M&A Vocabulary – Experts explain: Post-Merger Integration

published on 18 April 2024 | reading time approx. 2 minutes

In this ongoing series, a number of different M&A experts from the global offices of Rödl & Partner present an important term from the specialist language of the mergers and acquisitions world, combined with some comments on how it is used. We are not attempting to provide expert legal precision, review linguistic nuances or present an exhaustive definition, but rather to give or refresh a basic understanding of a term and provide some useful tips from our consultancy practice.

Post-merger integration (“PMI”) is the process where two or more entities merge their assets, people, tasks and resources after a transaction, with the goal to create the most value for the future to the investment made. PMI is an important, even if often slightly neglected part of the merger process, requiring careful planning to ensure a successful outcome. It can be a long and complex procedure, but by understanding the process and the relevant prevailing circumstances, and taking the necessary steps accordingly, foundation for a successful merger may be established. One should not neglect it, but also not always to harmonize everything at once.

PMI consists of variety of activities, including strategic planning, organizational restructuring, cultural integration, and integration of systems and processes.

Depending on the resources at hand, a team of inhouse experts and/or external consultants is formed for planning and executing the PMI. This team ideally composes of representatives from both companies, and is involved already in the transaction process, even if not necessarily responsible of it.

Strategic Planning

Strategic planning is an essential step in the PMI. It involves assessing the current situation, setting goals and objectives, and determining how best to achieve them. This includes analyzing the strengths and weaknesses of both entities, developing a plan for restructuring, and identifying potential areas of synergy. Also strategic planning concerning the branding of the products belong to this phase.

The strategic planning should begin already parallel to the Due Diligence process carried out before the contemplation of the transaction. Thus, in addition to identify the risks related to the target and its’ business, the Due Diligence inspection should be used to gather information for planning of the PMI.

Organizational Restructuring

Another key part of PMI is organizational restructuring. It covers changing the structure of the organization to better align with the goals of the merger. This means reorganizing departments and roles, merging or eliminating positions, and possibly creating new processes and procedures. Organizational structuring is often effectuated during course of a longer period of time, not necessarily immediately after the Closing.

Cultural Integration

Cultural integration involves understanding and respecting the values, beliefs, and norms of both entities. Understanding general cultural and corporate cultural differences is highly important especially in cross-border transactions. This can include creating training and development programs, developing policies and procedures to foster collaboration, and establishing a unified corporate culture.

As simple example of corporate cultural differences encountered quite often in cross-border transactions, the differences of culture in terms of trust and representation powers of the local management may be mentioned. Enforcement of corporate policies without proper consideration, may lead to unnecessary frictions already before the cooperation has started.

Technology Integration

One of the critical parts of PMI is technology integration, namely assessing the current technology landscape and determining how to best combine the two entities' systems. This can involve migrating data, integrating applications, and developing new systems to support the new organization.

The Challenges and Benefits of Post-Merger Integration

PMI can be a long and complex process requiring commitment and perceptiveness from all respective parties to make the merger work. The success of PMI also depends on the ability of the team to address any issues that arise during the process. This can include cultural differences, organizational conflicts, and technical challenges.

PMI can help create a more efficient, productive, and profitable organization. It can also help to reduce costs, improve customer service, and create new opportunities for growth. The successful completion of PMI can lead to a stronger, more competitive organization that is better able to respond to changes in the marketplace. It can also help to create a more cohesive culture and increase employee morale.