Businesses today are under greater pressure than ever to get big quick, as technology makes it possible for entrepreneurs from all over the globe to jump in and steal market share. As a result, companies often look to eliminate the competition by buying it out and joining forces. While the concept of combining two companies to make a bigger and better company seems intuitive, the Harvard Business Review notes that anywhere from 70-90% of all M&A result in abject failures. With this in mind, the following breakdown looks at 5 of the most common post merger integration mistakes many companies make, with some straightforward advice on how to avoid them.
Table of Contents
1. Failing to Retain Top Talent
In many mergers, the process can feel a bit like “cleaning house.” Strengths and weaknesses are identified in both companies, key synergies are targeted, and business processes are streamlined to maximize profits. The company name may change, product offerings may be modified, and drastic shifts may occur in the workforce.
However, the most successful companies realize that a merger is far from starting over. The power in any organization lies in its people, so the greatest asset that any company can offer in a merger is a highly-trained, professional staff. According to Insight Partners, retaining institutional knowledge of a business’ technology, operations, customers, and market is one of the most important aspects of M&A success.
According to Sam Willis, a business writer who teaches business owners how to value a business, In addition to the loss in expertise when failing to retain top talent, the cost of onboarding an entirely new workforce can put post-merger companies in a hole from which they are never fully able to emerge. SHRM estimates that it can take up to 12 months to properly onboard a new hire, with Glassdoor reporting that it will cost a company at least $4,000 to successfully hire each employee. Given both of these statistics, the importance of keeping existing employees with the new company is magnified.
Advice: Identify the top 20% of performers from the target company and give them clear titles and responsibilities, enticing compensation packages, and even incentives to stay with the company through the transition.
2. Postponing Difficult Decisions
The decision to sell a business is never easy. The target company can feel like their decision to sell is an admission of failure, that they have given up in the quest for corporate success. The company may feel like they are letting their investors/shareholders down and be conscientious of how the merger may affect the livelihood of its employees.
Most certified business valuation experts say it is also likely that the acquiring company is sensitive to these concerns, making it tempting to ease into the merger and let the new business shake out in its natural course. However, delaying difficult decisions will only become more costly over time. While it is definitely important to retain top talent from the target company, mergers almost always result in redundancies, with some downsizing and reorganization inevitable for the M&A to be executed efficiently.
As a result, the longer a company waits to make these difficult decisions, the more costly they become. It can result in operating unnecessary plants, paying employees for performing superfluous work, and investing time in projects that are not aligned with the new company’s goals.
Advice: Communicate tough decisions immediately after the merger. Help employees adjust to new roles and provide assistance to anyone who will not be retained. It is crucial to make your employees feel valued during the transition phase.
3. Not Working Hard Enough to Ensure Cultural Alignment
Corporate culture has been a major topic of interest for businesses in recent years, with research finding that strong culture is a primary driver of securing employee loyalty, performance, and profitability. However, creating a strong, unified culture is one of the most challenging aspects of completing a successful merger, as Deloitte notes that ineffectively aligning cultures is the cause behind roughly 30% of all failed integrations.
Advice: Hire a transition manager to actively oversee and implement cultural alignment during the merger.
4. Setting Unattainable Targets During Due Diligence
Due diligence in the M&A process is the thorough analysis of a target business prior to purchase, with the acquiring company assessing everything from financials to facilities, staff to market share of the target firm. In most cases, proper due diligence allows the acquiring company to get the most favorable price for the M&A.
However, purchase price is far from the only reason to conduct proper due diligence. Due diligence allows the acquiring business to understand how the target business operates, which will ultimately lay the groundwork for whether successful integration can occur between the two companies.
Nonetheless, leadership has a tendency to rush through the due diligence process, causing gross overestimations of synergies. Due to a variety of complex factors, the sum of the parts does not necessarily equal the whole immediately after a merger is completed. This can lead to unattainable goals for the new company, and when it fails to reach these targets, employees can lose motivation and investors can lose faith in the new company’s ability to execute.
Advice: Keep expectations modest in the early days of integration until the new company can be sufficiently aligned.
5. Insufficient Investment in Integration Management Resources
Integration presents numerous challenges. Some of the most pertinent include:
- IT – one company’s IT infrastructure is far behind the other’s
- Sales – salespeople from each company may be trained differently, making it tough to establish a consistent message
- Financial – there may be significant differences in areas such as accounting and payroll
- Facilities – it may be difficult to decide which offices to keep open and which to close
Advice: Do not be passive in integration post merger. Hire a dedicated management team whose compensation is correlated to integration success.
Consult Professionals to Ensure Post Merger Integration Success
Although merging with another company seems like a logical means of growing an organization quickly, it often results in failure. To help navigate through some common post merger integration pitfalls, it is worthwhile to consider employing professional consultants, such as Trenegy. Trenegy draws upon years of experience in organizational realignment, merger integration, and acquisition synergy assessment to help guide businesses through the M&A process and avoid the mistakes that result in failure for most companies. Don’t try to navigate unknown waters alone: contact Trenegy today!
About Carson Derrow
