What is a M&A Post-Merger Integration?

MAIN POINTS

• Post-Merger Integration (PMI) is the second of three primary phases in the M&A deal lifecycle.
• PMI is a set of activities spanning technology, people, business processes, and data disciplines.
• PMI and digital transformations share commonalities but differ in their pace & timelines.
• PMI can be categorized into eight primary stages, starting with governance and ending with business stabilization.

A Small Overview of Mergers & Acquisitions

Mergers and Acquisitions (M&A) are a vehicle employed by business entities to grow, diversify, or strengthen their market position.

There are a multitude of different flavors of M&A transactions including but not limited to:

• Mergers - Combines two or more companies into a new entity.
• Divestitures - Sale of a business unit, entity, asset, or subsidiary.
• Carveouts - Similar to a divestiture, sell a portion of the business while sometimes retaining ownership (minority stake).
• Acqui-hires - Purchase an entity primarily for its talent & culture rather than product or services.
• Spin-offs - Create a new entity by selling or distributing portions of a business, division, or subsidiary.
• Roll-Ups - Consolidates multiple smaller companies in the same industry into a larger single entity.
• Joint-Ventures - Partnership between two or more companies to create a new entity.
• Reverse Mergers - Private companies purchase a public company to become publicly listed without the need for an Initial Public Offering (IPO).

Whether new or veteran in the M&A space, a plethora of parallel activities need to be executed, these activities can be viewed as a group at a high level through the M&A deal lifecycle.

The M&A Deal Lifecycle is Broken into Three Main Phases

1. Deal Generation - This initial phase includes sourcing & vetting potential deal opportunities based on a defined strategy. Activities include, valuations, review of existing documentation, and business negotiations. The result is a signed agreement and a deal value hypothesis. (During this period pre-integration planning can also occur.)
2. Post-Merger Integration - The deal hypothesis from the Deal Generation phase is used to create and implement a plan that achieves the deal's strategic objectives, resulting in a stabilized new entity.
3. Synergy Realization - Once the business stabilizes, the focus shifts to optimizing revenue, costs, and operations, to boost productivity and efficiency. This phase may also involve consolidating contracts based on the new entity's performance.

The figure below outlines further the categorical activities that occur in each of these three phases.

Post-Merger Integration and Digital Transformation

Digital transformation and PMI both involve significant organizational change, focusing on system integration and streamlining operations to enhance long-term competitiveness within a specific timeframe. Each process requires effective management to align resources and achieve strategic objectives efficiently.

Both PMI and digital transformations work to address business management systems and applications such as Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Human Resource Information Systems (HRIS), Supply Chain Management (SCM), Data Management Platform (DMP), IT ticketing systems, and collaboration & communication tools.

The key difference is that PMI takes an accelerated approach, while digital transformation can be a lengthy multiyear process. This is due in part to some deals that include terms like a Transactional Service Agreement (TSA) that limits the use of legacy support to a defined period of time before incurring punitive damages.

PMI uses a holistic approach to maximizing deal value through four key interdisciplinary elements.

1. Technology - Involve integrating and aligning IT systems, infrastructure, and digital assets within an entity. Managing software licenses, hardware, IT contracts, and system configurations to ensure compliance and continuity, while aligning servers and network infrastructure to minimize disruptions and support synergies and digital transformation.
2. People - Aim to integrate organizational cultures and processes to minimize resistance and enhance employee engagement. By emphasizing communication, training, and support, companies can facilitate a smoother transition and achieve strategic goals.
3. Business Process - Evaluate the current workflows of an organization and align them against the technology capabilities for seamless business continuity. Address various different functions of a business (Marketing, Sales, Order Management, Procurement, Human Resources, Accounting, Finance, Operations, Information Technology (IT), Customer Service, Legal, Logistics etc.)
4. Data - Identifying how to handle the historical, operational, and Personal Identification (PI) data. Includes Extract, Transform, and Load (ETL) activities including data consolidation, mapping, cleansing, and migration.

