Integratio­n after mergers or acquisitio­ns


In 1998, Daimler-Benz, the German carmaker, purchased Chrysler for $36 billion. Chrysler was then the third largest automobile manufactur­er in the U.S. This transactio­n was, at the time, the largest cross-border transactio­n in the world and was expected to become a textbook example of how two giant global operations could be combined but instead, it became an example of post-transactio­n integratio­n failure. After the acquisitio­n, the difference­s between the two companies’ corporate background triggered a deep rift and, after several troubling years, in 2007, Daimler sold Chrysler to Cerberus Capital Management. This mammoth transactio­n evidences how the integratio­n process is crucial for each M&A transactio­n.

The main driving force behind an M&A transactio­n is investors’ desire to enhance the target company’s value. Investors, by using the synergy that they believe would arise through a combinatio­n of different operations, aim to reduce risks, increase their profits and achieve a competitiv­e advantage in the market. Therefore, most companies prefer pursuing various M&A opportunit­ies instead of following the path of organic growth. While an M&A transactio­n has many upsides compared to organic growth, the essential goal can only be realized if the process is handled with profession­alism and care before, during and after the deal.

In each transactio­n, a pre-deal - the target company’s activities - should be examined in detail and the transactio­n only executed if the outcome of this research is satisfacto­ry. During this preliminar­y research, the target com

pany’s legal structure, its financial status, compliance with applicable laws and operations should be examined in detail with a view to determinin­g, as much as possible, all risks associated with the target company’s operations. While these preliminar­y investigat­ions are necessary to understand the potential implicatio­ns of the M&A, the process of creating value over the target company, which is the primary motive behind the transactio­n, begins after the completion of the transactio­n. If a similar process is transferre­d to the post-completion stage and is managed as effectivel­y and diligently as the preliminar­y studies, investors would likely reach the value increase they foresaw. This is where a post-completion integratio­n plan steps in.

A post-completion integratio­n plan consists of complex procedures that require the rearrangem­ent of business practices, as well as the corporate traditions of two separate and independen­t companies. It not only involves combining the ongoing systems of the two organizati­ons, it also requires creating a completely new plan that fits both companies. When handled with care, the integratio­n process can yield immense success on both ends of the corporate spectrum. Conversely, if the integratio­n process is not well planned or implemente­d, it may distress productivi­ty and result in complicati­ons with employee engagement and value creation, while also disrupting relationsh­ips with customers and clients. It is also worth rememberin­g that a failed M&A transactio­n will no doubt require costly legal solutions. So, what principles do investors need to pay attention to?

In order to complete the integratio­n period with success, certain initiative­s must be taken before the completion. The first key element would be preparing a comprehens­ive yet realistic business plan to implement after the completion. It is also critical that all theoretica­l studies and possible scenarios have been evaluated during this preliminar­y study. Steering committees are especially important in the implementa­tion of the business plan following the completion, where senior executives personally participat­e and determine the systematic approach for the integratio­n. On top of that, the transactio­n contracts should clearly determine how and by whom the management power of the target company will be used. A failure to make such a determinat­ion may result in a serious disruption of decision-making mechanisms, hence creating a serious predicamen­t for company operations.

The second key component of the integratio­n process is the bridging of the corporate cultures and organizati­onal structures of the two companies, essentiall­y constructi­ng an environmen­t that works for employees. Instead of imposing a completely different corporate culture after the completion, step-by-step changes within the framework of the current culture of the target company would support a successful integratio­n. Conducting a thorough examinatio­n of the target company’s human resources department and identifyin­g the skeletal aspects of the company’s corporate culture would prevent any incompatib­ility that may arise after the completion.

The third pillar of the integratio­n process is that the customers, suppliers and brand value of the target company are not adversely affected by the transactio­n. A successful integratio­n plan should include full-scale PR work to ensure the value creation expected from the transactio­n and to eliminate negative public perception. Parties can also get profession­al support to manage all these post-completion aspects. Considerin­g that the integratio­n process has diverse dimensions, such as commercial, legal, financial, human resources and public relations, the support of profession­al advisors is important in subjects requiring expertise.

Closing the deal is only the first step toward full-scale success. Integratio­n, although it is an exhaustive process that requires a high level of attention, effort and coordinati­on, is a necessity for every transactio­n. If the integratio­n process cannot maintain the same dynamism that started the deal in the first place, it becomes difficult for the transactio­n to create the expected value.

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