The three biggest pitfalls in a post-merger integration

Last modified: 20 February 2024 13:38
Tips for increasing success in business integrations.

Far too much still goes wrong in the crucial, but often underestimated phase of integration, after an acquisition. The new book ‘After the handshake: Integrating to create value‘ by Evert Oosterhuis and Michel Maas, partners of the Dutch specialist IntegrationPeople, should change that.

The book is based on their years of expertise and addresses the common problem that acquisitions do not deliver the expected value that was envisioned in advance. “If something goes wrong with an integration, it never goes wrong in year two or three, but in the first year,” says co-author Michel Maas (in the photo on the right). “And this results on average in a negative impact of five to fifteen percent on the combined EBITDA.”

Following the publication of ‘After the handshake’, Maas shares with the dutch M&A-platform the most important pitfalls in business integrations and what you need to do to increase the chance of success.

Pitfall 1: Not properly preparing the integration
“It is crucial to think carefully in advance about how you are going to approach the integration”, Maas advises. “Which processes will you follow, how will you deal with important stakeholders such as employees, customers and suppliers, and what is the ultimate goal of the integration? Thorough preparation prevents problems and ensures that you can set the right course from day one.”

The experts at Integration People often see that all the time and energy is spent closing the deal. “But not much thought is given to the steps they will take when they get the keys to the acquired company,” says Michel Maas. “How do we approach that from day 1? How do we ensure that we gain control over the company? What reports would we like to see? How do we deal with the core employees that we really don’t want to lose? How do we deal with customers and suppliers? And why are we taking over the company in the first place and what should ultimately be the organizational model that we want to grow towards? These are the questions you want to have clearly answered in advance.”

Pitfall 2: Underestimating the culture factor
It is a well-known problem in the mergers and acquisitions area: bringing together corporate cultures is very difficult and regularly leads to value destruction. Although this awareness now exists in the M&A sector, this factor is still often underestimated in acquisitions. “The cultural differences are often downplayed, because they should never get in the way of the deal”, says Maas. “Yes, of course everyone wants to do that deal. Only, and we see this in every transaction, those cultural differences surface in the first three, four, five months. If one party has clear management from above and works in a very structured way and at the other company it is very loose and the processes are less well described, then you have to recognize this and consider how you will deal with it after the closing, otherwise this will irrevocably turn against you.”

Pitfall 3: Not making people available for integration
Another common pitfall is that management makes the integration a ‘little bit extra’ during a merger. “That is the wrong approach”, says Maas. “You have to ensure that you have a group of internal and/or external people who will carry out the integration. You have the business of company A, the business of company B and they have to continue to run, but you also want to instruct a number of people to ensure that the integration, which you should have thoroughly prepared (see pitfall 1), will take place. This is often not set up as a clearly defined project with a responsible team, with all the consequences that entails.”

Well-known figures about M&A transactions show that the majority are unable to realize the turnover and cost synergies that were envisioned in advance, and an important reason for this is integration problems. “And it is also very complex”, Maas concludes. “But you can certainly increase the chance of success. Start preparing on time, draw up a clear plan and involve a steering group in the process. And don’t forget to respect and integrate the corporate culture of both parties, as this is an important part of the company’s value.”

“Proper preparation is the cheapest, fastest and best way to tackle such an integration because you can then think carefully in relative peace”, concludes the integration expert. “After the takeover, instead of two shareholders to discuss the integration with, you have a company of a few hundred people who all start asking questions. And then everything starts moving and you have to focus on that while you’re still running your own company. And then all kinds of little things pile up that don’t go well and you quickly get stuck. Our most important tip therefore is: start on time!”

Read also: ‘Contrary to what you often hear, acquisitions do create value’



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