In merger and acquisition (M&A) deals, companies join forces and become greater than the sum of their parts. However, to do this effectively, they need to approach the integration carefully.
There are huge differences between companies based or operating in the same areas, and those differences increase drastically in number and severity when considering cross-border mergers. Companies should prepare carefully and prioritise considerations related to culture, personnel, clientele, operations, and financial reporting—not to mention ongoing assessment.
By creating a solid integration plan, organisations will be able to establish synergy between the two entities and position themselves for successful integration.
But from initial due diligence to final integration, the M&A process is fraught with complexity and risk. That’s why we’ve put together this post M&A integration checklist to ensure that you’re setting your new organisation up for long-term success.
#1: Pre-Integration Preparation
Although the bulk of post-merger integration happens after companies have merged, successful M&A deals require integration planning well in advance of the transaction materialising. That means, on one level, crafting goals and strategic objectives for the merger. For example, companies might identify cross-team collaboration or employee retention as useful indicators of integration success.
Then, goals need to be substantiated with trackable metrics and key performance indicators (KPIs). For example, there might be a target number (or percent) of cross-departmental teams.
On another level, companies should also designate integration teams incorporating leaders from different segments and departments within each respective business. These teams are responsible and accountable for the integration’s success; they’ll be tasked with tracking progress, solving for complications, and ensuring smooth and productive operations to prevent any post merger challenges.
#2: Cultural Integration
In an international setting, merging with another company often means combining workforces that speak different languages and exist in different corporate environments. Even amongst speakers of the same language, country-specific expectations for business may differ.
For example, consider the business cultures of two Spanish-speaking countries:
- Business culture in Spain prioritises elements like family, reputation, and risk aversion; while hierarchical is vertical, lower-level staff enjoy great influence in certain situations.
- Mexican business also values personal relationships, but there is a much stronger sense of traditional hierarchy, and lower-level staff typically do not exert as much influence.
Aligning newly merged managers and employees requires taking differences like these seriously and establishing how they contribute to (or are challenged by) the unified company culture. In a global context, an Employer of Record (EOR) can assist with human resources (HR) related considerations stemming from cross-cultural differences and ensure staff-wide support.
#3: Staff and Vendor Integration
After a merger or acquisition, the company needs to integrate the workforces from both companies and navigate the tensions that come from employee turnover and other changes.
One of the biggest challenges of the integration process—or failure to integrate effectively—is that employees can feel alienated in their new environment. This leads to issues of attrition, as companies can expect to lose up to 33% of acquired hires in the first year after the acquisition, compared to just 12% of employees hired independently of the M&A agreement.
The solutions to all HR-related issues mirror the ideal approach to cultural integration above.
Staff, both new and old, need to be welcomed and supported, with opportunities to contribute to the business culture at the newly formed combined company. They need to be reached out to and affirmed—and that goes for full-time and part-time staff as well as third-party contractors.
Worker Classifications in a Global Context
Another critical consideration is the different kinds of work and labourers both companies use—and whether employees and contractors will retain their same classifications. Integrating new workers effectively requires ensuring fair organisational positioning and compensation.
A recent example of why this is important is the new Department of Labor (DOL) worker classification rule in the US. Namely, if either company involved in the deal has workers operating or living in the US, there is a six-factor test to determine whether they are workers (who may require indirect compensation) or contractors (who likely only require direct pay).
Due diligence for any merger, especially an international M&A, should include a thorough review of contractors and employees to ensure they’re being classified correctly. Workers who were formerly contractors may now need to be reclassified (and compensated) as employees.
#4: Customer and Client Integration
Aside from integrating personnel, post-M&A integration also needs to account for clientele. A business needs to make sure existing customers and clients aren’t off-put, especially in an international context. That means pouring resources into marketing and brand efforts.
McKinsey breaks down the importance of marketing integration post-M&A into “six Ss”:
- Story, or prioritising how clients see a company’s overall value
- Segments, or refreshing how the company fits into the market
- Service, or emphasising how it meets the needs of clientele
- Share, or delivering on promised value consistently over time
- Science, or using an objective and data-driven approach
- Scope, or setting appropriate and realistic goals
Together, these branding and marketing pillars unify client and customer bases post merger.
Considerations like these maximise the potential for retaining customers and clients after a merger or acquisition. But they also optimise marketing and sales focused on new business.
#5: Operational Integration
Personnel and clientele rely on systems to do work and access the goods and services provided, respectively. It follows that a key part of post-M&A integration is ensuring that both internal and external stakeholders are supported with unified operations. On one level, this means both picking and implementing optimal hardware, software, networking, and other platforms.
On another level, integrating operations means accounting for workflows and processes that radically alter workers’ day-to-day duties, client funnels, and customer journeys. Differences across these and other operational systems need to be studied carefully, and impacted parties need to be supported. Plan for an extended roll-out or adoption of new systems across the acquired company, with training and potential remediation as staff adapt to new realities.
Regulatory and Antitrust Considerations
One of the most important operational considerations post merger is if and how the combined company abides by local laws and regulations, especially concerning antitrust.
One landmark McKinsey analysed all failed M&As over €1 billion between 2013 and 2020. Its authors found that regulatory and antitrust concerns were a leading cause, accounting for about 14% of the overall number of failed deals and 21% of the proposed value in them.
The authors highlight the central importance of due diligence in mergers and acquisitions with respect to each country’s anti-trust legislation. For example, companies merging within or across the EU need to be aware of the Treaty on the Functioning of the European Union. And, at the same time, those executing an M&A involving the UK need to mind the Competition Act 1998 and Enterprise Act 2002.
#6: Financial Integration
Another concern closely connected with regulatory requirements is how finances are tracked and reported across merging companies. Depending on where in the world each company is located, different accounting principles or documentation might be required or preferred.
For example, some of the most widely used accounting frameworks are the International Financial Reporting Standards (IFRS). The IFRS are used in 168 national jurisdictions across the world, and they are required for publicly accountable companies in 147 global jurisdictions.
However, there are some notable exceptions—public companies in the US, India, and China, among other nations, are not expected or not allowed to use IFRS. When integrating across a national border, it’s imperative to align accounting and recordkeeping with required standards.
Additionally, companies operating in and across multiple countries or regions may need to account for multiple financial reporting frameworks simultaneously. Plan accordingly.
#7: Post-Integration Evaluation
Finally, companies need to continuously evaluate the progress they’re making both as they integrate and once the integration is finished. It’s natural for integrations to take a long time to complete, especially with larger companies and/or cross-border M&As. Patience, vigilance, and a clear sense of goals (see #1 above) are critical to evaluating and ensuring a successful integration.
Beyond internally developed integration metrics, one M&A advisor recommends assessing for:
- Overall integration success, including unification across product and location
- Employee experience by way of morale, attrition, and engagement
- Financial performance, especially compared against pre-merger figures
- Customer satisfaction, as seen in loyalty, retention, and feedback
- Operational efficiency with respect to costs and logistical considerations
- Market share with respect to industry, local, and global competition
- Cultural integration by way of alignment and communication channels
- Risk assessment with respect to hard (legal) and soft (reputational) risks
Of course, tracking metrics like these is only half the battle. Companies also need to adjust their strategies to address any deficiencies uncovered. Resources may need to be allocated to team building, client outreach to boost engagement, or expanding capacity with global talent pools.
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