Most mergers and acquisitions fail because of poor post-deal integration practices. Here are nine of the biggest potential mistakes that waste management executives should avoid to increase the chance of a successful integration.
The merger of two companies is very much like a marriage of two people. A corporate union, like a marriage, is in many cases the result of a lengthy courtship, where the two sides assess the potential combined entity’s future viability as a single company.
During the due diligence and negotiation periods, the two companies come together to comb through each and every detail in an effort to close the transaction as smoothly and as quickly as possible.
What often does not go as smoothly is the companies’ post-marriage integration. While a tremendous amount of energy is poured into getting the deal across the finish line, the practical process of integrating the combined company’s businesses—from each side’s financial reporting practices to its supply chain infrastructure to its hiring process and workplace culture—represents a new set of challenges for the executive.
The integration process is also among the most critical factors that determine a merger’s success or failure. Roughly 70 percent of M&A deals fail due to poor due diligence and post-deal integration. What’s more, 49 percent of CEOs interviewed by Deloitte say that effective mergers are the result of smooth transitions from diligence to integration.
Although it may seem obvious, ensuring that the post-merger acquisition goes smoothly starts long before the deal closes. In fact, the most important elements of a successful post-merger integration start at the onset of merger talks, perhaps even before a company chooses a potential acquisition target.
After all, there is no point in pursuing a deal if the combination of the two companies only works on paper—and the proposed synergies (i.e., potential savings) that the buyer paid for never come to fruition.
Here are nine common post-merger acquisition pitfalls that are likely to derail a deal’s success, as well as how executives in the waste management industry can avoid them when assessing the viability of prospective mergers.
#1: Lack of a Standardized Integration Process
The majority of M&A deals fall apart because of bad integration practices. Executives need to start planning for a standardized integration process long before they sign the deal.
This can be achieved with continuity. In other words, a company’s executives should gather all of the potential stakeholders involved in a deal’s due diligence process—bankers, lawyers, consultants, etc.—and begin communicating from the start about the details of the post-merger integration. Better yet, each and every communication in the diligence phase should also have an eye on the post-merger integration period.
This helps to avoid the need to “bring the integration team up to speed” when the deal closes and the integration phase begins. Instead, the team can hit the ground running with its standardized process—because it took the time during diligence to get out ahead of potential integration problems.
#2: Poor Communication Between Corporate Development and Integration Teams
This is often described in M&A parlance as the difficulty of crossing the “gap.” The best companies have an integration team member involved in the due diligence phase to make sure that all information carries over to the post-integration teams. At the other end of the spectrum, some companies have absolutely no communication at all between the two parties.
Many companies have no integration team at all. Smaller companies may fall into this trap because they lack the resources to assign a post-integration team, and larger companies may feel that all of their employees are too busy with their primary jobs to be given additional integration-specific responsibilities.
Depending on the situation, executives might consider backfilling post-integration team members’ roles while they work on the integration. Having a dedicated post-deal integration team and ensuring that they are communicating with the company’s corporate development team is paramount to the long-term success of any deal.
#3: Lack of Communication Between Information Silos
A lack of communication between the post-deal integration team’s information silos often results in work overlap and poor data sharing because of disconnected workflows. Employees go from post-deal integration meeting to meeting, talking to different departments such as legal, sales, etc., and the same outstanding questions keep coming up.
What’s more, everyone uses their own tools and internal mandates, resulting in duplicate work, important details getting lost in translation and wasted time.
Post-deal integration and corporate development teams—as well as the other key deal stakeholders—should get out ahead of this problem by using a unified data-sharing platform with cross-functionality that allows information to flow transparently and efficiently among all team members across the company.
#4: Loss of Momentum
If the post-deal integration phase takes too long, or is full of unexpected blockages, the whole process can fall apart.
It is usually within 90 to 120 days into the post-deal integration that fatigue sets in and momentum slows—even when all else in the integration seems to be going smoothly. Again, having a standardized post-deal integration process mapped out from the beginning helps ensure that teams do not let fatigue derail the integration progress.
#5: Inadequate Technology Adoption
Many companies use outdated or inefficient technology tools when it comes to the post-deal integration phase of M&A. Perhaps the biggest culprit is Microsoft Excel.
While Excel is still a very powerful and useful piece of software for many core business functions, it is extremely limited when trying to streamline communication through a complex array of document sharing and collaboration during the post-deal integration phase of M&A.
What ends up happening is team members spend too much time tracking their work in multiple versions of shared Excel documents, resulting in confusion and bottlenecks in an integration’s progress.
Thankfully, there are many new software tools specifically designed to consolidate and streamline these problems. Executives should consider investigating these integration tools. In most cases, the benefits of using these platforms significantly outweigh the costs—especially when considering all of the capital and energy that was devoted to making the deal happen in the first place.
#6: Ineffective Updates for Company Leadership
The post-deal leadership team of the new company wants to know about the progress of the integration phase, but they have so much on their plate that they insist on being briefed only on the top five key items of importance.
While this may seem like an efficient model, it usually ends up doing more harm than good in the long run, because anything that may not be considered “top five” priority ends up off the radar. And in a post-deal integration, even small details can end up creating major problems down the road.
For instance, consider an example of a couple buying a new house. Of the things that are most important when purchasing a home—location, taxes, the house’s foundation, getting proper financing to purchase—the question of the refrigerator’s functionality may not seem like a “top five” issue. However, if the refrigerator is not working properly after its transition to the new home, the couple will spend a lot of time and money buying a new refrigerator.
A good integration team communicates the team’s progress to leadership with a thorough, bird’s eye view of the process.
#7: Lack of Focus on Company Culture and Workplace Environment
During the due diligence and negotiation parts of an M&A process, both sides focus most of their attention on the financial attributes of the combined company. But many deals fail to be successful because there is not enough attention paid to managing the combined company’s culture and workplace environment. No matter how viable a deal’s financial prospects appear to be on paper, it will all be for naught if the integration of cultures do not run smoothly.
A transaction creates a tremendous amount of uncertainty among employees, and the post-integration team needs to have a plan for addressing the common questions that arise: What does this deal mean for the future of the company? What direction is the company now headed? How will departments and roles change? Will there be layoffs?
Letting these questions fester can kill employee motivation and morale. As a result, executives should communicate clearly and immediately what the merger or acquisition means for the company and its direction moving forward. Executives leading this communication should be as open and transparent as possible.
#8: Delaying the Elimination of Redundancies
Once an integration is initiated, redundancies in the combined company’s people and processes should be dealt with quickly and efficiently. Ideally, prior to a deal’s close, the two companies’ management teams and relevant stakeholders should have a strong sense as to what personnel changes will be made and what organizational processes will take precedence.
Therefore, integration team members should compel the company’s leaders to communicate to employees clear and properly delegated responsibilities. This will ensure that the new combined company can hit the ground running, work out the inevitable kinks, and develop new and better processes along the way.
#9: Neglecting to Keep Key Players Happy
Retaining top executives and key employees through the integration phase and beyond not only ensures a smooth transition in the short term, but it also preserves potential synergies for the future.
Post-closing turnover is inevitable in any deal. But giving top leadership adequate financial and professional incentives to stay on board will create an environment of top-down integration and allow the necessary changes to happen more smoothly throughout the organization.
Kison Patel is a former M&A transaction advisor with more than 10 years of experience. He has seen the challenges that the M&A lifecycle presents, from inception to post-closing. He has spent the last six years developing DealRoom, a multiparty project management software designed to simplify, innovate, and automate the M&A process. For more information, e-mail [email protected] or [email protected] or visit https://dealroom.net/welcome.