Understanding post-merger and acquisition integration
Post-merger and acquisition integration is the process involved in combining the two firms. Not all mergers and acquisitions are the same, and there are different approaches on how to combine the companies, with the best approach depending on what the firm is hoping to achieve with the M&A. Some of the dimensions to consider integrating are:
- Structural integration: Combining together the hierarchies and reporting relationships
- Operational integration: Combining the activities and operations of the firms
- Cultural integration: Combining the cultures of the two companies to form one integrated culture
Integrating companies together is not easy – and the unexpected challenges are a common reason why mergers and acquisitions are not as successful as were initially anticipated. However, integration is often fundamentally important to achieving the benefits of the merger or acquisition.
The importance of integration to post-merger or acquisition success
Integration may be needed to achieve the benefits of shared resources
A common rationale for a merger or acquisition is that the firms will then be able to share the resources of the other firm. Potentially one firm has a particularly strong capability in one area that can enhance the operations or services of the other firm. Or maybe bringing together two different technologies could result in a new product being developed.
Achieving the benefits of shared resources however requires that the companies do actually combine their operations sufficiently to allow the resources to be shared. If the two companies continue without some significant operational integration, then it may not be feasible to share the resources across the firms to allow for the expected revenue enhancement of combining the companies.
Integration may be needed to achieve cost savings - particularly from reduced-duplication
Integration is also needed to realize cost-saving synergies – particularly those associated with reducing duplication across firms. One of the most common justifications for mergers and acquisitions is that there are various roles duplicated across companies and by combining the firms together these duplicated roles can be eliminated or streamlined.
To actually achieve the expected cost savings, companies actually have to follow through though and remove the duplicated roles. This requires some degree of integration – for example, in ensuring that the work can be performed by the remaining side of the business. Payroll for example must be standardized to one system before it is possible to reduce the headcount. Unless integration is followed through on, the opportunities for cost-saving synergies are unlikely to materialize.
Integration may be needed to provide a unified customer experience
Integration si also important in achieving a unified customer experience. If the two parts of the business remain separate, with different operations and practices, it is possible that the experiences customers have with the different areas may substantially differ. There may be different policies in place or different ways of ordering, and the products may not work well with one another. Thus, to achieve a good customer experience, it may be important that a unified external face of the firm is created.
Integration can help reduce resentment between different parts of the firm
Integration between the different parts of the business may also be needed to reduce resentment between employees. While integrating together pay structures or reporting relationships is never easy, resolving some employee uncertainty may be needed to reduce the likelihood of high employee turnover following the merger or acquisition.
Final thoughts: Planning your integration approach
While there are many reasons why it is important to follow through and integrate the firms together, integration following a merger is not an easy activity. Firms often do not consider the process until after the M&A has been announced. However, successfully integrating together two companies requires planning and advance thought. It is just as important to consider how the companies can be combined, and how compatible the companies are, as what the benefits you hope to achieve.