Post-Merger Integration during COVID-19 uncertainty

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Post-Merger Integration during COVID-19 uncertainty

The Situation

Covid-19 has dramatically altered the strategic and operational landscape of most organizations. Integration Consulting believes that Mergers & Acquisitions are often a viable solution to quickly adjust strategy and execution, increase returns, and find synergies.

However, the global pandemic has upped the already elevated levels of complexity, uncertainty and risk in all stages of the M&A process.

This article gives an overview, for both experienced practitioners and first-time acquirers, of how Integration Consulting approaches Post Merger Integration (PMI), from dealing with uncertainty to balancing the technical and human aspects. The success factors below represent our belief that in the Covid-19 PMI context:

  1. Uncertainty is the new normal, it is time to embrace it and adopt a mind-set that allows for frequent adjustments.
  2. Understanding your professionals is more challenging and important than ever. Effectively addressing the human side of PMI is crucial to succeed

Because every PMI is unique, we would be delighted to discuss your case in more detail and tailor the approach to your specific challenge and circumstance.

POST -MERGER EXECUTION PRE-DEAL DEAL POST DEAL MOU SIGNING CLOSING DAY 1 DAY 100 CLOSEOUT INTEGRA TION PRE P AR A TION Best moment to apply the below concepts

PMI Sucess Factors

PMIs are complex and demanding. In our experience, the following points are success factors for a PMI journey:

STRA TEGY EXECUTION C o vi d- 19 creates a d ditio n al p ress u re : Staying focused on the strategic objectives PMIs can devia te from their intended objectives , maintaining the north is easier when it is clearl y defined and detailed. Continuously refining and communicating the endgame It is crucial to detail and transparentl y communic a te the post- acquisition business, oper a tions and culture. Converting the strateg y into simple , practical components Without crea ting bite-sized and implement a ble pieces deleg a tion is inef fective . But the PMI team also needs to understand the big picture to be a ble to act autonomous l y . Acting in communication and change management Employees tend to respond with anxiety and stress to PMI, regardless of the context. Communic a tion is mand a to r y as inaction f osters rumors th a t impact talent retention . Adequately assessing and re-assessing the project team A lack of proper resourcing (e.g. combining inte g r a tion work and da y jobs) causes del a ys and/or low-quality work . T eam needs will also change over the course of a PMI journe y . Strateg y adjustments Th e “ne w no r m a l re qui re s a n upd a t e of the or i g inal inv e stmen t t hesis . A mind- se t th a t all ow s f o r un cer t a in t y (e.g. v ia s c ena r ios and de c isi o n g a te s) . Additional e xternal uncertainty Most professionals ha ve been impacted b y Covid-19; during PMI this must be addressed, the best defense is communica tion. Remote deliver y Instead of just replacing off line with online, the online benefits should be levera ged (e.g . meeting f ocus , ease of involving more stakeholders, etc.).

PMI Approach

Our approach balances both the technical and the human side to effectively deal with uncertainty.

