After conducting interviews with M&A practitioners in North America in mid-market companies, in its report titled “Harnessing Potential: mid-market integration and managing change”, Mergermarket found that operational integration early in the process and focusing on the culture of companies being merged or acquired can not only make a deal run more smoothly, but can actually increase deal value.
In an M&A transaction, the integration process is key. In Mergermarket’s study, 47% of respondents reported that they started to consider merger integration strategies during negotiations. As well, 73% of companies had an integration plan completed prior to the deal signing. The effect of thorough integration plans is subtle but clear; companies that had integration plans achieved a 90% level of operational integration, while those without only had a 84% level of operational integration. This effect is also felt at the management level. With integration plans, 86% of the management team was integrated. Without, only 77% of the management team were integrated.
When planning an integration process, cultural integration cannot be ignored. Mergermarket’s study found that a failure to integrate employees significantly reduced the value of the deal. Mergermarket suggests that this may indicate that while companies understand the need to culturally integrate the merged or acquired companies, a lack of resources and lack of planning in the integration process can seriously impact the deal.
Finally, Mergermarket’s study adds more support for the growing understanding that thinking past the basic structure of the deal to the eventual operational and cultural integration is necessary to ensure that deal value is maximized. A focus on planning integration in advance and on the cultural impact of organizational change can set up the M&A deal for success even before the deal is signed.
The author would like to thank James Foy, articling student, for his assistance in preparing this legal update.
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