Integrating companies in M&A deals:
5 things to watch out for

This is the second of two interviews with Paul J Siegenthaler, a veteran of planning and executing international M&A integrations, and author of Perfect M&As: The Art of Business Integrations.

In the first, Paul talked about why things go wrong, good and bad integration examples, and the role of interim executives. Here he offers his five, most-frequently encountered reasons why integrations go wrong.

1. Insufficient diagnosis and preparation

Only by going into sufficient detail can the interdependencies between the various work-streams of the integration project be identified and captured. Failure to identify and manage these can significantly delay the integration process or cause costly omissions. Most companies ignore how much preparation and analysis is required before the deal is closed to allow the integration to commence immediately on day one. And yet, in most integrations, there is enough to keep a team busy for 3 – 6 months before the two companies reach common ownership.

Until then, no commercially sensitive information can be shared. But each can standardise data to agreed common definitions, and together agree criteria to make key decisions when it can be shared. There’s plenty more they can do, such as: articulate the merged company’s vision; set up communication channels to be used; measure and compare the current business cultures; identify areas of complexity and resource requirements, and so on. In some cases, it may be desirable to start working with real data before completion of the deal. This is possible if work is carried out by a third party (i.e. auditors, accountants or consultants working off-site) or a ‘clean team’ comprising individuals from both companies who no longer have access to their day job and colleagues until the transaction closes.

2. Unclear governance

The lack of clear decision rules, reporting lines and accountabilities can paralyse integrations. No matter how well the programme is managed, business integration requires a great many decisions to be made and numerous issues to be resolved swiftly. Unclear governance results in decisions being reversed or delayed whilst everyone struggles to identify the individual who has the remit and legitimacy to make that decision. In the worst cases, every pending issue is escalated to the top, causing a massive bottleneck which can paralyse the integration process and seriously disrupt day-to-day business.

3. Resourcing and environment

It’s difficult to identify people with the required level of knowledge and seniority, plus the ability to envisage a future organisation, which might be very different. Removing those individuals from their day jobs to assign them to the integration team can only happen when work is re-distributed to others or suitable back-fills, such as interim managers, are in place. Consequently, resourcing needs to start well before the integration begins. The great thing about interims is that you can often get very good people at short notice – just a few days. This can be priceless when time is very tight.

Unless the two merging companies are located within close proximity to each other, a number of practical considerations need to be addressed without which work on the integration cannot start efficiently. These include: office space for the team, accommodation, ‘house-rules’, a common data repository for the team before the networks of the merging companies are interconnected.

4. Team redeployment

This is the corollary of good team resourcing, and yet most companies forget about this very important activity and consequently fail to attract the right type of candidate to join the integration team. As the future organisation will be in place before all the members of the integration team are released from the project, it is essential that meaningful positions be kept open to those individuals returning to the daily business. This requires making some provisional appointments, or calling upon interim managers to occupy those positions until the incumbents are released from the project.

In a stable business, responsibility for managing career development rests with line-management. But integrations usually reduce management numbers. So a clear process must be in place at the outset to shift responsibility for career development to senior people on the integration programme’s steering board; people who will definitely stay in the organisation post-integration. Unless this happens, the best individuals might be reluctant to join the integration team for fear of being sidelined and being left without future prospects afterwards.

5. Communication and leadership

Entire libraries have been written about this and yet it remains a common cause of failure because, in many cases, senior managers under-communicate. They don’t realise that the prospect of change and uncertainty generates a thirst for information. Without detailed credible and understandable information, rumour and speculation fills the gap. With international integrations, a lot can be lost in translation – even when there is a shared language. Failure to use multiple communication channels can also result in key messages not reaching whole sections of the organisation.

Finally, too many managers forget that communication is also physical. Body language, attitudes and presence are critically important to appease uncertainty. Leaders need to remember they must ‘walk the talk’ if they want carefully crafted communications to be credible.