How to Prepare for a Smooth Post-M&A Deal Transition
Selling a company is an exciting process, as well as time-consuming, stressful, and complex. Both sellers and buyers are sometimes so caught up in the deal that they forget to properly plan the post-deal integration. The buyer certainly has an incentive to conduct a smooth transition, as they are looking to benefit from the acquired company. The seller has an incentive too, especially if any of the deal compensation is deferred or in escrow. To help prepare for a smooth integration, below are some helpful points.
1) Start planning the integration early in the process.
Ideally, the integration process should be considered before a buyer puts in an offer, and the estimated ease or difficulty of integration should be reflected in the terms of the deal. For a seller, preparing well in advance of a sale should help make the integration easier. For example, delegating much of the owner’s responsibilities, or at least creating a back-up person, can make the process easier. Also, start to document who is in charge of what. Much of that information may be in the owner’s head, which can cause problems later if the owner leaves soon after closing. Too often, integration is ignored until two weeks before closing, or sometimes two weeks after closing. Starting integration planning early in the due diligence process will help avoid major issues.
2) Top executives must be involved.
Many times, the seller and buyer’s executives complete the deal, then pass integration off to the next level of executives without much notice. M&A deals are complex, so the deal teams may be so focused on getting the deal done that integration takes a back seat. Sometimes, to maintain confidentiality, no one outside of the deal team is told until days before closing (or maybe after the closing). One way to screw up integration is to suddenly drop it on the desk of an already overworked, uninformed executive.
The top executives of both buyer and seller need to be involved in the planning and management of the integration process. A lot of money can be made or lost based on how well the acquired company is integrated. If the selling owner retires right after closing, and the buying company CEO jets off immediately to work on the next deal, a lot of value can be lost as the acquired company stumbles without leadership.
3) Delegate to specialists.
Although the top executives need to manage integration, they should delegate each segment to a specialist. For example, HR to HR, operations to operations, sales to sales, IT to IT, etc. There are far too many details for one or two people to cover, and a generalist may not have the knowledge needed. Once the tasks are delegated, be sure to create milestones, deadlines, and to monitor progress.
4) Focus on major issues (follow the money).
It is helpful to determine which sectors to prioritize. Some buyers focus mostly on customer integration, which is understandable, but then forget other aspects of the business that may be equally important. One way to prioritize is to focus on the matters that involve the most money, whether it’s coming in or going out.
5) Don’t forget culture, HR, and people.
For many businesses, people are the most important asset, yet culture is often ignored. Culture can be difficult to explain, and sometimes the owner’s idea of culture is different from the employees’. Ignoring culture or trying to change policies too quickly can create problems with the employees, who may leave or become less productive.
6) Communicate goals, synergies, and strategies.
Be sure to determine your goals for integration, including synergies and strategies, and communicate those often to the people in charge of the process as well as to the whole company. For example, the acquirer often has better systems and operating statistics, and can teach the selling company how to improve results. Set expectations for each department manager and keep following up periodically. If jobs will be lost, it’s better to get the news out soon rather than let rumors take over.
7) Keep selling the deal internally.
Both the buyer and seller need to keep selling the deal and its benefits. Integration is a very time-consuming and frustrating endeavor, and it is easy for managers to focus more on their day jobs instead of their side job of integration. It is most likely the first and only integration for the seller. For the buyer, there may be more deals down the road, so building up those integration skills in the buyer’s management team can be helpful in the future for their careers and for the company’s growth.
8) Create a plan and timetable, review and stick to it.
The buyer and seller should create an overall integration plan and timetable and stick to it as long as it is reasonable. The longer the integration takes, the longer it will take to realize improvements and synergies, which can cause the deal to underperform or fail.
9) Incentivize.
The integration process is often dumped on managers’ desks in addition to their current day job, which can be very frustrating. Even if the goals are properly communicated, most managers have not been through many deals, so there is a lot of uncertainty. Some level of incentive compensation, even if small, can go a long way to motivate managers to complete the integration process in a timely manner.
10) Be realistic.
Integrating two companies is a difficult and time-consuming process. It will most likely take longer and cost more money than planned, and some customers and employees will be lost. Inventory turns and on-time delivery performance will not improve in a week. Expect the unexpected—surprises will come up, both positive and negative. All this makes planning more important as, without a plan, the integration process can take forever and damage the value of the acquired business.
Whether you are a buyer or seller, be sure to plan the integration process early and thoroughly. It takes a lot of effort to find a good deal and complete a transaction, but all that effort and value can be lost if the integration process is not successful.
Tom Kastner is the president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. Securities transactions are conducted through StillPoint Capital LLC, Tampa, Florida, member FINRA and SIPC.
