Post merger integration during the crisis

​The recent outbreak of Covid-19 and its immense impact on daily life and the global economy have shown that even the best managed project is not crisis-proof. How do you successfully navigate through an integration project in volatile times, and what must you keep an eye on?

A strong backbone – central project management

Project management must be in a position to react quickly to external circumstances, and to shift the focus if necessary. The question “How can the project move forwards” should be clarified as soon as possible. In order to avoid over-hasty actions, we recommend inserting a “freeze phase”, during which all work streams stop their activities for a defined period, while the project management and steering committee consult on how the project should continue. In order not to create panic, it is essential that no asymmetry of information arises and that the period of the “freeze phase” is clearly communicated and justified. If circumstances are so unpredictable that no final plan B can be developed, as a minimum a step-by-step plan should be created for a number of scenarios. In addition, a new prioritisation of the work streams and areas for action will be necessary: what activities can, if necessary, be completely eliminated, greatly simplified or postponed until later? In addition, where does the crisis create the need for new actions?

The single most important thing is: communication

The major success factor of an (integration) project is the awareness of the participants how the processes can work “meaningfully” work within the project, and this generates the motivation to work together towards a goal. If the integration grinds to a halt thanks to external circumstances, then the project process is challenged and project members lose their bearings. In this phase, confidence in top management is particularly important and this can be significantly enhanced by early, goal-oriented and transparent communication. In addition to the regular project communication, it is possible to set up additional formats such as up-to-date newsletters about the crisis, video messages, etc. One-on-one conversations/telephone calls, and adequate feedback loops are also important. The following rule applies: the more personal the channel, the better, and also “when in doubt, overcommunicate”. In the case of official information, however, care must be taken to ensure that the flow is managed, and managers/project managers are informed ahead of employees and they then share the information appropriately.

During a crisis, remember: cash is king

In addition to reviewing the continued existence of the business model during the crisis, the soundness of the balance sheet of each of the companies - both the purchaser and the target company/ies must be considered. If a company has less debts it needs to pay off, then the interest burden is low and there is a greater capacity to reduce the operating costs for the integration project. Even here, you have to view the company as a whole: not only the resources for the integration project need to be covered, but also the employees, suppliers, etc. want to be paid during a period of crisis. In addition to ensuring sufficient liquidity, we recommend that you step up the cycle for monitoring liquidity and, if necessary, move to weekly monitoring. In addition, communication should be initiated early on with relevant stakeholders, especially with the banks who provide financing, factoring companies, credit insurance companies and ratings agencies, but also with suppliers and customers.

All crisis - or also an opportunity: legal and tax aspects

The legal topics for integration projects are generally based on the findings of the Legal Due Diligence. In addition to the processing and, potentially, the adjustment of the individual milestones of the legal integration plan, especially in times of crisis, a regular contract and claim monitoring system should be set up. When selling a company, for example, the company taking over may be looking at claims against the vendors for additional purchase price adjustments, or arising from warranty or guarantee arrangements or non-competition clauses, which only come into being and/or are recognised after the closing, or other motives may be created by circumstances relating to the crisis. Especially in times like these, the importance of cleanly drawn-up term sheets becomes apparent. For future agreements, we recommend including additional crisis scenarios (pandemic, etc.) in the framework conditions.

Also from a tax point of view, integration projects usually show some need for action. In addition to tax obligations that must be met following the merger of companies, the acquisition structure must be checked. There may be potential for streamlining, which might even be improved by a crisis. In particular, in the event of a crisis-related impairment of assets, it is worth while reviewing changes to tax structures which were not beneficial at higher values.

Conclusion

With or without a crisis – integration projects are usually complex and take place under high time pressure. They are inherently full of uncertainties that are further increased by a crisis. Managing a successful integration project in volatile times requires a combination of a robust “technical” solution and goal-oriented communication. The earlier the relevant changes are recognised and tackled, the better a crisis can be managed for the project under way. In addition, we recommend thinking “outside the box” and reacting flexibly to changes. By taking a second look, structural measures may be identified that allow the crisis to be turned into an opportunity.