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Post-deal integration: success depends on people

Gerard Nichol Gerard Nichol

For almost any business, regardless of what it creates and sells, the people within it – what they know and how they do what they do – are central to its value. Gerard Nichol explains that there's a lot you can do to get your post-deal integration right: from winning hearts and minds to using AI to select a new leadership team.

People are your biggest asset, but when it comes to successful integration, they're also your biggest risk.

Can you imagine this scenario?

It’s three months since you toasted the deal and things aren’t looking so rosy.

The marketing team are leaving one by one; there was ‘that’ social media post on the toxic new working environment; and the former leadership keep dropping by your office to offer ‘helpful’ advice.

You haven’t had time to think about, let alone deliver, the strategy that seemed so clear when you first proposed the deal and embarked on integrating the businesses.

M&A might be a numbers game, but it’s a people game too. Delivering the financial objectives of a deal involving integration frequently depends on shaping the future leadership team and gaining business-wide buy-in to change.

What can companies do to get post-deal integration right? This is the question we asked the expert panel at our most recent Corporate M&A Community dinner and these are the highlights of what they said.

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Consider assessing culture using a data-led approach and appreciate the sensitivities

IT integration is often a major focus during a merger. But while your experts are debating software choices and data migration, who is doing the same for company culture?

As with financial and operational information, it is possible to boil the people side of things down to data points to support analysis and reduce subjectivity. This provides a basis to understand any cultural differences between an acquirer and acquiree and to plan how the cultures can be aligned.

Unlike, perhaps, for aspects of IT, there is a lot of emotion attached to company culture: few employees would notice a change to backend IT infrastructure, but there would be uproar if a highly respected leader exited in circumstances which people perceive to be wrong.

Resentment can also build for more subtle changes that lead to people on one side of the deal feeling that their identity is eroded. Likewise, there can be disruptive resistance to change if people feel they’re being forced to work in new, perhaps unwanted, ways.

The right third-party adviser can help senior leaders navigate these sensitive issues, providing frank advice and constructive challenge.

Engage people to successfully deliver the benefits of the deal

The primary goal of a leadership team after an acquisition is to deliver value from ‘business as usual’, while realising the benefits of the deal. To do this, you must be sufficiently prepared to engage people from day one:

  • During due diligence, achieve clarity on what the new business will look like, what it will achieve, and how you are going to get there. Don’t leave this until later
  • Align the new leadership on the strategy for integration and clearly communicate it to the rest of the organisation in an appropriate way
  • Demonstrate that the merger has been well thought through by pre-empting and addressing all operational issues (eg access to systems, clear branding decisions and contract continuity)
  • Communicate all changes, particularly to employees and customers (including comprehensive FAQs)
  • Be clear on how financial and non-financial value will be realised, and task people with the right level of influence, experience and control to deliver the benefits

Talk straight – say it as it is

People deal better with bad news than uncertainty, and they value honesty. Don’t call a takeover a merger. Clarify and communicate the implications around job losses early on and stick to your announced strategy.

This is particularly true if the deal impacts more than one leadership team. If there is no longer a real role for someone, it’s best to let them go respectfully, appropriately and at the right time rather than keep them on.

This is difficult to do as people want to preserve relationships, but the right leader is the right leader regardless of whether they come from the acquirer, acquiree or elsewhere.

Select leaders with the right behaviours

People trust a leader who doesn’t put themselves first. If they display the right behaviour, they can demand it of others.

In private equity, for example, management incentive plans exist to motivate leadership teams. However, the division of the equity pot can ignite previously hidden politics and rivalry, creating division within the management team. A chief executive who is out to grab as much equity as possible is unlikely to gain trust. The rest of the team will make assumptions about their worth based on their own share.

Sophisticated technology is emerging to help with leadership selection. For example, LCAP Group’s data-driven approach uses enormous volumes of data and AI to model the behaviours of potential leadership teams, looking at areas such as the complementarity of individuals and their collective strengths compared with similar businesses.

Protect value with a people-first approach

No CEO will disagree with our opening axiom: a big part of the value of a company is its people. Therefore, there is a strong argument that due diligence should include a thorough analysis of company culture and that planning for the integration, with people as a key part of that, should start as early as possible pre-deal.

The best acquirers are those which know that the integration will be well placed to succeed – delivering the benefits which underpinned the rationale for the deal – if people are engaged the whole way through.

With thanks to our panel

Gerard Nichol, Director, Operational Deal Services at Grant Thornton

Neil Martin, CEO, RM plc

Graham Roadnight, CEO, The LCAP Group

Alan Dale, Partner, Operational Deal Services at Grant Thornton

For more insight and guidance on post-deal integration, get in touch with Gerard Nichol