M&A Integrations: Leadership, Plans, and Incentives

Even when a merger is the right move for buyer and seller, integration can lead to productivity and morale issues that have to be sorted out right ...

Mergers and acquisitions offer one of the best ways for a proactive company to create value. However, during my nearly 20 years in private equity, I learned too often that one plus one is not always greater than two. When companies combine their operations and cultures, there are bound to be misalignments in work processes, personnel, expectations, and goals. Even when a merger is ultimately the right move for both, the process of integration can lead to significant productivity and morale issues that have to be sorted out right away.

There are several measures companies can take to make integration as seamless as possible. First, CEOs need to be champions of the merger process. Second, there needs to be a detailed integration plan. This process should be completed before the acquisition starts, and the execution of the plan should commence immediately after close. Third, company leaders should be transparent about this plan (including timelines, measuring success, etc.) with all key stakeholders. Last but not least, incentives should be tied to all of the above to ensure that everyone is motivated to work toward a set of common goals. 

Hands-on Leadership

If something is strategically important, the CEO needs to be involved. That is seldom more true than when it comes to mergers and acquisitions, which have the potential to make or break any company. CEOs do not need to be managing the Gantt charts, but they should be actively involved in the strategic stewardship of the integration. This means the person in charge of the M&A process will often be a direct report to the CEO. It also means M&A process updates should be a core part of weekly executive leadership meetings.   

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M&A will touch virtually every part of both the acquiring and selling parties. As such, any good merger integration process should have not only CEO leadership but also cross-functional engagement. According to a 2021 Bain & Company survey, several of the M&A challenges that companies face have to do with managing personnel. Beyond finding people with the right experience, companies also emphasize the importance of issues such as “developing clear decision rights within the team” and “setting up the right team” structure. During the M&A process, CEOs and other leaders have to be capable of quickly building teams that communicate and collaborate effectively.

Plan in Place

The M&A integration process has scores of operational and cultural activities that need to be executed efficiently and effectively. For example, the clear assignment of post-closing organizational roles, the development of key vendor relationships, and human resources processes. Unfortunately, the biggest mistake I see in acquisitions time and time again is when the acquirer’s CEO fails to make the integration planning and execution process a strategic imperative and does not get everyone on the same page up front. 

But how do you know what to plan for if you’re not regularly making acquisitions and haven’t learned all the lessons before? If you haven’t made any acquisitions, bring in a specialist to help define the roadmap and measure progress along the way. That type of M&A integration support will be one of the lowest-cost items related to the acquisition. Still, it almost always will deliver one of the highest returns on investment, whether you’re a large-cap or a lower middle-market company. 

The M&A planning process should start early and commence immediately after the merger or acquisition is announced. A good rule of thumb is that acquired companies should be fully integrated within three to six months. A 2020 PwC study found that the companies that “involve integration teams early in the deal process are 40% more likely to see favorable results.” For these teams to be successful, the M&A planning phase should take place even earlier, in most cases, months in advance.  

An effective M&A process has to generate stakeholder buy-in at every level, which means companies can’t afford to allow employees to become anxious, disillusioned, and disengaged. In other words, the organization has to act fast. With a well-defined integration plan in place, employees won’t have to worry about what will happen with their roles or their teams. Instead, they will have the resources necessary to collaborate efficiently right out of the gate and can immediately focus on establishing a healthy shared culture with their new colleagues. 

The Right Incentives

When developing an M&A plan, acquirers have to focus on how they can secure financial and cultural success over the short and long terms. Companies that fail to develop and implement a transition plan early in the process are vulnerable to a series of problems: cultural divides form, synergies are not realized, and morale suffers. In many cases, this can mean the sum of the parts is worth less than the individual parts themselves, defeating the purpose of the merger or acquisition. 

One of the most essential considerations in the M&A process is providing employees with the right incentives to be fully invested in the transition. CEOs and managers have to avoid zero-sum attitudes such as “our business is better than theirs,” which only create resentment and distrust. According to PwC, post-M&A employee retention has fallen significantly over the past decade. One of the reasons could be that just 4% of companies say incentives are part of their change management program. 

Incentives can be anything from allowing personal time to making sure the acquired company’s employees feel valued and heard to rewards for meeting specific targets. Of course, the strongest incentive of all is a healthy culture in which all employees know how their roles contribute to the combined company’s mission, enjoy working with their colleagues, and have a reason to do their best work every day.

Sean Mooney is founder and CEO of BluWave.

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