Merger Integration after the Honeymoon Phase

Mergers and acquisitions (M&A) are a common corporate practice to create synergies and improve the business’ value proposition, consolidate the sector, unlock value through cost savings and/or price increases, and gain competitive advantage. However, the initial excitement and optimism that often accompany these deals can quickly fade as the reality of integration sets in. Beyond the honeymoon phase, successful merger integration requires rigorous and unbiased analysis and planning, decisive execution, and an unwavering commitment to aligning the combined entity’s goals and cultures. It is practically a full-time top management task that typically lasts a year or longer.

The Honeymoon Phase

The honeymoon phase of a merger is characterized by a high intensity of activity and enthusiasm. Top management has typically succeeded in convincing the majority of employees that the merger is advantageous and that the combined businesses will be more successful than each business on its own before the merger. Employees are invited to get to know each other, which is typically a positive experience for them.

In the process before and shortly after the merger agreement is signed, key stakeholders are typically focused on the strategic vision, the potential for cost savings or average price increases, and the new market opportunities that the merger promises. They do not typically have a major conflict of interest yet, nor any execution hiccups. This period is marked by high morale and a shared sense of purpose. However, this initial phase is typically short-lived.

Challenges and critical Tasks in Post-Honeymoon Integration

Cultural Integration: One of the most significant challenges for post-merger management is the integration of distinct corporate cultures. Employees from both entities may have different ways of working, communicating, and coming to decisions; their values and expectations may also differ. Without a thoughtful approach to cultural integration, these differences can lead to misunderstandings, conflicts, silo-building, and a decline in productivity. It is critical that the combined organisation is aligned towards a common vision and mission, and its value proposition needs to be crystal-clear towards the staff.

Operational Integration: Harmonising operational processes and systems is critical for realising the anticipated synergies. This includes integrating IT systems, supply chains, and operational workflows. Operational integration is often fraught with technical difficulties and requires thorough analysis, planning and execution. When the process is technically complex, external consultants are critical to drive system integrations or replacements, database migrations, and new workflow design, just to name a few of the typical tasks.

To ensure that employees are supporting the merger, it is important to map out and define the key processes after successful merger integration – processes such as:

• Book-to-bill process

o?? Booking: Confirming the order or project with the client.

o?? Service Delivery: Executing the project or providing the service.

o?? Time and Expense Tracking: Recording the time spent and expenses incurred during the project.

o?? Invoicing: Generating and sending invoices to the client.

o?? Revenue Recognition: Recording the revenue in the financial system once the service is delivered and billed.

• Order-to-cash process

o?? Order Placement: Receiving the order from the client.

o?? Order Confirmation: Confirming the order details with the client.

o?? Service Delivery: Executing the order or providing the service.

o?? Invoicing: Issuing an invoice to the client.

o?? Accounts Receivable: Tracking outstanding invoices.

o?? Payment Collection: Receiving and processing the payment from the client.

o?? Reconciliation: Reconciling payments with invoices to ensure accuracy.

• Procure-to-Pay Process

o?? Requisition: Requesting goods or services needed for business operations.

o?? Purchase Order (PO) Creation: Issuing a purchase order to the supplier.

o?? Goods/Services Receipt: Receiving the goods or services.

o?? Invoice Processing: Receiving and validating the supplier’s invoice.

o?? Payment: Paying the supplier as per the agreed terms.

o?? Reconciliation: Matching the purchase order, goods receipt, and invoice for accuracy.

• Quote-to-Cash Process

o?? Lead Generation: Identifying potential clients.

o?? Quotation: Preparing and sending a quote to the client.

o?? Negotiation: Discussing terms and finalising the agreement.

o?? Order Placement: Confirming the client’s order.

o?? Service Delivery: Providing the agreed-upon services.

o?? Invoicing: Generating and sending invoices.

o?? Payment Collection: Collecting payment from the client.

o?? Post-Sale Service: Providing after-sales support if needed.

• Hire-to-Exit Process

o?? Recruitment: Attracting and selecting new employees.

o?? Onboarding: Introducing new hires to the company and its processes.

o?? Training and Development: Defining and providing training and development policies and opportunities

o?? Performance Management: Evaluating and managing employee performance.

o?? Compensation and Benefits: Administering pay, benefits, and rewards.

o?? Career Development: Supporting career growth and progression.

o?? Offboarding: Managing the exit process when an employee leaves the company.

Other critical processes are

Marketing and Client Relationship Management (CRM) Processes

• Defining optimal marketing strategy and budgets: determining how the business goes to market and how it communicates its value proposition towards the different customer groups.
• Client Acquisition and Onboarding: Identifying potential clients, pitching services, and onboarding new clients.
• Client Communication: Maintaining regular communication with clients to ensure satisfaction and address any issues.
• Client Retention: Strategies and practices to retain clients and secure long-term contracts.

Project Management Processes

• Project Planning: Defining the scope, objectives, timelines, and resources for each project and determining the optimal system for this.
• Resource Allocation: Assigning the right personnel and tools to projects.
• Progress Tracking: Monitoring project milestones, deadlines, and deliverables.
• Quality Control: Measuring if and ensuring that the work meets both the firm's standards and the client’s expectations.

Financial Management Processes

• Budgeting and Forecasting: Planning financials for business operations and merger-integration specific operating expenses and capital expenditures
• Billing and Invoicing: Generating invoices based on time and expenses, and ensuring timely payments by defining and executing cash collection processes.
• Expense Management: Tracking and managing expenses incurred inside and outside of client projects.
• Financial Reporting: Defining the format and preparing periodic financial statements and reports for internal and external stakeholders.

Retention of Key Talent: The uncertainty that follows a merger can lead to a talent exodus. Retaining key employees is crucial for maintaining continuity and ensuring that institutional knowledge is preserved. Effective communication and engagement strategies are essential to mitigate this risk.

Clear Communication: Regular, transparent, and consistent communication is vital throughout the integration process. Employees need to understand and share the common vision, the steps being taken, and how they will be affected. A lack of clear communication can result in rumours, confusion, and diminished morale. This often results in siloed thinking and prioritizing individual interests over providing the best for customers.

Depending on the size of the merged organisation, these processes need distinct internal projects, often with a formal steering committee and always with top-executive support. It is recommended that some of these projects are carried out by external consultants, with top management taking on the crucial role of intensively overseeing and participating in these key projects.

Conclusion

The success of a merger is not determined at the moment of the deal's announcement but in the months and years that follow. After the typically short honeymoon phase, organisations must navigate a complex landscape of cultural, operational, and strategic challenges. By developing a thorough integration plan, prioritising cultural and operational process alignment, maintaining clear communication, and focusing on talent retention, companies can increase their chances of a successful merger that delivers on its promises.

Many mergers fail in practice, as the success of merging two companies is prodominantly determined by unbiased analysis and decisive execution with respect to aligning cultures and processes than by strategic planning.