A Post-Merger Integration Strategy is Critical to Due Diligence Processes

  • Preparing for transition
  • 3/18/2021
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When operating in the lower middle market, it can be especially common for mergers to suffer from inadequate post-merger planning and the right resources. Review our series of articles to help you avoid common pitfalls.

Key insights

  • When completing due diligence, it can be easy to defer defining integration strategies and critical steps to deliver on deal thesis, but these are necessary to help you achieve the value proposition of the transaction in a timely manner.
  • If you’re managing integration in the lower middle market, it is common to ask individuals to take on integration in addition to their day-to-day role; having a team with the right skillset and bandwidth is essential to a successful integration.
  • Have a strategy for post-merger integration, but don’t overlook creating the tactical plan — make sure you have a plan with detailed communication and share it. The unknown to customers and employees can derail productivity.

The success of an acquisition is directly tied not only to the terms of the deal, but also to the ability to successfully “integrate” the transaction in a timely manner. While no two deals are the same, consider certain integration variables early and often in the due diligence process to increase the probability of success. Define these variables and consider how the team plans to capture them in the proposed time frame.

Taking these steps can help you achieve the deal thesis and create the value desired.

Post-merger planning strategies

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Timing should always be considered as part of due diligence. The intensity with which the post-merger integration planning should begin varies greatly based on the type, size, complexity, and depth of integration.

In the lower middle market, the importance of post-merger integration strategies is often overlooked or oversimplified, despite the increased likelihood that these teams lack the bandwidth and experience to effectively and efficiently capture the value. Many times, the M&A team is left making key assumptions, which could impact successful integration.

It is common that companies being acquired have not scaled their infrastructure (people, processes, and systems) and need assistance to make that transition. Many times the company that is doing the acquiring may not have an infrastructure to support integration. Identify a member of the transaction team who can continue to support the integration afer the deal takes place and include them in defining what is important in capturing the value of the transaction.

At a minimum, put a high-level integration strategy process in place as a standard procedure for any transaction. As part of the business case, determine synergies in an abstract form and then vet and attribute them to the various owners to appropriately allocate bandwidth and capabilities . Depending on the scale and integration type (preservation, symbiosis, holding, or absorption), the fit analysis can vary from a few pages to a novel. Develop a simple message so all individuals assessing the transaction can integrate it, understand it, and help make decisions aligned with the analysis.

Valuable assessments

When creating a business case, assess the following items to help validate the deal thesis:

  • Synergy capture
  • Value creation
  • Cultural impact
  • Integration readiness (both acquirer and acquired)
  • Leadership experience

A holistic approach to a merger

These measures can help you create and maintain a successful merger, but don’t view the transaction in a box. Consider a few universally foundational items to make sure the transaction has the desired impact on the overall organization. After creating the business case, review how it impacts the larger “group.” Here are key items to consider:

  • Maintain or enhance momentum in the businesses (both acquirer and acquired)
  • Determine if the customer and employee impact is as desired
  • Consider effectiveness while accelerating synergies and value creation
  • Build the organization and align the cultures to drive the new company forward
  • Use the combined capabilities to advance the company’s competitive position

While strategic steps get you partway there, consider tactical steps as well. And it’s important not to underestimate either.

The acquirer is likely to have a lot of new work, both one time and repeatable. Understand the capability and experience — as well as the bandwidth — of the people, processes, and systems. Generally, a little forethought removes a lot of barriers.

The pressure for lower middle market groups is different than for larger deals when companies have resources dedicated to these efforts. The number of steps to be done, or complexity of an integration, does not necessarily align to the Total Enterprise Value or Scale.

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To dig deeper on this topic, look forward to the next article in our series “Getting Day One Right in an M&A Transaction.”

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