Note: similar to digital transformation consulting firms and larger corporations will refer business processes based on modules in common ERP systems (such as Hire to Retire, Procure to Pay, Order to Cash, etc.)

The Simplified Eight Stages of PMI

Post-merger integration can be grossly summarized into 8 main stages that branch across different functions of a business. These stages are listed in sequential order for illustrative purposes but can occur simultaneously, out of order, and be revisited based on new developments.

The work can be distributed across various vendors and consulting firms; and can occur in parallel.

Note: activities undertaken for the program are contingent on the statement of work and the deal hypothesis.

1.0 Establish Governance

Establishing a governance model is essential before planning begins, as it enables the fast-paced and dynamic nature required for successful M&A programs.

Depending on the type of M&A deal, these governing entities can take on different names such as Program Management Office (PMO), Integration Management Office (IMO), Separation Management Office (SMO), and Transaction Management Office (TMO).

Regardless of the name, some fundamental elements need to be addressed including but not limited to:

Program charter

A formal document that outlines a program's objectives, scope, guiding principles, and resources while aligning with the deal hypothesis established during the Deal Generation phase.

Stakeholder registry

A comprehensive list of all parties involved, including dotted line relationships, detailing their roles, interests, influence, and level of engagement, such as Subject Matter Experts (SMEs), decision makers, customers, suppliers, and third-party vendors.

This list grows as new information is uncovered. The list also can group stakeholders based on the type of workstream the programs have identified.

Examples include:

• Change management
• Solution architecture
• Business processes
• Data migration
• Cutover
• Testing & Hypercare support

RACI/RASCI chart

A document that clarifies the roles and responsibilities of a program's list of tasks or workstreams. The acronym stands for the following:

R - responsible. Identify those who complete tasks or make decisions (only one person should be assigned for each line item).

A - accountable. Designate those who answer for the success or failure of a task.

S - support. Engage those who provide coordination or resources but do not offer direct input.

C - consult. Seek opinions and expertise from those whose insights are valued.

I - inform. Update those who need to be kept in the loop but do not take direct action.

Prioritization rubric

Evaluate and rank issues based on magnitude, impact, and feasibility relative to the deal value hypothesis. It also includes an escalation path for issues needing higher-level approval.

The intent is to create a decision-making system, that can be revisited as new information develops. Prioritization must be routinely revisited, as M&A events are subject to changing conditions and external influences.

Reporting and recurring meeting cadences

Establish ongoing reporting and meeting cadences to ensure consistent communication and alignment among stakeholders, enhancing transparency and accountability. The framework should define meeting types, intent, time slots, and required participants, including recurring ones like the steering committee review.

2.0 Define Strategies and Roadmap

Each workstream has a sub-strategy under the deal hypothesis, addressing unique needs while aligning with overall business objectives.

Exit criteria

Exit criteria for M&A integrations outline the performance metrics needed to signal successful completion, including Key Performance Indicators (KPIs), process alignment, and stakeholder satisfaction for operational independence.

Technology & tools

Each workstream requires specific tools tailored to achieve its objectives, ensuring they support the overall integration goals. Selecting tools should prioritize Return on Investment (ROI) and effectiveness, avoiding arbitrary choices that do not align with strategic outcomes.

Common tools aimed at enhancing team integration and efficiency to consider include but are not limited to:

• Program management - MS project, Smartsheet, Excel, Asana
• Data transformation & migration - Boomi, Knime, R, software-specific tools like Salesforce loader
• Integration - Oracle data integrator, integrate.io
• Collaboration - Slack, Teams, Google Chat, Outlook, SharePoint
• Issue/defect management - JIRA, Excel
• Surveys - Survey Monkey, Google/Microsoft forms
• Test management (including automation) - Zephyr, Selenium
• Hardware - handheld devices, IoT sensors (where applicable to the business)

Timeline and milestones

Creating milestones and timelines for M&A integration involves meticulous planning to ensure key deliverables align with the organization's strategic goals and other initiatives. Each workstream must identify clear deadlines and interdependencies, so stakeholders can monitor progress, mitigate risks, and prevent prioritization from conflicting with existing initiatives.

