Very often, the hardest work on a merger or acquisition only begins after the ink has dried on the paperwork. Achieving the objectives set for the transaction usually require a successful integration process that sees the two companies coming together to form a cohesive single entity with points of friction eliminated or minimised at the very least.

Everything from product and service lines to sales and invoicing processes has to be looked at and aligned. This can be a massive undertaking, but the real complexities involve the people. Different pay structures can lead to resentments in one company or both and even cause industrial disputes if not dealt with early in the process.

Pension schemes can also be a bone of contention. There may be a need to increase employer contribution rates in one of the schemes or even to set up a brand-new scheme if only one of the companies has one.

Advance planning is critically important, according to Deloitte M&A Partner Ian Whitefoot. “Post-merger integration is about bringing the deal rationale and combination synergy case from strategy to reality and putting the right people and teams in place to deliver and protect value successfully,” he says.

“Starting your integration and planning strategy early in the M&A process is vital in giving you the highest percentage of success,” he continues. “Many companies leave it too late to begin planning, putting themselves under pressure to close the deal and achieve the expected operational synergies post-integration.” People matter, he adds. “Another key consideration regarding post-merger integration is that, while the number crunching and due diligence work is mostly completed at this stage, it's vital to focus on the impact on people and how this activity will affect them in the future - either positively or negatively or both.” These are the people who will bring these synergies to life and make the future state of the post-merged companies a success, Whitefoot points out. “Cultural alignment is also a critical, yet often underestimated, factor in determining the long-term success of an acquisition.

A deliberate and well-managed approach to cultural integration ensures a smoother transition but also promotes engagement and long-term strategic alignment. Overall integration is about ensuring business continuity through operational integration, aligning systems, processes, and functions, and ensuring that merged or acquired companies operate effectively and efficiently, realising the greatest deal value.” Xeinadin Group corporate finance director Keith McDonagh agrees. “Culture is a big, big part of it. You hear these war stories about transactions that fail within 12 or 24 months because of cultural differences. Buyers need to do their homework and proper due diligence around culture.” That can mean meeting with the executive management and senior management in the company being acquired before the deal is finalised, he advises.

“You need to prepare the sellers, the acquirers and the teams in both companies for the deal,” he continues. “No two businesses are the same. We work with clients who are looking at potential targets and help them identify ones which are culturally similar. Although they might be in the same sector and be of similar size, businesses can have very different cultures.

“One might be owned by a micromanager who feels the need to be involved in every aspect of the day to day running of the business while the other owner might believe they can step back and the business can run itself without them.” Those attitudes and approaches have a profound influence on the culture of a company, and this may persist after a deal if the former owner stays on in some capacity.

“People transitioning from being a business owner to being retired or part retired can be challenging,” McDonagh notes. “It can be hard to get used to it. It needs change of mindset for both owner and employees. Xeinadin is very mindful about taking a soft approach to acquisitions that takes culture into account.” Indeed, Xeinadin is vastly experienced in post-deal integration. The business advisory and accountancy firm has grown to have more than 135 offices and 80,000 clients across Ireland and the UK in just six years, with a significant part of that growth coming about through an acquisition strategy backed by Exponent, one of the UK’s leading private equity investors.

Cultural fit is fundamental as talent management and human capital are key drivers of whether businesses deliver post-deal, according to PwC Ireland corporate finance partner, Laura Gilbride. She points to the results of a PwC and Mergermarket study of senior global executives which found that 82 per cent of companies who say significant value was lost in an acquisition saw more than 10 per cent of employees leave following the transaction.

“Retaining key people and getting their buy-in to the future direction of the enlarged business is critically important,” she says. “Where there are cultural differences, these should be identified and explored during the diligence phase. As part of integration planning the buyer should develop strategies to bridge any gaps and foster a unified organisational culture.” McDonagh emphasises the need for advance planning. “The key to success is to be prepared in the pre-deal phase,” he points out. “What we say to clients is to get your data rooms ready even before you make the final decision to sell the business. Get the financial, legal and commercial data rooms ready and keep them up to date.

“Make sure to identify material facts that buyers need to be aware of. There may be a manager who is critical to the business and who is disappointed that they weren’t given an opportunity to acquire it. That needs to be put in the data room. It really is a case of having all that done before the sale process even starts. It can be hard work, but it makes the while process a lot simpler.” PwC Ireland corporate finance director Ray Egan is another who believes in the value of planning ahead. “One of the main pitfalls is not beginning integration planning early enough,” he says noting that the PwC and Mergermarket study found that only 61 per cent of buyers believe their last acquisition created value. 

“However, acquirers who prioritised value creation through careful planning from the start of the deal clearly outperform industry benchmarks,” he adds. “Companies that establish rigorous criteria for value creation early on and who carefully plan all aspects of integration are best positioned to maximise their returns from a transaction.” The nature of the buyer also matters when it comes to integration, according to McDonagh. “Lots of acquirers are backed by private equity. That can create perceptual issues. Some people see being bought by a private equity fund or by a corporate that’s backed by private equity as becoming a ‘corporate drone’. Those fears and concerns have to be addressed during the integration process. Really good buyers start conversations by explaining that they were once in the shoes of the target company before their business was acquired by a UK or US private equity house and that it has allowed them to build out their business. That can settle the concerns very quickly.” That need to allay concerns is shared by Deloitte’s Ian Whitefoot. “Demonstrating to M&A targets that you are a confident integrator alleviates any fears they may have about being acquired, and that what they have built will be integrated efficiently and smoothly,” he says.

“Having a robust communication and change management plan is also important, as it puts stakeholders at ease during the M&A integration journey and promotes the ‘one team’ mentality. It is essential to consider the end goal and deal rationale when planning and delivering your post-integration projects to ensure that the message is not lost as you integrate.”