BUSINESS INTEGRATION

BUSINESS INTEGRATION POST-ACQUISITION

After you have completed the deal and you are now acquiring/merging with the new/additional entity, the process of integrating both companies into a single entity starts.
The post-merger integration phase is one of the most difficult phases of the merger and acquisition process because there will be differences in the companies involved — differences in strategies, differences in culture, differences in information systems, and so on. So, this phase requires extensive planning and design throughout the entire organisation.

The integration process can take place at three levels:

• Full integration: All functional areas will be merged into one company, and the new company will retain the “best practices” between the two companies.
• Moderate integration: Certain key functions or processes (such as production) will be merged together, and strategic decisions will be centralised within one company. However, the day-to-day operating decisions will remain autonomous.
• Minimal integration: Only selected personnel will be merged together in order to reduce redundancies, but both strategic decisions and operating decisions will remain decentralised an autonomous.

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Five Strategic Reasons Why Mergers FAIL:

The sad reality about mergers and acquisitions is that the expected synergy values may not be realised, in which case the merger is considered a failure.

The following are some of the reasons why mergers fail:

• Cultural and social differences: Most problems with mergers can be traced to “people problems.” If the merged companies have wide differences in culture and values that are not well handled, then synergy values will not be realised.
• Poor strategic fit: The two companies involved may have strategies and objectives that are too different and are in conflict with one another.
• Poorly managed integration: The integration process requires a very high level of quality management. If the integration is poorly managed with little planning and design, chances are high that the merger will fail.
• Huge cost of acquisition: The acquiring company, in anticipation of a high synergy value, may pay a premium for the target company. However, if the expected synergy value is not realised, then the premium paid to acquire the target is never recouped, which means the goal of the merger has been defeated.
• Over-optimism: The acquiring company may be too optimistic in its projections about the target company, leading to bad decisions in the merger and acquisition process. An overly optimistic forecast or projection can lead to a failed merger.

While there are many more problems—including organisational resistance and loss of key personnel—that can lead to failed mergers, a solid due diligence procedure will help to avoid most, if not all, of these pitfalls.