Managing Partner at Twistlab Marketing.
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Last year, Deloitte found that 42% of the executives at U.S. corporations and private equity investor firms who were surveyed indicated an increased interest in exploring nontraditional mergers and acquisitions.
As someone who’s been involved with and consulted on several M&As, I’ve noticed that mergers often come with challenges, including inefficiencies, job insecurity, system meltdowns and pushback from executives who may resist change and jump on any opportunity to sabotage the deal. Companies can avoid most of these issues by appointing project managers to establish a clear merger roadmap.
While every industry is unique, the process below will hopefully illuminate critical details often overlooked and help inspire a custom plan for your company.
Internal Capability Analysis
Internal capability analyses maximize efficiency and minimize meltdowns. You can start this phase by defining an objective, an overarching merger strategy, guiding principles and business targets for the new organization; this will keep subsequent analyses from becoming arbitrary. Consider analyzing the following in this phase:
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• Assets: Both tangible and intangible. Include real estate holdings, cash reserves and intellectual property.
• Strengths and weaknesses of both organizations: Survey individuals from both sides of the merger to gather insights. Identify the best from both companies so that both parties can make adaptations strategically rather than reacting to the pressure to adopt the practices of the larger entity. Consider business systems landscape, facilities, product plans, product distribution, IT structures, customer markets and individual teams.
• Business lines: The goal here is to know the business dealings of each party well enough to factor in all past commitments and policies — including asset management, asset servicing, insurance matters, finance and material contracts — that could affect plans.
• IT requirements and regulations, both local and international: Heavily examine security, privacy and technical standards in development, web presence, online services, cybercrime protection and information for customization.
• Expansion opportunities: A merger often comes with the potential to explore opportunities that may have been too risky for either entity to take on individually.
• Benefits and costs outline: Include human capital costs, business disruption, new software and hardware requirements, and cybersecurity upgrades.
You may find yourself inundated with data during this step. That’s normal. The idea is to organize that data and turn it into usable information that guides the next phases.
Due Diligence
Here, the objective is to brainstorm options for the new structure based on the capabilities listed above while keeping the points below in mind:
• Formulate a “best of both” approach: Assess and make recommendations on redundancies in systems, personnel, operations and potential cost synergies. Leverage geographic advantages through prioritizing locations and eliminating inopportune areas.
• Develop a plan for the organization’s post-merger structure: Outline the function and purpose of each business unit, system and process.
• Produce a plan to integrate business lines: Assess the feasibility of adding new products or services while envisioning the new business lines that each company will have access to through the other. For example, when a multinational beverage company acquires a local brand, that brand will likely have many new opportunities through the larger company’s bottling and distribution systems. All those opportunities should be evaluated.
• Coordinate with legal counsel regarding IT: Examine privacy and security, licensing, tax matters, antitrust issues and regulatory requirements for operations.
• Classify potential threats: What threats could arise from the merger? Externally, pay close attention to increased market power, entry barriers to new global markets or regions and increased diversity. Internally, identify hazards such as human capital retention risk and cybersecurity risk.
This brainstorming session will typically generate many possibilities and creative new structures. To filter the newly found options, assess each one’s impact on all the stakeholders involved, including shareholders, employees, customers, community, etc.
Developing The Merger Charter
The proposed new structure at this point might be clear to those involved in the brainstorming process, but a charter is needed to share the plan with everyone else. Think of the charter as a playbook describing how to mobilize employees to implement the new structures and processes in the new entity.
A charter, generally, will include these three items:
1. An implementation guide: This portion of the charter explains the partnership benefits, sets communication protocols and forms timelines. It may be wise to appoint an implementation committee to assist with the internal adoption of the plan. The implementation guide commonly includes:
• A revised infrastructure detailing logistics required by each department. Logistics include data capturing, process integration, employment matters and appropriate aggregation of business systems.
• An outline of IT options for each department and function. This outline defines security and privacy measures for each business line. It also identifies potential vulnerabilities and risks to keep track of during the troubleshooting phase of new hardware and software.
• A detailed business line integration plan with specific courses of action for finalizing the merger.
2. Training modules: These will outline how to administer training and how to set the new corporate ethos. Training should be designed considering a business unit’s old structure and should address any gaps between that and the newly defined structure. Examples of training include:
• Custom team training programs regarding implementation of the merger for those involved in the execution.
• Defining processes for policies and procedures on a departmental level.
• Employee value proposition training to encourage employee engagement and adoption of the new corporate ethos.
• New branding, hardware, software and reporting structures.
• Success metrics to measure progress against.
While in the process of developing the training modules, I like to encourage teams to outline and define training assessment metrics for future programs.
3. A testing and evaluation plan: Develop a plan for ongoing key performance indicator reporting, synergy tracking and integration analysis. If successful, the testing and evaluation steps will smooth any gaps between the envisioned implementation and reality.
By assessing the internal capabilities, doing due diligence and creating a clear charter outlining the plan for development and implementation, companies can take most of the surprises out of the equation during a merger. Using these phases as a guide can save time and resources while setting up the new entity to take advantage of its potential and reduce merger pains.
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Author: Ahmad Kareh, Forbes Councils Member
