Once the ink dries on your M&A deal, it's all systems go for post-merger integration (PMI). This phase is make or break for your startup's long-term success. It's a rollercoaster ride, marking the start of a fresh chapter. In this article, we'll dive into critical factors for this crucial stage, spiced up with real-world examples.
Effective integrators provide specialized programs for three distinct senior leader groups, each with unique roles and responsibilities. These leadership groups demand personalized skill development (see Exhibit 1).
In one of my recent successful exits with Ecoplant , a valued client, Aviran Yaacov , the CEO, adopted a strategy to complete the post-integration phase within 100 days. This involved assigning dedicated teams, pre-defined before finalizing the deal, with the responsibility of managing the integration process.
- Steering Committee: This team takes the lead in defining NewCo's (or new Line of Business) strategy, including what NewCo will no longer pursue. As architects of the deal rationale, they shape the integration approach and roles, driving the organization to maximize value while safeguarding the base business from financial and operational risks.
- Executive Level: Executives are tasked with mastering integration planning to extract maximum value from the deal. They must quickly mobilize cross-functional teams comprising individuals from both companies, spanning all functions and business units.
- Task Force Teams: Those are divided into specialized units, such as HR, development, business modeling, legal, and tax. Maintaining a robust integration team throughout the deal's lifecycle is crucial for post-close excellence.
The primary objective of this integration team is to execute the following integration tasks (See Exhibit 2):
- Ensuring Operational Continuity: Before initiating integration efforts, it is crucial to assess whether both merging entities can maintain their ongoing business growth. In successful mergers, as per McKinsey, 72 percent managed to sustain their organic growth, while unsuccessful mergers saw only 33 percent achieving this.
- Accelerating Synergy Realization: Effective merger leaders prioritize the timely achievement of key milestones, instilling confidence within their organizations and among investors.
- Incorporating New Operational Approaches: Aligning the organization with the merger's strategic vision involves a revamp of the accountability framework, often requiring adjustments to incentives. Identifying critical processes that drive the merger's value, such as the go-to-market strategy, is vital. Example: in one integration, cross-sell synergies were harnessed to address sales cycle inefficiencies and cannibalization. Consequently, the task force adjusted sales compensation within the first 100 days to prevent internal conflicts among the sales force.
As you gear up for the post-acquisition phase, here are the key areas I recommend considering. These aspects are categorized into Business and People perspectives, with both holding equal importance in achieving acquisition success. Timely completion of these tasks, typically within the first 100 days based on my experience, stands as a pivotal factor influencing the overall outcome of the acquisition (See Exhibit 3).
Business Perspective:
- Product Synergy: Uncover opportunities for product collaboration between your startup and the acquiring company. Seek ways to enhance your offerings and deliver added value to customers. Example: when Amazon acquired Zappos, they tapped into Zappos' customer service expertise to elevate the overall customer experience.
- Customer Retention: Prioritize the retention and potential growth of your customer base. Ensure that any modifications implemented do not disrupt the customer experience. Example: Salesforce maintained its commitment to Tableau customer success and support, ensuring customer satisfaction and loyalty.
- Innovation Continuity: Foster a culture of ongoing innovation within your startup. Encourage your team to explore novel ideas and opportunities, even within the larger organization. Example: Oculus VR continued to pioneer groundbreaking virtual reality technology under Facebook's wing.
People Perspective:
- Cultural Integration: Balancing your startup's unique culture with integration into the acquiring company's culture is paramount. Ensure that your team comprehends and embraces the values of the new organization. Example: Instagram retained a semi-independent status, preserving its distinctive culture and creative ethos, under Facebook.
- Talent Retention: Identify and retain key talent from your startup, as these individuals often drive innovation and growth. Example: when SAP acquired TopTier, they kept the TopTier team intact, integrating their expertise into the NetWeaver and Enterprise Portal workforce.
- Transparent Communication: Effective communication is indispensable during this phase. Keep your team well-informed about changes, objectives, and expectations. Foster open dialogue to address concerns and maintain transparency. Example: Google maintained YouTube's autonomy while providing resources and guidance, a testament to clear communication.
The post-acquisition integration phase is pivotal for startups and demands meticulous attention and strategic planning. It encompasses various elements, including team dynamics, swift decision-making, and the alignment of diverse cultures. Achieving completion within a timeframe shorter than 100 days can serve as a guiding indicator for the steering committee.
Startup CEOs, please keep these essential considerations in mind as you embark on this transformative journey. Stay tuned for our upcoming article in this series for further insights!
