Watch Out: How Riskiest Phase Of M&A Integration Is Taking Over and What to Do About It

riskiest phase of M&A integration

The riskiest phase of M&A Integration

The figures don’t exaggerate. Several best corporate managers get confronted with the trial of a postmerger integration (PMI). And experiential researches show that one of every two PMI attempts perform poorly. These statistics are especially revealing given that mergers and acquisitions are a staple management tool for about a decade now. There is rising professionalism in corporate M&A struggles over the last decade. Reasonably, every purchase is followed by due diligence, with the extended engagement of outside professionals such as lawyers, auditors, tax consultants, and investment bankers. Yet difficulties with postmerger integration are tremendous, and the peril to a company’s achievement possibly more crucial than it requires to be. There is the riskiest phase of M&A integration which seals the fate of the deal.

A PMI progress is determined based not on share prices but on the degree to which objectives like cost synergies, cross-selling, or know-how transfer get sufficed. However, for a real merger success, attaining these purposes alone isn’t adequate. Determinants like implementation expenses stretching over budget or critical employees departing the organization in packs may end in significant setbacks, even as crucial targets get accomplished. We, therefore, enlarged our boundary of PMI progress to add measures such as implementation ability and cultural congeniality.

Integration Phases

Let’s break the merging process into three stages to depict the integration pathway. 

Stage 1: This period starts when the transaction concludes and generally lasts during the initial two or three months of integration. Seldom the time frame is conceptualized as Day 1 through the first 100 days. This period is hard, with several decisions and decisive actions as the merger process become mobilized. People are clambering on high alarm. Situations are off-balance but running fast. Obscurity spikes, some might suspect this to be the most dangerous time, but more significant hurdles lie ahead.

Stage 2: Ongoing into the next step of integration, the flow steadies out. Performance is not as rough, and everything seems further regulated. People assume like there are higher transparency and less stress, considering that they’ve gone past the worst. The business, in general, soothes down and unwinds a little, though this is a very ambiguous situation. Generally, a real problem hides underneath the surface, issues that have been seething and which begin to heat as Phase 2 unwinds. This phase is Death Valley, the risk zone where transactions most merely start to die. 

Stage 3: Considering the bizarre challenges of Phase 2 are dealt with efficiently, the integration process shift into the ultimate act of consolidation. It can get a few added months for the merger to strike a wrap-up point, but this last step includes nuts-and-bolts implementation. The peril level dwindles drastically in Phase 3.

The Riskiest phase of M&A Integration – Insights into Death Valley

Momentarily let’s visit stage 2 and underline the risks. This stage is the most vulnerable territory through the integration process. 

The integration team underestimates how intricate merger integration would be.

Executives and supervisors frequently go into a merger overestimating their capability or disregarding the complexity of integration. Or both. Executives teams may slide through Phase 1, barely to have the “difficulties of their resolutions” hit them down in Phase 2. Management routinely presumes an initial couple of months to be the most challenging. However, postmerger evaluations typically unveil that Phase 2 is where the abrasive work of consolidation is most draining, and the harsh implications of reform hit home.

riskiest phase of M&A integration

Source: Bain

The riskiest phase of M&A integration hint 1 – Fell prey to decision fatigue

Merger exhaustion starts to show in Stage 2, and it starts a new level of malfunction. Night and day of continuous, heavy-duty decision making eventually drain management effectiveness. Researches regularly confirm that circumstances like this cause people to physiologically run out of gas. They begin scanning for reasons to evade or defer decisions. They start to prefer the most straightforward and most secure alternative, which often is seen to be holding to the status quo. There’s less readiness to compromise or make trade-offs, as managers harden their views and grow more defiant. Mainly if Phase 1 work failed to provide a limited set of distinct priorities, the integration begins to drag because people are fatigued and lack concentration.

The riskiest phase of M&A integration hint 2 – The newly formed executive team couldn’t get its act together.

This dilemma doesn’t manifest up at first. In the opening stage of team expansion—which typically happens during Phase 1 of the integration—executive performance is friendly and courteous. Disagreement gets avoided. Genial uncertainty is high, though, due to people’s wariness and secret plans. Emotions get hidden, adequate individual ideas are toned down, and there’s a hesitation in doing anything contentious. Exterior displays can provide the reaction of genuine fellowship and hint that the team is operating quite correctly, but typically, this is just a façade. As integration moves into Phase 2, executives abandon their facades, and courtesy disappears. The thinly concealed concerns and intricacies that are earlier burnished over get addressed. The “friendly” conduct displayed in Phase 1 falls way to an open dispute, tense relations, and power conflicts. Nerves are on point — passions blaze. Factions and groups develop. The leader’s influence gets questioned. With so much intensity and consideration given to infighting, the team’s achievement declines, and some officials earnestly contemplate quitting. This stage is the most uncertain time in the integration process, the weakest point in Death Valley, and typically top management doesn’t recognize it befalling.

This transaction happens in Russian roulette, with an inferior state of financial values, enormous organizational and management disagreements, stiff top management resistance, and feeble execution plan viability. 

Final takeaways

Postmerger integration is not art. While there are phases of the deal and consequent execution that surely will benefit from the skilled touch of a capable leadership team, it never disturbs to understand the odds. There are some truths in life or mergers. However, with transparency around which factors matter and which seem to be gossip, we can make better-informed decisions and pile the odds in our favor.

 

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