If private equity investors or capital market corporations take a stake in a company, this is usually connected with significant challenges for the new stakeholding companies, particularly for their finance departments. This is especially the case with investments in previously more midsized companies or privately owned companies.
In M&A activities or specifically pre-merger activities such as due diligence and corporate valuation, a clear trend has been seen in recent years – external experts such as lawyers, auditors, tax consultants, and investment bankers are increasingly integrated in this early phase. Diligent planning of the post-merger integration have often been neglected. In practice, however, it is precisely here that we find the most frequent reasons for why the target financial goals of the transaction are not met. In particular, problems and risks arise from the areas listed below.
Typical Risks from Post-merger Integration
Sources of risks that come from a lack of planning for the implementation of synergies. This is often due to the fact that there is no sustainable implementation concept or plan ready for the post-merger integration.
Risks from differing organizational structures between the buyer and the company being bought. Accounting risks, for example, accounting standards, reporting levels, reporting speed, etc.
Employee resistance to the transaction and integration coupled with decreasing identification of the employees with the company. Such effects can be found particularly among members of management.
Obstacles to project-side implementation of the integration. Usually, the integration is transferred to the line managers, who often do not have the time available or lack experience in the field of PMI.
Success Factors for Post-merger Integration
Timely addressing of these risks simultaneously represents the most important success factor of a PMI. The risks show that suitable integration of a company should already be planned as part of the due diligence. Ideally, the managers responsible for the PMI have already been involved in the due diligence. Structural risks can thus be identified in due time as well. Communication to employees – individually and on the corporate level – should be carefully coordinated in order not to lose in particular the top performers of the target company. Furthermore, it is necessary to coordinate the capacities necessary for implementation of the integration strategy with department managers, particularly human resource managers.
Course and Plan of Project for Post-merger Integration
A generic course of a project for a PMI is summarized in the following diagram: