Post Merger Integration: How to Prepare for a Takeover

Listen to this article

The quarterly number of M&A deals in Q1 2023  has decreased from previous years, however the increased cost of borrowing and pressure on revenue make it a fertile ground for further consolidation.

With successful Post Merger Integrations, such deals can offer significant financial opportunities, such as increased market share and operational efficiencies.

However, if not carefully managed, the culture of the newly founded organisation can be down to a luck draw, mainly dictated by the talent retained post-integration. Take, for example, Lloyds, a very conservative British bank that took over HBOS, a failed bank due to high-risk-taking strategies. Ten years post-merger, the newly found Group faced £21.9bn PPI provisions for a hard-sell sales culture, which was never part of the parent’s culture. 

The likelihood of operational risks is also higher if the integration team is removed from daily operations. It is vital to engage subject matter experts from both organisations and ensure that the individuals involved are personally incentivised to make it a success. If an employee fear becoming redundant, he may be unable to do his best. 

 Customer and supplier relationships may have concerns about the stability and continuity of the merged entity. Making information accessible and straightforward to stakeholders during that phase is, therefore, key. Again, the Twitter acquisition can illustrate this best. When Elon announced a change to the platform moderation strategy, 50% of the top 100 advertisers paused their campaigns!

Digital Integration has an 84% chance of failure. Process streamlining is needed early on to pave the way for a stable path for technology integration. For example, when Sabadell bought TSB from Lloyds, the customer record migration failed, resulting in CEO Paul Pester losing his job.

Organisations must monitor relevant legal and regulatory requirements. In August 2016, WhatsApp announced the possibility of linking WhatsApp users’ phone numbers with Facebook users’ identities, contradicting earlier statements by Facebook, which was later fined EUR 110 million as a result.

In the end, it is essential to remember that whilst planning and good management are critical to PMI, sometimes the success of an M&A transaction cannot be entirely prescribed. Like a marriage, the success of PMIs is dependent on the specific circumstances of the union, the intentions set out at the beginning and the consistent efforts throughout the year to make it work.