Be wary: many M&A events will also occur within critical periods of a business to help with the easement of transition. This includes fiscal year-end closure, annual budget planning etc.

3.0 Conduct assessments

During this stage in the PMI phase, practitioners are trying to understand the current state of the legacy organization, determine the feasibility, and devise a plan to transition to a new entity. Information can be gathered through various methods, including workshops, interviews, surveys, document reviews, and audits of historical transactions.

Some common assessments across different workstreams include:

Change impact

Change impact assessment evaluates the potential effects of organizational changes on processes, systems, and employee roles. This evaluation helps identify risks and necessary support measures for effective transitions.

Change readiness

Change readiness evaluates an organization's preparedness for change by examining employee awareness and adaptability. This evaluation identifies potential obstacles and areas needing support for a smooth transition.

Current state business processes

By mapping existing end-to-end processes and assessing alignment with strategic goals, stakeholders can identify gaps in handoffs or potential risks for the new entity. This comprehensive analysis highlights areas that may hinder efficiency or significant risks during the transition.

Technology maturity

Evaluate an organization’s technological capabilities, infrastructure, and processes to identify strengths, weaknesses, and areas for improvement. This assessment helps organizations determine their readiness for digital transformation.

Technical architecture

Evaluates an organization's technology framework, infrastructure, and systems to ensure they align with business goals and effectively support operations. This assessment typically involves analyzing hardware, software, network configurations, and data management practices to identify strengths, weaknesses, and opportunities for improvement. It often results in recommendations for enhancements, migrations, or integrations that can boost performance and scalability.

Data flow audit

Comprehensive review of how data moves through an organization's systems and processes. This audit examines data sources, data integration points, storage solutions, and how data is processed and utilized across different departments.

Historical data

Analyzing historical data involves reviewing past performance metrics to identify trends in volumes, revenue, target customers, products, and business units, helping organizations make informed decisions. These insights help solidify priorities in the integration based on empirical data.

4.0 Design

After assessing the landscape, each workstream engages in detailed planning and design to achieve the intended deal value.

Activities include but are not limited to:

Change management plan

Outlines strategies for effectively managing transitions within an organization, detailing objectives, stakeholder roles, communication methods, training resources, and evaluation metrics. This includes creating a communication plan and working with executives on key messaging to outline "the why" to tailored audiences.

Data migration plan

Outlines the process for transferring data from one system to another, ensuring data integrity and minimal disruption to business operations. It typically includes steps such as data assessment, mapping, transformation, validation, and testing, along with timelines and responsible parties. This plan is crucial for maintaining data quality and ensuring that all relevant information is correctly migrated to the new system.

Cutover plan

A cutover plan outlines the necessary steps for transitioning from a legacy system to a new system, ensuring minimal disruption to business operations. It includes detailed activities such as data migration, system testing, user training, and establishing a support structure, along with timelines and responsibilities to ensure a smooth go-live process.

Testing plans

A testing plan outlines the strategy for validating the functionality, performance, and reliability of a system or application before its launch. It typically includes various testing types such as unit testing, integration testing, system testing, and user acceptance testing (UAT), along with defined objectives, timelines, resources, and responsible parties to identify risks and enable business continuity.

Blueprint

Outlines how a business or system should operate. This can involve documenting processes, workflows, and requirements to align stakeholders and guide implementation efforts. Includes specifying hardware, software settings, network configurations, and integration points between various systems to ensure seamless operation and data flow.

Rollback/contingency

In the event of a failure (technological or business); stakeholders need to identify procedures to return back to the legacy format to continue operations or piece meal the transition based on other factors.

5.0 Validate design through testing and training

Once the design, configurations, and implementation have been completed, the processes, systems, and integrations need to be evaluated for completeness and efficacy.

This validation can be broken down into testing and user training. Both categories are focused on realizing intended outcomes and generally take place within the same stages of an M&A event.

