How to plan and execute a successful M&A integration Featured

7:00pm EDT November 25, 2010

When organic growth stalls, bold companies seek mergers and acquisitions to bolster revenue, acquire new capabilities or enter new markets. But even the most promising deal can fall short of expectations, because the path to successful integration is strewn with land mines.

Worse yet, an analysis of the Towers Watson Quarterly Deal Performance Monitor reveals that risks escalate as companies venture across borders to expand their global reach. The percentage of cross-border deals rose during the first quarter of 2010, yet acquiring companies barely outperformed the market, proving that global transactions impose unique obstacles. Despite boasting higher success rates, domestic deals certainly aren’t problem-free. Defections by key leaders, declining employee engagement and misaligned cultures are bona fide hazards that often go undetected during due diligence and later threaten the transition.

“Financial due diligence focuses on the obvious risks,” says Christine Infante, consultant with the Rewards, Talent & Communications Practice at Towers Watson. “Integrating people and cultures poses a substantial transactional risk, yet culture fit and integration are often overlooked during the pre-deal assessment and planning phases.”

Smart Business spoke with Infante about the strategies and tactics that lead to a successful integration.

Why is the post-acquisition period so perilous?

Executives often focus on the economic synergies created by the acquisition and underestimate the need for employee and cultural cohesion that ultimately determine the deal’s success. They also subscribe to the theory that assimilation takes about 100 days, when achieving complete alignment of business processes, technology and compensation plans may take a year or more. If change management and communications programs cease before the assimilation is complete, top performers can be left vulnerable to overtures from competitors. Our surveys show that even dedicated employees who want to do a good job can get lost navigating the subtleties of a new culture or ambiguous administrative procedures.

What can be done to avoid these issues?

Our research shows that leadership is critical during turbulent times and leaders must be involved in every phase of the transition. Take steps to retain the right managers after an acquisition so they can assure operational consistency and shepherd employees through the change process. Keep your finger on the pulse of the organization by measuring leader engagement at the beginning of the process, throughout the first year, and into the next year. Finally, create a framework for success by giving them the training and the tools they need to execute their mission.

How can leaders assist with human capital planning?

Leaders are responsible for authoring and executing the post-acquisition talent management plan. They must find ways to create efficiencies, eliminate redundancies and estimate the number of employees and the necessary skills to execute the revised business plan. A sound human capital plan outlines the best strategies for closing talent gaps, retaining top performers and optimizing staff synergies while designing a structure that creates new career paths for employees and merges two disparate teams into one.

How can leaders foster cultural alignment?

Assess the cultures of both organizations during the due diligence process, then design a single culture that retains the best elements and supports the new business strategy. Allow managers to attend change management workshops where they learn how to model the appropriate behaviors and paint a picture of the desired culture for employees as well as intervention techniques that will keep the cultural transformation on track.

What’s the best way to handle change management and communications?

Managing change is both a rational and emotional process and employees turn to leaders for guidance, motivation and focus. After the quiet period ends, people will be starved for information and it is management’s job to build trust and goodwill by providing just the right amount of information at the right time. Since change management and communications are intertwined, provide managers with training and a toolkit so they can monitor major milestones and disseminate reliable, consistent information as events unfold. The kit should contain talking points, data and side-by-side comparisons of current and proposed benefit and compensation plans and policies so managers can confidently explain the changes to employees. Understand each company’s ‘sacred cows’ — for one it may be paid time off and for the other profit sharing. Plan carefully to make the transition of benefits go smoothly.

How can HR support successful integration?

HR can play an active role by involving employees in discussions around the alignment of compensation and benefit plans and by maintaining consistent delivery of critical services like payroll and benefits during the transition period. Assess each company’s HR technology as part of the due diligence process, select the right system for the job and assure a seamless transition by authoring a realistic timeline for the conversion. Allowing workers to provide input into the design of these plans gives them a sense of control over their financial destiny; their feedback is invaluable because the new plans will directly impact attraction and retention of talent. An inclusive process also serves as an outward sign of management’s commitment to cultural change, and it keeps employees engaged by offering them a say in and preview of the emerging organization.

Christine Infante is a consultant with the Rewards, Talent & Communications Practice at Towers Watson. Reach her at (858) 523-5514 or christine.infante@towerswatson.com.