Too many mergers fail to fully realize all of the identified deal value; too often the shortfall is a result of failed integration efforts. Post-Merger Integration is critical part of any M&A activity and it’s frequently relegated to post closing as an afterthought or neglected completely. Starting the PMI process early in the deal life cycle with the right participants and committed leadership greatly improves the chances of success.
Situation and Complication
A private equity group acquired 2 mid-market direct to consumer businesses. Overhead and operational cost savings were the major drivers behind the deal and therefore a successful integration was a critical driver of realizing deal value.
On the surface, the 2 entities were similar with a roughly equal revenue base and high anticipated customer overlap. Facilities could be consolidated to eliminate fixed costs and back office functions like human resources and accounting could be combined to reduce overhead.
While the high-level view was positive, a closer look revealed some significant challenges – the product lines had more differences than similarities. The diversity of product characteristics would create process challenges. Overlapping seasonality added complexity and presented staffing challenges.
Integration would be complicated with high implementation risk. Failure to smoothly integrate while maintaining high customer satisfaction would threaten current and future revenue performance.
Led by a Navigare Principal, planning for the post-merger world was initiated well before deal was finalized with key personnel on both sides meeting regularly to agree on process and key success drivers as well as perform rigorous assessment of integration challenges. Early on, the team stressed the importance and magnitude of the effort and the need for focused implementation drivers. By coordinating efforts up front, the teams would hit the ground running once the deal closed.
The implementation team worked first to prioritize efforts to get critical early wins – easy projects with material cost savings or projects with large cultural impact. Critical to the success of the project was setting clearly defined benchmarks, tracking and weekly reporting on progress.
When individual milestones were not met, the team focus wasn’t on pointing fingers but on how to get the project on track. Blame and behavior correction was saved for one on one meetings behind closed doors. Group focus was on getting results.
Starting the integration process well before closing with a team separate from the deal team and focusing on early wins and culture drivers was a big success. The complex integration project was accomplished ahead of schedule and under budget. Customer satisfaction performance measures were met or exceeded. The combined organization realized a 40% reduction in headcount and delivered $20MM in fixed cost reduction.