Testing

Functional - Validate features are working as per the requirements defined. Includes unit testing, smoke testing, regression testing, and end-to-end testing.

Performance - Measure how well a software or application performs under given circumstances. Includes scalability, load, spike, stress, and system.

Security - Evaluate a system's ability to withstand cyber attacks. Includes penetration, vulnerability scanning, and ethical hacking testing.

Usability - Measure how easy and practical real users can complete tasks with software or applications.

Integration - Test the interaction points between different systems, components, and modules.

Compliance - Adherence to legal and regulatory standards by reviewing financial records and processes, thereby identifying risks and safeguarding the integrity of the transaction.

User Acceptance Testing (UAT) - Business operators validate that the system meets their operational needs, identifying any gaps between user requirements and the implemented solution before final deployment.

Training

Technical - Specific skills and knowledge necessary to effectively use technology, tools, and equipment.

Job specific - Tailored skills and knowledge through technical development, procedural understanding, and practical experience.

Cross-training - Skills and responsibilities of adjacent roles within the organization, allowing for greater flexibility, collaboration, and understanding of different functions within the business.

Leadership - Skills in individuals to effectively inspire and guide teams, focusing on areas such as emotional intelligence, communication, team development, and strategic thinking.

6.0 Execute the blackout period and conduct the cutover

The blackout period in M&A is a scheduled time when system access is restricted to apply changes without interference. It is encapsulated between wind-down and wind-up activities.

Cutover is the point when an organization transitions from old systems or processes to new ones, often occurring after the blackout period to finalize the integration or implementation.

Wind-down activities

Finalize system changes, ensure backups, notify stakeholders, and restrict access to affected systems. Common processes that are temporarily discontinued are employee expense submission, customer service tickets, new orders etc.

Cutover

Cutover is the final transition from old systems or processes to new ones after preparation and testing are complete. Includes final data migration, system configuration, user validation, and switching from old systems to new, ensuring minimal disruption and operational continuity.

Wind-up activities

Following after the readiness checks have been completed from a successful cutover, the next step is to reengage all back-end processes, connections, and systems, that were halted during the wind-down period. Furthermore, all data that was tracked offline begins to be entered or loaded into the system to avoid interruptions in continuity.

7.0 Operate Under the New Entity

The point when new systems, processes, or organizational structures officially commence operation following a Go-Live transition phase.

Go-live announcement

A company-wide communication to its employees, customers, suppliers, and other stakeholders shares new links and procedures to help support the "hiccups" in transition.

Hypercare/business support

Hypercare refers to the heightened support and monitoring phase immediately following a system Go-live, ensuring any issues are swiftly addressed and performance meets expectations. Business support during this period focuses on providing users with necessary resources, training, and troubleshooting assistance to facilitate a smooth transition and optimize system usage.

8.0 Achieve Business Stability

During the ongoing support of the new entity, certain stakeholders such as consulting firms begin to reduce their resource pool and handoff responsibilities to the decision-makers in the new co.

Business health checks

Conducting business health checks involves systematically evaluating an organization’s performance across various metrics to ensure it operates efficiently and effectively. These assessments typically focus on areas such as financial health, operational efficiency, customer satisfaction, and employee engagement.

Knowledge transfer (KT)

Transferring critical information, processes, and resources, enables the new owners to effectively manage and grow the organization post-integration. These information handoffs include how to facilitate steering committee meetings, defect management processes backlog of issues etc.

PMI's is Critical to Maximizing Deal Value Capture

PMI is vital in translating the deal value hypothesis into tangible outcomes. Without effective integration, the expected synergies and value creation fall short, turning potential opportunities into costly mistakes.

A well-executed PMI process aligns processes, people, technology, and data, ensuring that the M&A event achieves its financial goals and delivers the maximum deal value, setting the foundation for long-term success.

While there is no official "playbook" for PMI, there are common themes that align with digital transformation programs The key will be to apply what is relevant and tailor it to the business context as needed.

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J&A TBC Consulting LLC

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