How to ensure mergers and acquisitions deliver on your business transformation objectives

Why an integration strategy can help build value

In our previous articles in this series, we briefly discussed how mergers or acquiring new companies can improve the resiliency of your business, enable you to invest in industry disruption, and enhance enterprise value. Gaining new talent, products, or technology can provide numerous opportunities — however, today’s economic environment also poses new risks.

It may be difficult to achieve the value you desire from your transaction when customers are reducing or deferring non-discretionary spending. Additionally, your business may be grappling with reduced leverage, higher cost of capital, and increasing costs brought about by labour shortages and inflation.

While mergers and acquisitions can be a powerful tool to drive business transformation, according to a previous study almost half of deals bring neutral value — or fail to meaningfully transform a business. You need to take a strategic approach toward both the pre-deal planning process and post-deal stabilization period to enhance value and ensure your integration is successful.

Each strategy will be as unique as the two companies that enter the process. Still, every successful merger or acquisition will prioritize clear communication and proper planning, have a clarity of purpose, and be supervised by a dedicated team to guide the integration process.

What steps can I take for a successful transformation?

These four steps can help you address challenges during the process of merging with or acquiring another company to achieve a successful integration:

Invest in due diligence

In today’s marketplace, it is essential to deepen your due diligence beyond financial considerations. Examine commercial and operational aspects such as end market risks, competitive analysis, and cyber diligence. Ensure you have a firm understanding of the company’s finances, operations, position in the market, potential risks, and shareholder expectations before you proceed any further with a transaction.

Seek outside advice if you aren’t sure about any aspect of the deal. A third-party advisor can perform due diligence activities such as valuations, reviewing the quality of initial reports, and identifying potential risks to help you make an informed decision about the transaction.

Additionally, keep alternatives in mind throughout the due diligence process. For example, you may choose to grow your business organically, take a small amount of money from your business to invest in growth, or sell your business outright instead of proceeding with the transaction.

The due diligence process may also help you identify possible synergies where your merged companies can combine resources to create more value through reducing costs, cross-selling to customers, or investing more resources into research and development.

Define your expectations

Clarity of purpose is essential when merging with or acquiring another company. Ask yourself how you want this transaction to transform your business — such as by bringing in new talent, acquiring innovative products, or entering a new marketplace. Clearly articulate the objectives and success criteria of the deal to ensure your plans and actions align with your strategic goals.

Next, put a critical lens down on the target business to determine how each segment is performing and identify areas you may want to improve to increase value over time. If the target company has underperforming products, you may want to consider reducing those products and investing the money you save in a more profitable area of the business.

Consider how your business is going to sustain growth and create value into the future. An option may be to trade out some long-term shareholders to provide them with liquidity while supporting the growth of your business.

Additionally, the due diligence process can help reveal potential synergies such as increasing your production scale, leveraging a combined customer base, or expanding to a new market. Review each opportunity carefully to determine the best levers to pull to ensure the long-term growth of your organization.

Clearly defining your expectations will help you identify the steps to take to nurture growth, enhance value creation, and successfully transform your business.\

Choose the right team

Many business owners believe integration can be managed alongside your day-to-day operations. While your operations management should be involved with integration activities, you are most likely to succeed by creating a focused and dedicated team to manage the integration process.

Appoint designated lead persons to guide you through the pre-close planning and initial 100-day stabilization period. It is essential to ensure the right people are involved and have the necessary time commitments to help you move quickly, move decisively, and achieve the new normal.

An Integration Management Office (IMO) can help your company navigate pre-close planning and the post-close stabilization period. Skilled third-party advisors can provide resources in areas such as project management, organizational design, and technological integration to minimize disruption in your internal and external operations.

Communicate your intentions

You may have entered the mergers and acquisitions process with the goal of injecting new talent into your business. However, according to the MIT Sloane School of Management, up to 33 percent of acquired employees in the technology sector will exit within the first year of their company’s purchase.

Employees may feel uncertain about their future in the organization after the deal closes and decide to seek out another position. Your company may also have vastly different policies and procedures, which can result in a clash of company cultures and lead to frustration.

Clear communication is essential to retain talent and achieve a successful integration. Implement a communication plan to keep your employees engaged and answer questions through every step of the process. Additionally, ensure you have a plan to communicate with external parties such as customers or investors throughout the integration.

Offering training programs to acquired employees to educate them on the new processes and procedures can help you to avoid culture clashes. Providing key tools to HR to assist in the transition can also help the process. Culture is critical — and it is essential to assess and address cultural disparities to achieve a successful integration and transform your business.

Take the next steps towards success

While you may face obstacles along the process of merging with or acquiring another company, appointing the right team to manage the process, and communicating clearly throughout each step of the journey can help maximize your chances of success. Investing in a strategy that prioritizes due diligence, clarity of purpose, and value creation will help you address potential challenges and meaningfully transform your business.

Contact us

To learn more, contact: 

Chris Chapman, Managing Director
[email protected]
416.596.1711

Graeme Wedge, MBA, CET, PMP, Senior Manager, Consulting
[email protected]
416.260.3516