Strange Bedfellows — Minimising risks in Post Merger Integration
Recent studies have shown that close to 50% of post merger integrations fare poorly. While there are no hard and fast rules that will guarantee a successful merger, in this article we look at the risks involved and some of the ways to minimise those risks and ensure a greater likelihood of a successful integration.
Whether through a share purchase or the acquisition of a business and its assets, a merger presents both opportunities and challenges. The biggest of those challenges is arguably the integration of the two businesses and their personnel following the merger.
Recent studies have shown that close to 50% of post merger integrations fare poorly. There are no hard and fast rules that guarantee a merger will be successful, but it is possible to identify the main risks to a successful post merger integration (PMI). These can be broadly categorised as:
- personnel risks;
- synergy risks;
- structural risks; and
- project risks.
Personnel risk is the category that most people are familiar with. Friction between employees and management of the merged businesses, discontent regarding a loss of autonomy or responsibility and staff concerns regarding job stability all influence the level of support for or hostility towards successful integration. Dealing with different cultures, management systems, performance levels and egos can make integration difficult.
Synergy risks relate to the actual planning and implementation of the PMI. Establishing budgets, targets and KPIs are all vital to a successful PMI, and each of these is dependent upon obtaining accurate financial information in a timely manner in order to plan how to take advantage of synergies in the integrated business.
Structural risks generally involve mismatches in the organisational structures and processes of the merged businesses. Alignment of the profit and cost centres of the merged businesses is vital.
Project risks comprise specific project-related obstacles. A merger will only be successful if ownership of and responsibility for the integration is taken by stakeholders, so it is vital that appropriate resources are allocated to this. It is usually helpful to appoint a project manager to supervise integration issues and ensure line managers are a positive influence. Ensuring that management and employees with PMI experience are directly involved, and providing them with reference materials which document past PMI experiences are also ways in which merged businesses can reduce the project risk to a successful PMI.
There are various ways to mitigate these PMI risks:
- It is essential to take PMI issues into account when the merger is planned. Effective due diligence at any early stage can identify potential integration issues which may adversely affect the profitability of the merged business.
- Allocating a distinct budget to PMI issues can be helpful, because line managers generally react negatively if their departmental budgets are reduced due to unplanned PMI expenses.
- The use of a merger agreement or project implementation plan can also assist. This type of document can address some of the issues outlined above, so that time-consuming PMI issues can be avoided.