company operate initially?
After any major M&A deal, it is crucial to take a step back and assess the new company's operating model. What worked for the two separate entities may no longer be efficient or effective now that they are one.
Defining the initial operating model is critical to the success of the M&A deal because it sets the foundation for how the combined company will function going forward. Without a well-defined operating model, the M&A deal is likely to fail.
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The newly combined company will likely be different in size, structure, culture, and geography. As a result, the old way of doing things may no longer be relevant. It is important to carefully review all aspects of the business and make adjustments where necessary. This may include everything from how products are developed and delivered to the way customers are supported.
Creating the initial desired operating model includes decisions such as which business functions will be centralized or decentralized, how the company will be structured, and who will have decision-making authority. The new company will have to find ways to streamline operations and eliminate duplication of effort. In addition, the new company will need to establish clear lines of responsibility and communication. The goal is to create an operating model that is simple, efficient, and effective. Only by taking a step back and assessing the new company's operations can the management team hope to achieve this goal.
Defining and communicating the desired operating model will help to ensure that the newly merged company can hit the ground running and start generating value as quickly as possible. Of course, this is easier said than done, but it is essential to get it right if the M&A deal is to be a success. By assessing, defining, and communicating the new company's operating model, you can ensure that it is best positioned for success in the future. Remember, nothing is forever. The initial operating model will help get you started, but it's not forever--it will change as the business matures, integrates fully and evolves.
Bonus: Change management tip - when changing the operating model and individuals' roles, communicate any changes to impacted people before public announcements. Affected people should receive communication of the change from their direct manager personally. Face-to-face communication is best when sharing this type of change. DO NOT release wide communication about the new organization structure, roles or responsibilities until everyone directly impacted has had a chance to receive the information and process it personally. Instead, delay notifications to others until each affected person has been able to receive and process the information.
4. Acknowledge Cultural Differences
How can we acknowledge and honor each company's culture and pave tue way forward as a combined organization?
After an M&A deal, it is important for companies to work together to determine how to best coexist as a combined company. Each company has its own way of doing things, and it can be challenging to mesh the two cultures together. However, it is essential to try to find common ground. If the two companies can learn to understand and respect each other's historical differences, they will be able to work together more effectively. In some cases, it may even be possible to use the different cultures to create a competitive advantage. For example, if one company is known for its innovative products and the other for its customer service, the combined company could become known for both. By acknowledging and celebrating their cultural differences, companies can create a more seamless transition after an M&A deal.
Acknowledge and respect the organizational cultures and norms that have brought you to the current state. Failure to do so can lead to tension and conflict, damaging morale and productivity. By understanding and appreciating the various cultures within the company, managers can help create a more harmonious environment where employees feel valued and respected. This, in turn, can help to improve communication and collaboration, both of which are essential for a successful merger.
For example, one company may be more formal and hierarchal, while the other may be more relaxed and flat in structure. Acknowledge these differences early on and work to create a plan that takes them into account. Otherwise, there could be conflict down the line as employees from each company try to operate within the framework of the other company's culture. By acknowledging and respecting the different cultures from the start, you can lay the groundwork for a successful merger.
One way to highlight the strengths of each organization is to showcase them! At Smarsh, we often host short 1-hour sharing sessions for employees to learn about products, achievements, processes or competencies of different parts of our combined organization. Think of a brown bag learning series, but make it virtual! Through this model, organizations that join Smarsh can showcase what makes them unique, innovative and market competitive--this is also a great way to get to know new colleagues and product features!
5. Assuming the Product Strategy and Roadmap
What is the market need, and how can we best position our combined portfolio to meet those needs?
A company's product strategy should not be assumed at the outset but should instead be based on a market analysis. Aligning your product strategy to market needs is especially important after an M&A deal, when different product portfolios may need to be integrated. Conducting a market analysis will help identify which products are most successful and how best to position them in the market. It will also help assess whether any new products need to be developed to fill any gaps in the market. By taking the time to conduct a market analysis, companies can ensure that they have the right product strategy in place to maximize the success of their M&A deal. In short, while it may be tempting to move quickly after an M&A deal, taking the time to conduct a market analysis can pay off in the long run.
Once you have conducted market analyses and have created a combined product roadmap, proceed with clarity, document the new roadmap and communicate often--be ready to repeat yourself many times to different audiences. First, communicate any change in the roadmap to the organization's top leaders and ask for their help and commitment in helping the rest of the organization navigate the downstream impacts of the change. In some cases, a shift in product roadmap could mean an engineering focus change or work stoppage on specific features or products that are no longer on the roadmap. Communicating with the organization's leaders will help mitigate negative personnel impacts as a result of a product roadmap change.
Next, cascade product roadmap information to the next layer of leaders in your company. Once all impacted people have been notified of the change, and what it means for them, you can communicate more widely internally and then with the market. As you communicate, be sure to include clear documentation of the roadmap and an FAQ for existing customers who are using products that are not on the future roadmap of the combined organization. Finally, remember that product roadmap changes take time. Customers using existing products won't migrate to different solutions overnight. Behaviors change slowly, and change is difficult. Be patient, practice empathy and be consistent.
Wrap-up
M&A Integration is a complex process that requires much effort and consideration. M&A deals can be successful, but only if key elements of the M&A process are considered from the outset - such as who will lead in what role; which culture should prevail, etc. 5 Mistakes of M&A Integration outlines how to avoid five of the most common mistakes made during M&A integration. By avoiding these pitfalls, companies can increase their chances of a successful M&A integration.
To recap, five mistakes of M&A Integration are:
By avoiding these five pitfalls, companies can increase their chances of a successful M&A integration.
Have you experienced an M&A-related integration? How did it go? Share what went well and what you think could have been improved in the comments--I'd love to learn from you!
Bonus: As I wrote this short article, I found an excellent resource for all things M&A integration, including some great templates from my friends at SmartSheet.
M&A Integration | Services Product Management | Customer Success | Partnerships
1yKeila DuBois Check this out
Senior Customer Success Manager, Broker-Dealers
2yWow this was a really awesome read!
Data & Analytics Executive | Doctor of Education | General Manager | Product/Strategy/Growth
2yThis is a great write up Liz!