Post Merger Integration: How It Works

The success of an M&A process depends not only on careful and structured preparation and an orderly signing of the agreements, but also on the integration phase following the legal combination of the companies. Practice shows that an organised post merger integration can be the decisive key to the M&A process. This article looks at how a post merger integration should be carried out.

Contents

• How is post merger integration defined?
• What are the steps / core tasks of post merger integration?
• Post merger integration as a change process
• Advice on post merger integration

How is post merger integration defined?

Post merger integration (PMI) refers to the phase that usually follows the combination of companies in the course of an M&A process. This phase is characterised by the harmonisation and structuring of the "new" company. The processes, structures and business units of the companies involved are to be aligned and merged.

What are the steps / core tasks of post merger integration?

Although every M&A project has its own focus and starting point, five core tasks / fields of action of a PMI process can broadly be identified, and these are generally the same: planning the PMI process, interlinking the management organisation, staffing the leadership team, merging the operational organisation, and taking account of corporate culture and employee behaviour. What matters is that the individual tasks are closely coordinated, so that in the end there is one functioning overall organisation rather than two mutually exclusive parts.

1. Setting up the PMI project

Successful integration already begins with the definition of the M&A strategy and planning. During the due diligence review, the areas relevant to the strategy should also be questioned and examined thoroughly. Many companies therefore start the PMI process too late and underestimate its duration and effort. Without early planning, they do not concentrate on the relevant areas and create unnecessary complexity in the PMI process.

Planning of the PMI process should accordingly begin early. The first step is to set out a rough plan with the main integration steps and milestones. At the outset, the PMI process cannot be planned down to the last detail; rather, new findings and changes are continuously incorporated as the process moves on, allowing for a dynamic integration process. In this way, an increasingly detailed and refined PMI plan emerges, which then has to be followed.

It also requires the selection of suitable PMI staff and the active support of senior management. The PMI staff are often the first point of contact for dissatisfied employees who may cause resistance, and should therefore be chosen carefully. Senior management should be involved in particular because of potential (incentive-related) resistance among employees, so that it can be overcome through the hierarchy and additional resources can be made available. In addition, certain key members who can contribute sound operational as well as internal, employee-related know-how always need to be involved.

2. Interlinking the management organisation

This field of action concerns the interlinking of the management structures. First, clear rules are needed on which competences will in future be assumed by corporate management and/or by the operating business units. The next step is to determine the organisational design of the downstream operating business units, where a distinction is usually made between a functional, a divisional and a regional organisation.

3. Staffing the leadership organisation

Once competences have been allocated, the management and leadership positions must be filled. This starts with the appointment of senior management, which in turn fills the next level, and so on. A fair selection process and fair selection criteria are of great importance.

4. Merging the operational organisation

In every PMI process, the operating business activities also have to be merged. Here the PMI staff will first have to ask which processes and activities can or must be taken over and which require redesign. Only successful operational integration allows the M&A objectives to be achieved over the long term, which makes it an essential factor for the PMI process.

5. Taking account of corporate culture and employee behaviour

Besides the forms of interlinking mentioned above, there is a further core task of the PMI process that is decisive for its outcome: the cohesion and satisfaction of the employees. Employee uncertainty usually begins as soon as the M&A process is announced. This should be countered from the outset by actively involving employees in the PMI process and underlining their essential role in the company.

In this context, it is also essential to develop a shared corporate vision with which employees can identify and which allows them to continue to enjoy their work. In this field of action, training and qualification measures, supplemented by adjustments of the company's incentive systems to the PMI objectives, are often used to manage the PMI process.

Post merger integration as a change process

The PMI process must not be taken lightly. As it is a change process, there will always be certain persons or departments of the companies (in particular of the acquired company) who are not enthusiastic about the changes, oppose the combination and see themselves as the "losers" of the M&A process. This can lead to resistance and unrest, which may affect the planned post merger integration measures. It is therefore all the more important to approach, plan and manage the post merger integration carefully. In the end, no one should see themselves as a loser, but rather as an essential part of the "new" company.

Advice on post merger integration

A well-run PMI process is essential in M&A transactions. It is particularly decisive for corporate culture, corporate performance and thus for the company's position in the market after completion of the M&A process. Even though signing the agreements marks a milestone, the companies involved must not rest on it. Not least because of the complications that can arise in a change process, post merger integration should take place early, after careful consideration and with due regard to all interests involved.

Suitable methods and tools for the PMI process have developed in practice. As always with M&A projects, however, there is no predefined standard model. GEMS Schindhelm assists with the legal aspects of M&A processes and related post merger integration in Türkiye.

For legal advice on post merger integration in an individual case, please contact our office.

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