Sunday, May 31, 2009

Merger & Aquisition : Integration Hazards and Lessons Learned

The recent financial crisis will demand the consolidation of our financial industry over the next five to seven years. There are about 8,000 banks today that will be whittled down to 4,000 during this period. These events must not be taken lightly if organizations are to realize the essential savings through economies of scale and significant productivity gain.

Industry research indicates that most acquisitions fail to achieve expectations. It is not uncommon for companies to experience a drop in productivity of 50% in the first 4 to 8 months of a merger and a 50% loss of key senior executives in the acquired firms in the first year.

Essentially a merger and acquisition occurs in two stages; first making the deal and second making the deal work. The resources committed to “making the deal” trail off as the merger is finalized and the integration approved. The majority of the problems however are related to the integration occurring during implementation.

There are normally no corporate standards or documented model, sequence of events, or blue print for “making the deal work.” The size and scope of the acquisition is normally much larger than companies have experienced in the past and demand a more structured approach; this is typical for an organization that only goes through acquisitions every few years if at all.

Another major source of contention and problems are rooted in the differences in the corporate cultures. Every corporation has its own sense of identity and its own way of doing business.

Based on my experience, these are the lessons learned for all mergers:

1. Integration management must be recognized as a full-time job and as a distinct business function and organization. Without a team dedicated solely to the process, the organization will suffer from burnout, diminished quality, delays — and risk losing valuable contributors.

2. A formal integration methodology, including phases, sequences of events, organization structure, roles and responsibilities, description of deliverables and templates should be followed. This will avoid problems with quality and consistency of deliverables, eliminate the duplication of effort, and unnecessary omissions and delays.

3. An Integration Program Office (IPO) should be formed immediately following due diligence so that integration planning can begin before a deal closed.

4. Training and education regarding the goals, objectives, policies, guidelines and deliverables of the integration should take place at the beginning of the integration to avoid issues related to poor quality and inconsistent deliverables.

5. Decisions about management structure, key roles, reporting relationships, layoffs and restructuring should be made, announced and implemented as soon as possible after the deal is signed. This avoids the uncertainty and anxiety that lasted for months and distracted employees from moving the integration forward.

6. Effective lines of communication must be established across the corporation to educate management and staff on the goals, operating strategies, established models of operation, integration assumptions, and progress. The communications process must be continuous, broad based, and reach all levels of the organization.

7. Provide employees with the opportunity to practice; simulate “real life” situations in which to apply learning. Reinforce/Evaluate comprehension of information on which employees are trained.