When two companies merge, or when one company acquires another, there’s no guarantee that the deal will be successful after the ink is dry. One of the main reasons for such failure often results from unaddressed issues in Post-M&A Integration (PMI). 

Yet, successful integrations are not based on blind luck, but can be achieved via a carefully managed process. To truly make the most of an acquisition and improve your chances of success, you need to identify and develop the strengths of both companies and either eliminate or minimize the weaknesses. You must also ensure that your employees are working together effectively to help you with your objectives.

PMI is critical to any M&A success. And yet, many deals fail to address the issues associated with the process of integrating two different companies into one coherent business. However, by placing high priority on PMI from the get-go of the acquisition, you can prevent many pitfalls and make your deal a success story.

Who are we?

Since 2020, PwC member firms globally have invested in 40+ companies. The PwC Corporate M&A EMEA team (led by Steve Derz ) advises PwC member firms in Europe, Middle East and Africa when acquiring professional services firms with expertise from growth strategy to due diligence and integration - all bundled within one team. See more details about PwC as a strategic buyer.

Why PMI?

Post-M&A Integration is the process of integrating two companies after an acquisition. There are two important aspects to this process. One could be referred to as the internal integration and the other as the external integration. 

Internal integration refers to people, processes, and systems. For example, a joining HR department would need to adapt its policies and procedures to those of the acquiring company for people from both firms to work together smoothly. 

External integration is bringing products and services together under one roof by unifying sales channels, brands, etc. In short, all aspects of how the product or service is being delivered are brought together under one organization after the acquisition has occurred.

The team that is involved in the M&A process needs to also think about integration, latest when they are in the middle of acquiring another company. And best seamlessly as part of the same team (like we do here at PwC’s Corporate M&A team), No matter what you do, internal and external integration is absolutely necessary. Companies that fail at either area of integration, frequently fail in their attempts to grow and expand. Also, failure to properly integrate your acquisitions could lead your enterprise to lose its competitive advantage within an industry and to be pushed out by larger, more efficient competitors.

Successful Cases

Given that, depending on the industry, about 70-90% of acquisitions fail to meet expectations (Harvard Business Review, 2020), it’s clear that many people believe that a lot needs to go right for businesses that choose to grow via acquisitions. However, many acquisitions do succeed, also in our own experience, if both sides are willing and able to work together throughout the mutual transition process. Successful acquisitions can yield some great results, as they did in some of the below cases, where we prioritized strong project governance, integration speed, motivation  of talent and minimal disruption to the business.

However, it’s no small feat - acquisitions and their integrations are complex processes.

Common Pitfalls to Avoid

In our experience of integrating companies, the following are some of the three common pitfalls that businesses may experience during the PMI stage. These can lead to missing the goal of the acquisition, which might lead to failed business overall. 

• Pitfall 1 - Not developing an integration strategy or postponing strategic decisions 

The first pitfall is not developing or not executing an integration strategy. Without an integration strategy, the acquisition will be difficult, if not impossible, because there won't be any direction for the company's employees and leaders (on both sides: existing and joining). This lack of direction will cause issues with morale and productivity because people will not know what the new company stands for and what they need to do to succeed. In turn, this could cause a higher turnover rate as employees see no vision in sight in terms of the integration process.

• Pitfall 2 - Failing to communicate effectively about plans for the integration

The second pitfall is failing to communicate effectively about plans for PMI. If communication is poor from the beginning, it could damage relationships between stakeholders and departments within the organization, making cooperation more difficult. Communication should be constant and consistent throughout the entire process so that everyone can understand why and what changes are being made by each department at all times. Finally, communication should also make clear where both parties start on certain topics, such as benefits and compensation packages, and what's the way forward together.

• Pitfall 3 - Neglecting additional employee needs 

The third pitfall is neglecting employee needs during an integration by overloading them with work without providing resources or assistance in transitioning into their new positions. Employees who are stressed out and overwhelmed with too much change will have lower levels of performance and individual employees might be going through the change curve at very different speeds. They'll feel frustrated, defeated, unappreciated, leading to disengagement from their team or job. To avoid this pitfall, companies should provide ample training and support for all staff members. Training should also focus on for example recognizing signs of being overwhelmed among employees as well as how to get back on track after experiencing difficult times.

