Mergers & Acquisitions Integrate or Wait? That Is the Question (Part II)

In part two we outline the four risks to be aware of.

In part one Mergers & Acquisitions Integrate or Wait? That Is the Question (Part I) of this two part series looked at the overall M&A environment and the challenges of achieving success with deals once they have closed, particularly in light of the intricacies of integrating two disparate organizations. 

With that in mind, it is not difficult to imagine the risk of remote integrations. Post-closing operational and cultural challenges are even more difficult to assess remotely, and the temptation to just do enough to “tick the box” can become irresistible to those who have little operational experience, and for whom culture is usually not a top priority in the first place.

Moreover, the connective tissue between the organizations is created through the integration journey when personnel from each company start to establish relationships based on perceived, shared collective interests. Much of that interpersonal rapport occurs outside of formal, structured meetings. And despite the technological advances in video conferencing, people still cannot have an impromptu stop at a colleague’s office for a chat, or have an informal side-bar conversation in the middle of a meeting via videoconference. And it is during these unplanned moments that real issues are uncovered, and rapport is built.

Beyond this, remote collaboration tools – while much improved – still do not adequately allow people across multiple geographies to co-create effectively. There is no substitute for being in a physical room in a creative workshop with multiple working groups to address and resolve challenges while ensuring everyone is heard. Add to this the fact that most people have long ago crossed the threshold of Zoom fatigue, leading to lower than needed engagement to deal with some of the most vexing issues of an integration.

This will significantly increase the temptation to rely on integration “playbooks,” and except in cases with the most basic of integrations, formulaic approaches that are not tailored to the individual companies ultimately do not work. While it may appear that issues are being checked off the to-do list, there is a real risk that it is being done superficially. Confirmation bias can lead to a false sense of progress that minimizes problems that can lay dormant and then emerge as major stumbling blocks later on when it is far more difficult to correct them. Stated differently, getting things done via Zoom has worked because it has had to – faced with no other option companies and employees have adapted. But there is a huge difference between maintaining business continuity for teams that know each other and are working with operating processes they are familiar with, and integrating two completely different entities via video conference platforms.

What to do, what to do:

With all of these dynamics at play, the decision of whether or not to undertake the amplified risk of remote integration should be taken based on an objective dissection of the risks involved.

Here are four risks to be ware of:

  1. Is the integration simple, with no nuance? Is one company being asked to follow the other’s operating environment as is – “our way or the highway” – or are they trying to preserve elements of both companies and actually integrate into an improved new entity (e.g., “secret sauce” integration)?
  2. Is there significant similarity between both companies operationally? This should not be based on how much overlap there is in vision, target customers or geographical footprint, but on a determination of the similarities in operating processes. This will help reveal potential flashpoints before embarking on an integration.
  3.  Are the cultures of both organizations complementary, and do employees behave the same way? This should not be based on observation, but should on the use of analytical tools that can define both cultures and identify differences in how the operating staff behave day-to-day, not how they feel or what they said during due diligence.
  4. Weighing the above, is the integration really urgent? Ask yourself: what are the consequences if it doesn’t happen right now?

Most integrations will be – by their very nature – complex. If leaders determine that their integration is an exception – simple, without nuance and with operations and cultures that are so similar that only minor tweaks are needed – then conducting a remote integration may be feasible if managed well. Similarly, if it is determined that integrating is absolutely urgent, then executives have no choice but to proceed with remote integration and take steps to mitigate risks to the extent possible. But in both above cases, proceed with caution and be fully alert to the pitfalls.

If the answer to any of the questions above is no, then defer integration until it can be done properly – which at this point is months, not years from now. The correlation between failed integrations and failed deals is too high to brush aside, especially given how difficult it is to objectively answer the above questions with confirmation bias and personal incentives in play.

CEOs and their executive teams who are pursuing M&A during this period when employees remain remote or at best in hybrid work mode will need to apply even greater discipline in making decisions about integration, and do so without many relevant historical paradigms from which to draw insights. Many traditional management consulting firms will counsel that remote integrations are being done effectively during this unprecedented period, but not enough time has elapsed to substantiate this belief and history has shown us that the stakes are too great to proceed based on wishful thinking. Look before you leap.

Related content:

Mergers & Acquisitions Integrate or Wait? That Is the Question (Part I)

Grow Your Business Through the M&A Pipeline

Can Your Business Benefit from COVID 19?

Understanding Your Business Investments

 

 

Amira elAdawi
Combining deep domain expertise in mergers and acquisitions with a relentless sense of intellectual curiosity, Amira elAdawi founded Amira & Co. to provide a decidedly unique and industry-agnostic approach to meeting the strategic needs of any organization conducting large, complex, high-value transactions. Her track record of success spans multiple industries and corporate environments, including hospitality, retail and consumer products. An External Advisor to Bain & Company, and a former Senior Principal at Booz & Company, Amira has guided projects across the globe for a diverse range of clients in North and South America, the Middle East, Europe and Asia. She has extensive expertise in M&A integration as well as enterprise optimization & turnarounds. Throughout her career, Amira has successfully served large corporations, SMEs, start-ups and governments. Amira is also an experienced operator, having served as director of corporate development at Orascom Construction Industries and senior finance group manager at Procter & Gamble. Amira is passionate about teaching. She regularly coaches an immersive business boot camp on strategy and financial management, and founded a microfinance NGO for single mothers in Egypt. Fluent in English and Arabic, Amira holds a double-major BA in economics and international relations, an MBA from Harvard Business School, and a Master’s certificate in hospitality management from Cornell.