10 risks of a failed M&A integration

“It’s not just about getting the deal done, it’s also about ensuring the integration and synergies can be delivered,” says Henry McNeill, leading Subject Matter Expert (SME) in post-acquisition & merger integration with 35+ years’ experience in the field. 

It's a tough pill to swallow that a quarter or all managers overestimate post-deal synergies by over 25%. And even if you were conservative with synergy estimates, there's also the risk you won't realize them post-deal due to integration issues.

For M&A to be a worthwhile venture, PAI and PMI efforts need to drive the synergies, efficiencies and benefits laid out in the deal. 

What is integration risk?

Integration risk is the possibility that integrating a new process or technology, or merging more than one department or organization, won’t work. 

Plus, the risk of a merger and aquisition failing during integration is higher than you might think:
 
“Many companies remain unintegrated well after their acquisition date; it’s very easy for a company to get distracted from the more difficult delivery of synergies and solve more urgent operational problems.”
 
A merger or acquisition is a major corporate restructure, so a detailed integration plan is required if maximum deal value is to be realized. Moreover, integration can be a tricky business to get right; there are numerous potential integration issues to trip you up. Let’s look at these in detail.
 

10 common integration issues in mergers and acquisitions

In post merger integration (PMI), failing to plan is the same as planning to fail. In fact, analysis by Deloitte of one of the world's largest PMI databases concludes that the third most damaging risk driver to PMI success arises from inadequate implementation planning. Indeed, when one of every two PMI efforts does badly, it's important to acknowledge the issues up front and ensure your integration plan addresses them all. 

1. Heavy workload

A significant issue for M&A integrations is the enormity of the task. With such a huge undertaking, it can be difficult to stick to the integration timeline and maintain momentum while continuing on with business-as-usual operations.

2. Insufficient communication

Effective communication during periods of significant change is always a challenge. But the outcome of poor communication during an M&A integration could be quite serious. Poor communication could result in cultural friction, customer churn, stalled productivity, poor morale, and even unexpected costs.

3. Loss of information & knowledge

The risk of losing valuable data and insights is a natural result of information silos that can form between two teams, particularly if key staff members have left the business, or if the deal team has finished up without transferring synergy explanations or intelligence. 
Without a proper integration, teams and communication lines remain siloed, with both sides continuing to work as two separate entities and zero synergies or value realized.

4. Duplication and wasted resources

The expense of running duplicated teams, processes, systems and data can be extraordinary – not to mention the associated management time reconciling the differences. Without effectively incorporating new technologies or products, the business entity can expect to waste far more than they should by continuing on with processes that aren’t standardized.

5. Leadership issues

Frequently, post merger integrations struggle to achieve value because of issues with leadership. Analysis conducted for Harvard Business Review found that senior leadership capabilities within acquiring companies plus middle management leadership wtihin target companies have the greatest effect on integration success. So critical is leadership to the success of a merger that the author concludes that the collective leadership capabilities of acquiring and target companies should be part of the due diligence that precedes an M&A offer.

6. Employee resistance

Employee resistance is a well-documented threat to change management, and PMI is no exception. As layoffs are frequently a feature of mergers and acquisitions, it's common for personnel to feel negative about such a deal, which can result in key staff leaving the company at crucial moments in the integration process. And we're not just talking about low to mid level staff. Resistance is especially high at the top management level, since the new company is unlikely to retain two heads of marketing or CTOs on the organization chart. People will be feeling overwhelmed, so the added 'us vs. them' culture variations can lead to a struggle to retain talent. 

7. Company culture

Employees might not be fully informed about the relationship or confused about the integration between the two companies. Without a unified ‘big picture’, vision or mission to work to, culture gets lost – and so do the individuals within it. According to McKinsey, approximately 95% of executives say cultural fit is vital to an integration's success. Due to the human element of corporate culture, this can be one of the more complex aspects of integration to get right.

8. IT integration

This is an aspect of post acquisition integration that frequently experiences delays. IT integration challenges like data security during transition, and knowing which systems to. keep, can impact the value of the deal and the planned synergies.

9. Lack of alignment for the new unified entity

If both sides of the M&A deal fail to align on business objectives, they can’t achieve the original objectives laid out in the deal – or they’ll lose sight of them completely. Without a proper integration, the path forward for the new entity will remain unclear and their future, ominous. 

10. Customer churn

A frightening outcome of a poorly-executed integraiton is loss of customers. First Union Bank, for example, lose 20% of its customer base in the first year after purchasing CoreStates Financial in 1997. Companies stand the best chance of avoiding this outcome if they adopt the customer's point of view when they make important integration decisions. Ensure that every integration activity is evaluated in terms of customer experience. After spending so much time and effort on the deal, all too often organizations revert back to business as usual - an approach which isn't likely to fit with the new business/objectives.

Overarching post M&A risk: Loss of value

Ultimately, all the above lead to one risk - failure to realize value in the deal – making all the work done on M&A obsolete. Creating shareholder value comes after the deal is done, which is why it’s so crucial for advisors to get out of the transactional mindset and focus on ongoing business lifecycle management and support.
 

Mitigating M&A integration risks

Some ways to mitigate post acquisition integration challenges have already been mentioned. Let's recap and include some more best practices below.

• Be conservative in your deal synergy estimates
• Forward-plan your integration
• Always complete a merger and acquisition risk assessment
• Keep customer experience central to your integration plan
• Make sure you have enough resources to manage the integration and maintain BAU operations
• Develop and commit to an effective communications plan
• Assess leadership qualities and capabilities
• Be absolutely meticulous in due diligence

Merger and acquisition risk management checklist

Henry McNeill has partnered with Ansarada to develop a checklist for post merger and post acquisition integration - for both mid-market and for companies with a greater IT infrastructure.

Get the post acquisition integration checklist now.