Mergers and acquisitions are crucial strategic moves for businesses of all kinds. A successful M&A initiative can mean enhanced financial performance, higher market share, more influence over consumers and neutralised competition. However, these benefits don’t manifest overnight; this is why a robust plan for post-merger integration (PMI) is crucial.
In essence, every M&A deal has two layers: the first is the legal and financial transaction, which is finalised on the closing date. The second is the operational integration of the acquired organisation into the buyer’s business. It’s this second phase that we’ll focus on here, outlining the hugely influential role of the PMI timeline on the M&A deal’s outcome: either added or lost value, depending on the strength of the acquiring organisation’s plan.
The post-merger integration strategy can prove to be particularly complex in environments like the TMT sector. This is because when assets like infrastructure and complex IT support systems are involved, PMI takes on an equally (if not more) complex technical aspect alongside the managerial hurdles. This subject is something we’ll cover in the upcoming Outvise eBook for this quarter.
For now, we’ll stick to the features of successful post-merger integration as it pertains to any sector. In any field, the PMI plan can’t be executed soon enough – and here, we’ll outline the high-level features of a PMI timeline that meets the gold standard.
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The key phases of post-merger integration
Post-merger integration is a complex programme covering a vast portfolio of topics. This begs the question, what are the strategies for post-merger success? Inevitably, these are multifarious; however, without a doubt, the timeline of the plan will have a particularly radical effect on the outcome.
The execution of the PMI process will be integral to business continuity and ensures that the transition happens virtually silently. If carried out effectively, there will be minimal impact on customers and stakeholders, regardless of whether they’re consumers or other industry players.
If integration is to be a success, the post-merger integration plan cannot start early enough. This is especially the case in complex environments such as finance or telecom, where PMI project management should be well underway long before the deal is closed.
To double down on the point: PMI planning can never start too early. Some company directors embarking on their maiden M&A voyage may ask themselves, “how long does a post-merger integration take?”, but this is akin to “how long is a piece of string?” If the deal is on the horizon, it’s time to start.
A baseline PMI timeline can be divided into three major phases: pre-day 1, 100+ post-closing, and the long-term synergy phase. Of course, the definition of the long term will vary from sector to sector.
- Pre-day 1 phase
Once the M&A deal appears on the horizon, the executive management needs to appoint an integration director and core PMI team without delay. Once the deal is signed, the clock will really start ticking. The countdown towards the first day of the takeover is a critical phase and the integration programme plan should be initiated as soon as possible.
The core PMI team will have two key deliverables for the pre-day 1 phase. These are the post-merger integration checklist for handover and the transitional service agreement (TSA). These two items will ensure readiness for the moment the two organisations become one.
The handover checklist should be as precise as possible. The agenda will aim to keep cross-departmental integration teams on track for D-day. If day 1 tasks and responsibilities are clearly outlined, the team can steer a timely integration. This checklist should include all functional areas and key personnel in order to support full business continuity after the closing date.
The transition service agreement will be another key enabler of integration success. The TSA’s purpose is to clearly define the transitory collaboration between the seller, buyer and any third-party service providers until the seller can fully manage operations according to its target model. This usually includes the first 100 days after the takeover as an absolute minimum, plus an additional period depending on the complexity of the integration’s environment.
- 100+ days post-closing phase
After implementing the handover checklist, the post-merger integration programme’s first goal will be to stabilise the operation and maintain business as usual. Therefore, the integration team should start to apply their 100+ days closing plan as soon as possible. Ideally, this plan will have already been under development during the pre-day 1 phase.
The principal objective of the 100+ days plan is the transformation towards the target organisation’s operating model. The exact number of days that this transformation will take depends on several specific factors. However, this transitory phase – where a significant portion of the operating model is governed under the TSA – should be finalised as soon as possible.
The key areas of this phase include:
- Integrating transitory service provision from the seller and third parties into the buyer’s organisation, and/ or re-organising third party service provision according to the buyer’s operating model and its internal/external delivery split along the value chain.
- The integration of relevant support systems into the acquiring company’s system architecture.
- Data, in particular material/vendor code alignment and integrity.
- Long-term synergy phase
Ensuring the post-M&A organisation functions at a high level demands that process frameworks and authorisation levels are fully streamlined.
The PMI team should focus on a clear set of KPIs, which seek to facilitate smooth day-to-day operations and mitigate micromanagement. Keeping hands-on management to a responsible level will allow for the timely execution of day-to-day operations, creating a sustainable model for the long term.
Besides steering the operating model towards the target structure, there are several other tasks that will dominate the synergy phase. The integration of additional services from third parties will be essential to operating as usual. For example, the PMI team should seek to re-integrate margin-contributing portions of the value chain within the organisation with priority.
That said, the value chain will need to be closely assessed in regard to the target operating model and renegotiated accordingly. Ideally, these renegotiations should leverage increased “economies of scale”, where greater output translates to lower costs. Implementing a new customer acquisition offensive will also be a crucial technique to ensure the organisation’s increased size is put to work.
Time is of the essence
When the executive board decides to embark on a merger or acquisition, or indeed if it’s already underway, there are many important strategic points to consider. The timeline beyond closure will comprise many of the most crucial points; the post-merger integration plan will make or break the success of the project.
A thoroughly structured timeline – that is, a plan for the four to six months between signing and the closing date as an absolute minimum – will enable proper integration planning. This will serve to facilitate that the target is effectively guided towards the desired operational model and that the new, larger organisation delivers added value. A properly planned timeline will also make sure that the TSA effectively manages relationships with third parties from the get-go, which in turn, stabiles business as usual.
For more detail on issues regarding the project team, organisational structure, and finer points of an effective TSA agreement, stay tuned for the upcoming eBook on post-merger integrations. As mentioned, this free guide will illustrate how these processes are best executed in a complex environment.
In the meantime, a key takeaway from this discussion is that getting the right person to head up the PMI team will be integral to success. The executive board should appoint the integration director as soon as possible; usually, this will be at the very beginning of the deal negotiations.
The team itself should comprise highly experienced personnel. These could be from internal or specialised external sources. As with appointing the director, time will be of the essence; these team members should be appointed as soon as he or she is on board. The timeline is key to success and time is of the essence. You can never move too swiftly to deliver an effective post-merger integration programme.
Get an expert on board
To deliver a successful PMI plan, you need expertise and you need it fast. If your organisation decides to appoint an external PMI director – whether it be because the target is from a different market, subsector, or any other reason – you need to identify the right person as quickly as possible. Certainly, there’s a wealth of talent out there, but how can you whittle it down to the right person for your project?
This is where Outvise comes in. As a specialist Business Tech freelancer network, Outvise combines technology and seasoned recruitment expertise to connect companies with experts all over the world. In many cases, Outvise’s three-step project-matching questionnaire can deliver a shortlist of highly qualified experts in as little as 48 hours.
When time is of the essence, having Outvise on hand could be the difference between an organised, effective M&A and lost value. If you’re looking for a PMI director or any profile related to M&A, shoot a message to the team to discuss your objectives. Alternatively, get started with the call-out wizard and see what profiles get thrown up in a matter of moments.
Driven international professional with 20+ years of business experience, offering a proven track record in delivering solutions and closing deals.
Excellent knowledge in the fields of strategy, corporate finance as well as programme and portfolio management.
Track record in M&A transaction and integration management, startup management as well as change/ corporate restructuring programmes.