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Post-Closing Integration in M&A
Post-Closing Integration in M&A
PREPAREDNESS
in M&A
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WELCOME
M E S S A G E
Michael Hofer
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Congratulations!
You have already successfully gone through many important steps in the
M&A process:
You have defined that M&A is a good tool for your company to achieve
strategic growth.
You developed a target pipeline and evaluated the companies with an
M&A scorecard.
You completed the due diligence and developed a business case and an
investment thesis.
You have successfully negotiated and closed the deal.
But are you ready for the next step? Are you prepared for day 1 after
the closing?
Day 1 preparedness is one of the phrases that you often hear in M&A, and it
has a significant impact on whether your M&A deal is successful or not.
Have fun reading more about it in this guide!
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A 5 STEP M&A
PROCESS
Understanding mergers and
acquisitions is difficult because of 1 Strategy Formulation and
its complexity. Nevertheless, you
usually follow five steps from the Pipeline Development
beginning to the end in the M&A
process.
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There are many things that need to happen after the closing.
Here are some of those topics:
Internal communication with employees from the acquirer
and the acquired company
External communication to financial stakeholders
Communication with clients, business partners, and
suppliers
Post-closing adjustments to the purchase price
DAY 1
It is obvious, but ensure that you choose the best person for
this position. The project manager plays an extremely important
role during this period of the M&A transactions.
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COMBINE
I N T E R N A L A N D
E X T E R N A L E X P E R T S
I always found that combining internal teams and external experts results in
better results. I suggest that you use external experts and combine them with
your internal teams throughout the M&A process, including the post-closing
period. You don't have to solve everything by yourself.
M&A is different from regular day-to-day work, and there are some unique
topics where external experts can be very helpful for you. Examples are
valuation topics for the purchase price allocation, legal topics for the
conditions subsequent, changes for the legal entity structure, and
accounting firms for the working capital adjustments. Also, consider using
integration and restructuring consultants if you don't have the talent in-
house.
Another reason for using external experts is that the workload for people on
the post-closing team is high, and adding external resources helps you to
avoid overloading your employees.
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PURCHASE PRICE
ADJUSTMENTS
In many M&A transactions, you agree in the purchase agreement to adjust
the purchase price after the closing to specific changes in the financial
situation. Theoretically, you can use any metric for those adjustments, and
the examples below are not comprehensive. In essence, you use those
adjustments of the purchase price for any changes that affect the value
of the target company at the closing date. Here are a few examples of
post-closing adjustments:
Working capital adjustment
Net debt adjustment
Indebtedness adjustment
Other adjustments for significant changes in revenue (e.g., ARR/annual
recurring revenue), material changes in expenses or capital expenditures,
or contingent liabilities
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PURCHASE
PRICE
ALLOCATION
T O D E T E R M I N E T H E
G O O D W I L L
At its core, M&A is a tool to achieve a specific company goal. You can use
it to grow faster in an existing market, expand into a new geographic area,
develop your product & service portfolio, achieve cost savings based on
synergies, or improve your competitive position (i.e., a market consolidation).
The big question is whether you add value to your company with M&A,
and here come the topics of value capture and the investment thesis in the
game.
I'm not going into the details between value creation vs. capture. A simple
explanation is that value creation is the potential gain (i.e., willingness to pay
minus cost), and value capture is the actual gain (i.e., price charged minus
cost). What is an investment thesis? An investment thesis represents a clear
and concise statement of the strategic goals and expected outcomes of a
transaction and how to get there. It is the basic idea of how you create value
with the M&A transaction. In essence, the investment thesis is the same as the
value capture because both focus on how a company actually achieves a
financial gain with an M&A transaction.
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OPERATIONAL
I N T E G R A T I O N &
C H A N G E M A N A G E M E N T
The operational integration comprises all of your departments. Depending on
your investment thesis and integration approach, you either start integrating
them right after the closing or at a later stage. For example, I have seen
companies that want to run the acquired company separately for some time to
see how it develops. In such a case, some - or all - functions stay initially
separate. Here are some tips for a successful change management:
Make it clear why change is necessary. People want to understand why
the company wants a change.
Use different communication channels and talk with people. Some
prefer social media, some email, and others like to go to a website on
your Intranet to learn about the planned changes.
Set up regular check-in meetings with the leaders of the integration and
ensure that you exchange information about the status and issues.
Find change agents and use the concept of marginals. Change agents
play a crucial role in successful change management. Ideally, they are at
the margin of social groups, meaning they jump between social groups in
the companies.
Focus on opportunities. There are always opportunities in life, but
many tend to highlight problems and issues more. Continue highlighting
the opportunities.
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PERFORMANCE
I M P R O V E M E N T P L A N S
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COMMUNICATION
While financial considerations and legal aspects often dominate the
discussions around M&A deals, the significance of effective communication
cannot be underestimated. Clear, transparent, and well-executed
communication plays a vital role in facilitating successful M&A
transactions and ensuring long-term integration and growth. This is the
case for the whole M&A process and is especially important in the
integration of the company.
RELATIONSHIP
BUILDING
There is one crucial success factor in mergers and acquisitions that you
cannot find in textbooks or university courses, but it makes a big difference:
Relationship building between the acquirer and the target company.
Building a relationship between the parties makes everything easier
during the early M&A process and after the closing, especially during the
integration and performance improvement projects. Ensure that you
include communication and relationship-building actions in your M&A
plans.
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CULTURAL
INTEGRATION
Integrating different organizational cultures is often a complex and difficult
task. I have seen companies where people identify with their former parent
company even years after being acquired by another company. Understanding
what the company's culture is, acknowledging differences between the
companies, and actively working towards creating a culture with common
goals is essential.
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