Mergers and acquisitions (M&A) are an effective way to unlock growth and value for your company. The reality is, however, that not all of them go down in the history books as success stories. Many companies find themselves stuck in the M&A continuum, unable to realize the substantial profit gains they’ve seen other mergers experience.
On one end of the spectrum, you have the companies that create a successful integration. They are able to integrate assets, teams, and operations to obtain the desired outcome with ease. On the other end, you have examples of many attempted mergers that ended in:
- Failure to create value
- Corrupted company culture
- Internal power struggles
- Sale of the company for a lesser value
In order to reach a measurable amount of success, you’ll have to know what to measure during your M&A. You’ll also have to outline the criteria for what constitutes a successful merger.
Here, we’ll outline the key metrics to track during post-merger integration. This post-merger integration playbook helps you monitor the right things to gauge success and ensure a smooth transition for both parties.
Overall Success of the Integration
This can be an extremely complex process. On a macro level, the most important metrics of success for a post-merger integration include the timely completion of key integration milestones.
The most important things to consider in order to successfully merge two companies include:
- Unified product offerings
- Consolidated departments
- Combining operations
- A restructured organizational hierarchy
- A central location
A huge piece of the puzzle is measuring how the two companies mesh together culturally. Employees that feel supported during the transition are more likely to get on board with new company processes and values.
Any of these changes to processes, values, mission, policies, and roles should be clearly communicated with your stakeholders. This metric is something that is often overlooked in many mergers and has caused their demise.
Of course, the bottom line is going to be the financial performance of the merger. You’ll definitely want to keep a close eye on:
- Operating costs
- Market capitalizations
- Return on investment (ROI)
- Other relevant financial metrics
By keeping a sharp eye on integration milestones, culture integration, and financial performance, you’ll have a solid foundation. The following sections will expound on these metrics in more detail.
Employee Experience (EX) and Retention
An effective integration process should prioritize:
- Employee morale
- Job security
- Work satisfaction
- Employee engagement
You’ll also want to have a comprehensive communication plan. This keeps employees informed about changes throughout the process.
That could include:
- Regular updates to the integration process
- Information on how the merger can impact individual roles
- Information about changes to management or processes
These metrics can help reduce feelings of confusion. It can also motivate your top performers to work even harder by reassuring them that the merger is good for the company overall.
It’s also a good idea to keep a close eye on retention rates. If a significant number of your staff members are leaving during integration, that’s a strong sign that something isn’t working.
Analyze the patterns you see in the departures. Then, adjust your strategy moving forward.
Conduct surveys with your current and new employees. This will gauge their experience with the post-merger integration process. Focus groups and feedback sessions can also provide valuable insights.
As you can imagine, financial performance is one of the most critical metrics to revisit while working on your monthly post-merger integration checklist. The metrics we outlined above, such as ROI, revenue growth, and cost savings, are all going to be key indicators.
Compare these current metrics to pre-merger performance, considering both quantitative and qualitative data. Quantitative data includes balance sheets, income, and cash flow statements. Qualitative data includes competitor analysis, interviews with key executives, and customer surveys.
A satisfactory review of this data will indicate a successful merger in the short term. To keep the profits flowing, however, there are other areas of interest that will need attention.
Customer Satisfaction and Retention
When two companies merge, there will inevitably be some discourse with your customer base. Some will be happy about the new direction, while others will not approve of your decisions.
It’s essential at this critical time of post-merger integration to be engaged with your customers. Fortunately, your most loyal customers will have high hopes that you will continue to maintain the same level of quality with your products and services.
Measuring operational efficiency is another key method of evaluating the success of your merger. You should evaluate:
- The cost of operations
- Input and output costs
- The production process
- Manufacturing times
- Delivery times
The goal here is to make a more efficient operation by reducing costs. Looking at input-to-output ratios gives you an idea of how much production has improved or declined compared to post-merger operations. Doing so also allows you to identify areas of improvement. You’ll know where your organization is wasting time and resources.
Market Share and Competition
Typically, companies merge in order to be more competitive in their respective markets, maximizing market share.
You can calculate market share by comparing your total sales in a given timeframe to the total sales of all companies in that same market. Then, you can add that to the market share of your partner, which is where you’ll start at the beginning of the merger.
This is often the most overlooked element of post-merger integration. Two entities can coexist in terms of general work practices, but without effective cultural integration, the merger could still fail.
It’s important to recognize that distinct cultures exist in an organization. Both sides must understand each other’s values, so designate a post-merger integration manager to create a transition plan, outlining the steps you need to take to unify the culture.
This plan can include:
- Team-building exercises
- Training programs
- Communication guidelines
Risk Assessment and Management
The most common types of risks a new merger can experience are:
Legal: It’s important to understand the laws that regulate your new partner’s business. Any legal risks should have been outlined during the due diligence process. However, make sure you’re still safeguarding intellectual property and not violating any antitrust laws.
Financial: This is an expensive business decision. The uncertainty of financial performance can put a strain on the business. Plan for contingencies in case the merger ends in an unfavorable outcome.
Cultural: Pay close attention to how the culture develops within the new organization. Make sure everyone is communicating at an optimal level.
Operational: There may be losses while transitioning to new procedures. Supply chain disruptions and technical issues can play a part in operational risk.
Reputational: If a large number of employees are leaving due to the merger, that can jeopardize your reputation. If customer service is seen by the public as being worse than it was before, that can also be damaging.
Plan for a Successful Post-Merger Integration
At Devensoft, we understand that a successful post-merger integration starts with careful planning and execution. That’s why we have developed a comprehensive suite of software solutions to support you during your M&A. Schedule a demo to learn how we can help you maximize the value of your deal.