Rushing into PMI can dama ge the investment thesis; with the deal closed it is the right moment to evalua te , and if necessa r y , adjust the endgame vision as the pre-and post- deal world could be vastl y di f ferent . M&As impact both acquirers and acquirees. Understanding the similarities and di f ferences of both companies and how the y are impacted is k e y . No m a tter the M&A type , learning from each other al w a ys cre a tes value . S TR A T EGIC ENDGAME | S ETTING THE DIRECTIO N REV I S I T A ND RE I NFORCE THE ENDGAME V I S IO N L E V ER A GE T HE BES T OF B O T H WOR L D S T O DEF I NE T HE P OS T M&A COM P AN Y Particular l y impo r tant in the C ovid-19 c ont ex t TECHNIC AL SIDE OF THE CHANGE HUMAN SIDE OF THE CHANGE TECHNIC AL SIDE OF THE CHANGE HUMAN SIDE OF THE CHANGE Core topics to cover during this phase are current str a te g y and positioning , geo g r a phical and port f olio cover a ge , internal c a p a bilities , compa n y culture and outlook. Leaders need to champion the value proposition of their respective compa n y of ori g in . T ogether th e y need to sh a pe wh a t is remaining or chan g ing. An y pre-deal hostility must be overcome , particular l y on an interpersonal level . Sometimes leadership changes are necessa r y prior to proceeding . Crea ting unity amongst the leadership team is k e y , as th e y are role models f or the organiz a tion . Acknowled g ing di f ferences in values is critical . Communic a tion h a bits or langu a ge barriers are amongst the risk factors . The leadership team composition requires the right characteristics and complementarit y . Guiding PMI requires specific leadership skills (e.g . biased towards sharp f ocus , cre a ting from scr a tch and emotional intelligence) . Prior to further detailing , the decision makers require an understanding of the str a te g y and their roles and responsibilities to realize it . Usual l y one of them becomes the PMI sponso r . An y investment theses set pre-Covid-19 needs to re-evalu a ted , assumptions f or topics such as oper a tional syner g ies or port f olio composition need to be adjusted according to new trends and f orecasts. Investment thesis targets are not set in stone . Market changes or in f orm a tion obtained after the due diligence should tri g ger further ana l ysis and detailing .
Core topics tend to be the oper a tional f ootprint , organiza tional structure and leadership , system pla t f orms and c a p a bilities , and processes readiness. But the priorities va r y case b y case . It is k e y to a void entering an implement a tion with eve r y topic being urgent and important . This step is all a bout understanding the critical drivers of the stra te g y . Covid-19 learnings should be re f lected in target processes, structures and governance . This phase is the right moment to improve resilience. Th e r ight p rof essi o nals n e ed t o b e in vo lv e d a t t his st a g e . Th e y are o f t e n clos e r t o th e o p er a ti o n or are ex p e r t s i n sp ec i f i c f i e lds . E x p a nding p a rti c ip a tion a t t his s t a g e cr e a te s buy - i n a nd a d voc a t es o f th e PMI , but a w e ll-m a n a g e d p r o ce s s to a vo id co n f li c t and con f usi o n is a p r e -r equisi te . This s t a ge c an expos e int e rnal k n ow l e dg e g a ps , pa r ti c ula r l y wh e n e x panding th e c o r e busin e ss in t o ne w ma rk ets , this ne e ds to be di a gnosed a nd a ddr e sse d w i t h hon e st y . B e t w een str a t e g y a nd e x ecu t ion is a n imp o rt a nt l a y e r o f d e t a iling the building bl o cks pe r busin e ss a r ea t h a t are r e - qui r ed t o r ea ch the st r a t e g ic e ndg a me . Th e y a lso e n a bl e del e g a t i o n , f os te r unde r s t anding a nd c r e a te bu y -in . B R EAK DO W N T HE STR A T EGY I NTO COM P ONEN T S D R IVERS OF C H ANGE | DERIVING T H E B U ILDING B LO C KS TH A T AC H IEVE T H E S T R A TEG Y TECHNIC AL SIDE OF THE CHANGE HUMAN SIDE OF THE CHANGE Particular l y impo r tant in the C ovid-19 c ont ex t
A realistic plan is the backbone of this stage. It covers who does what, when and The execution phase merits its own, detailed best practice guide and is only summarized here. A focus on people is particularly important as concrete changes are taking place. The project must remain calm and effective. S TR A T EGIC ENDGAME | ACH IEVING A S EAM L ES S “F R OM - T O CONVERT THE BUILDING BLOCKS INTO A CLEAR PROJECT EXECUTE, MEASURE AND ADJUST THE PROJECT WHEN REALITY HAPPENS Particular l y impo r tant in the C ovid-19 c ont ex t TECHNIC AL SIDE OF THE CHANGE HUMAN SIDE OF THE CHANGE TECHNIC AL SIDE OF THE CHANGE HUMAN SIDE OF THE CHANGE Discipline and a clear drumbeat are needed to link and maintain coherence between the master plan and detailed work-stream plans and KPIs. Measuring results from early on is crucial. A synergy tracker for instance checks adherence to financial targets. Gaps in project management or skills can become apparent during this phase. Thus PMI quality should be regularly reviewed with the sponsor. Responsiveness to continuously diagnose and act on uncertainty, to spot issues, adjust quickly and make good decision. A crisis merits a re-evaluation of company-wide priorities. If it requires a focus on the base business the PMI approach should be adjusted. The team will need to effectively address issues and make good decisions, sometimes requiring greater time dedication than anticipated. At the same time, even in a difficult PMI, sufficient focus on the base business is required. Rather than everyone juggling both, it is better to divide teams. The execution of the plan is more than timelines and financial KPIs, ignoring signs of noise, misalignment and stress can have severe consequences later. Rather than trying to control variables that are inherently uncertain, leaders need to empower the team and help them recognize and adapt tochallenges and changes around them. The right leader for the planning phase is critical. The professional needs to go deep and broad, consult the right people and make good decisions. A clear communication strategy and plan minimizes disruption by transparently sharing the right level of information at the right time. A change management concept is key to track impacts and needs of professionals and to foster buy-in. Leadership should champion this work. Ways of working need to enable effective cooperation. Having a deep understanding of each professional is the best means to address any issues. Project management methodologies and tools are important pre-requisites. If the plan is not dynamic, and thus unable to respond to changes, it will not be useful during the execution. The implementation plan should fit top down and bottom up to guarantee feasibility and strategic adherence. This enables the planning team to understand the strategy and enables leadership to review the capacity to deliver. Project governance and the team need to be set at this stage. Any external impacts need to be considered in the definitions. Depending on their magnitude, impacts can require escalation and adjustments. how and maps interdependencies with the day-to-day business while incorporating contingency and mitigation scenarios.

Conclusion

Dealing with uncertainty in PMI and acknowledging the human side are critical.

PMIs require the seamless conversion of strategy into execution under uncertain conditions that put a lot of pressure on professionals. We explained how to ensure that:

  • The strategy remains relevant and connected to a compelling, widely embraced vision.
  • The execution balances the technical and the human side and is driven by a robust methodology with a flexible plan that builds towards the end game.
  • The team in charge has the capacity, skills and composition to deliver.
  • People are the focus from the beginning (e.g. finding the right leadership composition to define the direction) to the execution (e.g. handling personnel changes during the integration with great care).

Despite challenging external circumstances, M&As remain a key tool to respond to a changing market. To succeed, preparation must cover the inherent disruption and associated risks.
Please reach out to us if you want to discuss the challenges you are facing or to learn more about our methodologies.

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Julian Lempp

Julian works within Integration's Munich office. He has experience both within consulting and Industry, having previously worked for a leading German consultancy and as a business development manager within an industrial goods manufacturer. Whilst he has experience across many project types, his specialization lies in supply chain, having undertaken numerous consulting projects for procurement and [...]

Rodrigo Seabra

Rodrigo is a Managing Partner in our office in Munich. He joined Integration in 2006 in Brazil and led the Mexico office, before taking on responsibility of the German office. Rodrigo is part of our Implementation practice, has amassed international experience in industries such as Consumer Goods, Retail, Pharmaceutical and Healthcare and has led strategic [...]

  • On 12 October 2020