Service Snapshot: Post-Merger Integration

A successful merger is a race against time and to win requires preparation.  Our thorough but rapid approach deals effectively with the hard factors as well as the more difficult soft ones.

Challenge

Unfortunately, at least half the companies entering into a merger will generate horror stories. 
This is no secret and when the process is considered rationally, it is hardly surprising that so few mergers turn out they way they are meant to. 

For a start, prior to the merger it is only possible to do so much due diligence, such as cash flow forecasts and balance sheet analysis.  Just like an iceberg, the bits you can see appear quite harmless, but lurking below the surface is a raft of factors that will need to be addressed after the merger has taken place. 

On the face of it merging with other organisations seems like a very risky business.  Companies take these risks for sound commercial reasons: to buy into new technologies and markets, to reduce costs by improving the scale of their operations. 

The risk element increases after the deal is concluded because it is only then that the company can start work on trying to realise the hoped for added value.

The process of merging burns a lot of emotional energy and managerial time.  This results in a reduced focus on running the business on a day-to-day basis.  Turf wars, negotiating and uncertainty abound.

To be one of the two mergers that create value requires a lot of preparation and a clear understanding of what hurdles need to be tackled, what must be done, how it must be done and by when.

Solution

Experience has shown us that while the acquiring company will normally have to pay a premium over market value, as long as the premium is not excessive it will be the so called soft factors which will make or break the merger.  These though are the very elements that most managers shy away from as they feel more comfortable working with the rational, hard factors.

We have also seen that as a merger comes to fruition the businesses involved tend to experience a slow down.  Key stakeholders are uncertain as employees speculate about their future and customers pick up on this anxiety and, in turn, themselves may well hold off some of their planned purchases.  This is frequently compounded by a feeling that once the deal is done the merger work is completed and “it’s back to business as usual”.

At Penumbra we recognise that to be successful the hard and soft factors must both be tackled and, very importantly, quickly.

• Hard factors

• Evaluate planned for synergies
  

• Develop cash-flow analysis and financial plan
  

• Design integration programme
  

• Soft factors
  

• Develop communications
  

• Identify management compatibility

What sets us apart is our focus on Management Compatibility as it is probably the single most important influence on merger success or failure.   But extensive research into mergers indicates that while elements such as channels, technologies, distribution systems, etc. are often compatible, the way managers in different organisations operate is frequently at odds.  And where merged groups operate significantly differently the results are increased cost, low staff retention, deteriorating market share and general performance decline. 

Most failed mergers cite incompatibility in their management teams as being a major contributor to failure – think of DaimlerChrysler and you have a worst case scenario. 

Conversely, massive benefits can be realised through positive management interaction and by teams working well together – which is why a little time spent understanding team compatibilities in merged organisations pays dividends.  

Our Eclipse product suite uses a diagnostic tool that can be applied quickly and simply to ‘map’ organisation compatibility– providing clear, quantified comparative feedback of how and where teams will work well together, and where they won’t; where value adding behaviours are being demonstrated, and where they aren’t. 

Benefits

• Comprehensive approach to merger integration.

• Major focus on aligning management behaviours which is key to success.