Planning Ahead, Delegating Vital For Post-Merger Success

Virtually every IT company enters a merger or acquisition with high hopes, but that optimism often turns into dread once the two companies are joined.

Two-thirds of M&A deals fail to meet expectations, and the post-merger integration process is almost entirely to blame, according to Reed Warren, vice president of Revenue Rocket Consulting Group. 

"You need to start the post-merger integration pre-close," Warren said during a breakout session of 2015 XChange Solution Provider in Dallas.

That's because firms are usually focusing on due diligence and other important aspects of the deal prior to closing, Warren said, leaving them in a fragile state of mind.

"By the time you sign the agreement, everybody's convinced that it's going to fall apart," Warren said.

Last year surpassed 2013 as the most active year for M&A transaction in the history of the United States, Warren said, and early signs are that 2015 is going to be even more active.

Businesses can realistically start their post-merger planning three weeks prior to closing, said Warren, noting the process will help lift people's eyes above what happens if the deal doesn't go as planned.   

Additionally, Warren said the CEOs of each company must avoid the natural inclination to micromanage the integration process by sitting on every committee and making everything run across their desk.

Such a top-down approach ends up stretching the C-suite thin and leaves top execs with inadequate time to oversee day-to-day operations of the company, Warren said.

"As CEOs and as leaders, it's impossible to be in all of those places," Warren said.

Smaller solution providers will find it more difficult to relieve their top executives of integration-related meetings, Warren said, but should still involve as many people as possible in the process.

An outside advisor can also help smaller companies by laying out some templates so that upper management doesn't have to come up with integration plans all on their own, Warren said.  

By creating horizontal teams to manage the integration and not relying on the two CEOs any more than is absolutely necessary, Warren said the message is more effectively spread across all business units, helping to boost employee morale.

Plus distributing responsibility across a broader team results in more employees with skin in the game to ensure that the integration goes well, Warren said.

That's particularly valuable, Warren said, since the rank-and-file usually take a defensive posture upon the announcement of an acquisition or merger with the assumption that their position is on the chopping block.

"Employees with presume the worst unless communicated to otherwise," Warren said.

But for businesses which manage their workforce and the integration right, Warren said post-deal turnover should be no higher than 1.5 percent, with most of the departing being workers who were looking for a new job before the acquisition was even announced. 

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