Common Drivers of Success

When two companies join forces, PMI is often a pivotal part of the process. Executives should place a high priority on the following topics to ensure a smoother transition.

1. Clear Strategy & Aligned Goals: It is important to acknowledge how two organizations can have different expectations. Many people will hold on to pre-M&A perceptions, so executives must (and should want to) spend time listening to and understanding these perspectives in preparation for and throughout the PMI process.
2. Established Governance & Proactive Project Management: Another key advice is to give teams enough firepower, time and structure for the integration process. Changing too quickly after the acquisition can cause confusion and unrest among staff members, who might feel they were promised one thing but then find themselves with something else entirely different. Integrating two different companies takes time and good project management skills, so it’s important that employees are given this time (and tools) to grow together as one team. 
3. Regular Communication & Effective Change Management: Lastly, it is key to proactively focus on employee communication and training throughout the integration process. For instance, by including employees in discussions about how things will change after the acquisition and what their new roles will entail so they are prepared for (and even happy about) the changes and not just confronted with them.

What Is Required From the Top

For a company's acquisition to be successful, there needs to be an integration plan, including…

1. ... a strong PMI lead and an experienced + available PMI team: it's important to have someone within the organization who oversees and implements PMI. This person will serve as a liaison between leadership, the deal team and other stakeholders in the business. He or she should be highly accessible, have solid communication, project management and analytical skills. The PMI lead shall be supported by an experienced group of full-time PMI professionals as part of the deal team (there should be no divide between the deal team and the PMI team to ensure continuity and end-to-end coverage).
2. ... sufficient PMI budget and incentives: the PMI team as well as all other stakeholders executing the integration should be available and incentivized to spend sufficient time and budget on integration activities (no PMI project should be run as a side activity).
3. ... strong commitment from the buyer’s leadership: the steering committee and acquisition sponsors should be appointed and committed to take decisions and solve escalations throughout the integration process (ultimately the person who sponsored the deal should also take responsibility for the success or failure of an integration).

Without all the above, the acquisition might fail. PMI is not just about merging two companies; it's all about growing customer and employee loyalty, which takes a strategic approach that goes beyond merely combining two companies’ resources and operations.

Conclusion

Taking the time and care with PMI is important, or you risk losing the competitive advantages that you might have achieved with your acquisition. It may feel like a lot of work, but it's a mandatory investment in your long-term strategy (on par with wiring the purchase price) and will ultimately lead to a stronger business. 

Acknowledging organizational culture should be one of the top priorities for any integration; consider retaining employees from both companies as well as any subgroups (geographical divisions) created during the integration process. Consider how employees were affected by various aspects of the acquisition, including leadership changes and possible downsizing; this will help create support structures within departments that were divided before the acquisition.

Longer PMI timelines can also be used to strategically address any talent gaps after acquisitions. You can use these windows of time to develop new skills or acquire new staff that was not available before the acquisition. Possibly even exceeding your initially planned synergies.

PMI is a vital process that can make or break the success of your company. It's important to take care when integrating and not rush things. PMI is an opportunity for you and your team members to learn more about each other, communicate better, and identify common goals. It also provides an excellent time for you and your staff to have a little fun; get out there and socialize!

Any thoughts? Please reach out anytime to myself ( Marina B. ) or Steve Derz !

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© 2022 PwC. All rights reserved. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way. Please see www.pwc.com/structure for further details.

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References:

Graham Kenny, Don’t Make This Common M&A Mistake (Harvard Business Review, 2020)

Certified Post Merger Integration Expert (CPMI) 2022 Program (Institute for Mergers, Acquisitions & Alliances)

PwC’s 2020 M&A Integration Survey

PwC’s & MergerMarket’s 2018 report “Creating value beyond the deal” 

Bain & Company 2020 survey of executives with M&A involvement

Annual Reports, Southwest Airlines

Southwest Airlines closes the chapter on AirTran (CAPA - Centre for Aviation, 2015)

Quotes from Jan Goepfert and Anja Eilers (2022)

And last but not least: Thanks to the entire Corporate M&A EMEA team for their hard work and great collaboration - you guys rock! Steve Derz Benjamin Doplbauer Marta B. Sergi M. Carmen Haider Garcia Jannik Windel Johan Carranza