Do You Need a Merger Repair?

Mark Herndon headshot
By Mark Herndon
President, M&A Partners
Jul 1, 2017

Your company closed the deal over two years ago but the combined organization is still not operating as one company – results are lagging, customers and key talent are defecting, and shareholders are pressuring the Board.

This should not be the case – right? Management thought they had checked off all of the right deal actions:

  • Conducted thorough due diligence (operations, finance, systems, people) and began the integration planning process before the deal closed 
  • Assigned appropriate integration resources early and kept them available throughout the integration process
  • Chose the best top team and executives around the deal goals and strategy
  • Developed, executed, measured, tracked and reported detailed integration plans
  • Top executives made and communicated key decisions as integration progressed in an efficient, timely and coordinated manner
  • Developed, tracked, and reported balanced integration performance measures
  • Provided timely answers to workforce "me issues" and employed a retention and "re-recruitment" plan to keep key talent
  • Put in place a process to efficiently and fairly staff the NewCo
  • Compared and integrated the companies' cultures
  • Addressed all of the integration action items in each location 

But somehow, something went wrong – and it has to be fixed, or else. The transaction itself was completed too long ago for any action now to be truly considered "post-deal integration." The situation the company now faces is "merger repair." You are not alone. Numerous well-intentioned deals still go south due more to a series of small – but in aggregate very powerful – missteps and/or delays. 

"Almost half (49 percent) of the respondents indicated that their company currently had one or more prior deals in need of 'merger repair.'"

In a 2006 study by Galpin and Herndon, consisting of 124 experienced acquirers from 21 different industries, almost half (49 percent) of the respondents indicated that their company currently had one or more prior deals in need of "merger repair."

Clear Symptoms

How does a company know if it needs a "merger repair?" The signs can sometimes be subtle, but more often than not in our experience, there are clear indications of issues caused by a poorly conducted integration effort. Missed timelines and integration activities that continually languish in some state of incompletion are direct evidence of problems. But more importantly, most businesses will exhibit operational, financial and organizational symptoms that are a dead giveaway. The list below identifies ten of the most common symptoms of a company needing merger repair:

  1. Service levels are suffering. Front-line employees are still using the merger as an excuse for not having answers for customers.
     
  2. Customers are confused and defecting. They do not know which company they are buying from or how to get their questions answered.
     
  3. Performance targets have not been achieved. Key cost, revenue, product and/or productivity targets built into the deal pro forma are missed.
     
  4. Stock price is languishing. Analysts blame the merger or acquisition for poor company performance.
     
  5. Integration project milestones have slipped. Key integration activities are behind schedule.
     
  6. The organization cannot handle additional acquisitions. Another transaction is identified, but management and employees are visibly and vocally confused and stretched thin dealing with the issues created by the previous acquisition.
     
  7. Roles and responsibilities overlap. Management and employees are confused about who should be performing which tasks among and between the buyer and seller.
     
  8. Key executives and employees are leaving.
     
  9. Company core values are not being demonstrated by management and employees from the acquired company.
     
  10. Management and employees keep referring to "us and them," when talking about people from the "other" organization.

Merger Integration Results Assessment

When an organization experiences any of the ten symptoms described above, chances are the firm probably does need at least some level of "merger repair." In order to be sure it is needed, a prompt merger integration results assessment should be conducted. One client developed a quick litmus survey and administered it to all divisions with one or more acquisitions in the prior two years, and rapidly determined the current state of the organization as it related to the effectiveness of multiple integration efforts.

Our Merger Repair Rapid Assessment, is a similar, sanitized sample of that survey and can be customized to fit your organization's pain points. Additional data sources to add to your Merger Repair evaluation could include: 

  • Direct observations
  • Employee and management interviews
  • Customer turnover data, surveys and/or interviews
  • Workforce turnover statistics
  • Employee and management exit interviews
  • Projected versus achieved deal performance targets
  • Analyst comments, stock price trends, and other key metrics best suited to your industry, focus and concerns.

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