Post-Merger Integration – Setting the Stage for Success or Failure

By Mark Borkowski and Hugh Latif

Most text books tell us that mergers and acquisitions (M&A) are made to improve business performance and accelerate a company’s growth. But despite the goal of performance improvement, results from M&A are often disappointing compared with the expected results. Numerous studies show high failure rates, or at least, failure to achieve the efficiencies and synergies that usually motivated the acquisition in the first place.

PMI or post-merger integration is the process of combining or re-arranging the business that has been acquired. Whether the acquiring company wants to absorb the newly acquired company, or manage it as a stand-alone can influence the overall outcome of the acquisition. The process of absorbing the newly-acquired company is generally more complex than a stand-alone acquisition.

After 30 years consulting with companies on strategies that lead to success, I offer a few suggestions of what make acquisitions work better, and how can the PMI process be more effective.

Due Diligence

The first important step towards making a successful acquisition starts before actually the acquisition takes place; that is, when the due diligence process is initiated. Senior managers need to be involved in the due diligence process rather than rely on accountants and lawyers. This helps the acquiring company gain a better understanding of the business and what makes it work. It also allows the two management teams to talk together and build an understanding of each company’s strengths, weaknesses and opportunities.

The objective here is not to “impress” the other, but to understand each other capabilities so that at the end of the day, the sum of both is greater. Managers should approach this process with a true desire to understand how the two organizations and the newly formed resources will be stronger together.

Senior managers are wise to visit the front lines right away, talk with employees, and start to connect and build relationships. Front line staff are the best source for real information and practical suggestions for what need to be done to serve customers better and improve business performance. Reviewing numbers, statistics and documents is important, but visiting stores, offices, plants, and talking with the employees and managers who are doing the actual work gives you the real picture.

Remember that the numbers will always reflect how you manage the business. The business—according to my definition—is your customers and your employees!

Peter Drucker’s phrase “culture eats strategy for breakfast” was posted as a sign by Mark Fields, CEO of FORD in their main boardroom. It means that regardless of its products, no company flourishes if the employees don’t embrace a communal set of values and behaviours. Employee morale and engagement are key to company success. Don’t misunderstand, numbers are important, but culture, values, leadership and team spirit are the real keys to success.

Creating a Common Team

All too often, the acquiring company puts its senior team on top of the team of the acquired company. This usually results in an exodus of competent dedicated people. The turnover in target companies is usually double the turnover experienced in non-merged firms for the ten years following the merger. This level of employee turnover contributes to M&A failures.

A better approach is to create one team with common goals willing to work together to achieve a new higher level of success. The acquisition should have significantly increased the resources and the capabilities; the additional “firing power” should be put to good use to better serve the increased customers and fend off competitors’ attacks.

In my new book, Maverick Leadership, I show the difference between the successful entry of Walmart to the Canadian market and the debacle entry of Target. While there may be many reasons for the different outcome, when Walmart entered the Canadian market by acquiring 122 stores of Woolco, it kept the name of the latter for some time, renovated the stores, retained the 16,000 employees and gave them a raise to welcome them to the Walmart family. In addition, a senior vice president of Woolco became the CEO of Walmart Canada. Compare this PMI strategy to Target, which ended up by closing 130 stores in less than three years and absorbed losses of several billion dollars.

PMI Plan

Finally, what PMI plan will you execute—the one prepared by consultants, lawyers and accountants, or the one prepared by your new team? It’s always better to use the plan that’s been prepared by your new team. Your new team members are the ones who have researched it, put it together, and believe in it. Their commitment and engagement will be much higher than executing on somebody else plan. By all means, use the lawyers, accountants and consultants input as well as their experience and know-how, but the final plan must have the fingerprint of the new team.

Four straight forward and practical suggestions to make PMI plans work better—and four strategies that make the difference between good news and disappointing news once the M&A is complete.

Hugh Latif, of Hugh Latif & Associates in Vaughan, Ontario is a management consultant who helps mid-size, private companies with strategy, succession planning and HR. He is author of a new book, Maverick Leadership.

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corp. Mercantile sell mid-market businesses in the mid market.