Mergers and acquisitions (M&A) have returned after being mute for most of 2023. And yet, it’s unclear whether companies’ growth has plateaued despite efforts to expand or if companies are trying to consolidate their market position since the global economic slowdown.
Whether financial, operational, or positioning motivations are the deal’s drivers, deciding to embark on an M&A transaction should be based on clear indicators. The companies that have successfully found their acquisition sweet spot are the ones that vetted not only their target companies but also themselves and understood that the lead-up to the acquisition was the warmup.
The real work begins after the due diligence phase and when you start to fold in the new company.
Take your matchmaking role seriously — no one wants a divorce
During the initial due diligence phase, you’ll analyze every aspect of your target company from a business model standpoint to the deepest crevices of its employee benefits before you begin the valuation and structuring of the deal. You aim to check several boxes, but one of the most prominent telltale signs of compatibility is whether your cultures fit or push the two sides apart.
When bringing a company into your fold, nailing communication requires a clear plan that outlines what needs to be shared, when, how, and to whom.
This taken-for-granted aspect of the deal is often the main culprit behind missed return on investment and undermines the success of the deal. The aim is to craft a unified culture that capitalizes on the strengths of both organizations, and the only way to do so is by respecting and valuing the unique aspects that made the target company successful in the first place. Creating a cultural integration plan with a common ground should start with understanding the synergies between both companies’ cultural nuances, including values and beliefs, norms, and work practices. As you narrow the search of prospects, travel to work on-site with their leadership team to find and understand the synergies. You may have to do this a few times.
Preventing polarizing cultural clashes means defining and mapping out the cultures alongside each other and identifying differences that could cause rifts. Dedicate time and resources to obtaining tools like Slack, Harvest, and Snappy to help you develop and articulate your new brand ethos and assess and measure its success over time. Make adjustments along the way with measures and incentives that fuel behaviors and drive the culture forward, so be flexible and patient.
When it comes to the familiar work rituals disrupting the process, it’s up to you to create new ones that stick, especially in the hybrid work era, where asynchronous working styles can uplift or burn employees out. Identify opportunities for cross-functional collaboration so teams can share beneficial lessons learned that could shape experience, interaction, and morale. Link up similar roles inside each company and have them do weekly, biweekly, or monthly work sessions to get the juices flowing. Also, initiate a transition management team (TMT) of members from both sides to create a shared vision that aligns both companies. This process ensures that employees are clear on their expectations and can envision their future at the company.
Manage the human capital transfer with sensitivity
Integrating an acquired company smoothly without losing key talent will be one of the more significant obstacles. The people make up a business’s collective ideas, spirit, and morals, so when it comes down to whether or not to retain key personnel, start ironing out these details in the due diligence phase.
The most important member of the company to retain or part ways with will be its founder. Most of the time, the founder must stay on to earn out. It’s rare to see it otherwise for at least 15 months. Outside of that, it’s always a personal decision whether they will remain involved in the company post-acquisition. They’ll want to balance their professional aspirations, personal preferences, and practical considerations. So, they will consider the role your company envisages for them and whether they would enjoy and excel in or limit their potential.
If the founder decides to stay, it will often be because the terms of the agreement allow them the freedom and influence to continue steering the company’s direction.
After considering the founder, take time to understand their team. If you prefer to maintain the current team structure, you can opt not to integrate. It comes down to why you’re acquiring the company — cash flow or consolidation. If the plan is to integrate, the goal should be to onboard the team or members that bring expertise, whether a deep understanding of a new customer segment or in-house technical experience. Since knowledge transfer is at the crux of this integration, lay out how you plan to merge new employees’ institutional expertise into your existing teams by having meetings with key stakeholders to lay out overlapping and non-overlapping roles. This strategy encourages collaboration and creativity and gets people to lower their barriers.
In most cases, there would be small changes at the human resources (HR) level for a long time post-deal. For instance, it may be beneficial to merge your HR teams to improve this decision-making process because the acquired company’s HR already has a deep knowledge of its employees and can help anticipate issues. For example, when eliminating some positions, you’ll need to consider how the remaining personnel will manage the work the departing staffers used to do. This collaboration will also come in handy when putting programs in place: If you foresee highly specialized individuals playing an integral role in ensuring integration stability, work with both HR teams to offer retention packages and incentive or rewards programs such as performance-based bonuses or promotions. Also, consider relevant training if new employees need to be up to speed and outline development programs, as this signals to employees that you care about their growth. In almost all cases, you would make no changes for the first 12 months, depending on whether it’s a private equity or strategic deal.
In the end, the most effective and cheapest integration solution is transparent communication, so plan how to communicate with new teams and leadership about any changes that will occur and be ready to adapt communication styles throughout the process.
Speak up — acquisition silence is deafening
Poor communication is a dealbreaker and supersedes leadership skills, financial acumen, and deal terms mutually beneficial to both parties. When bringing a company into your fold, nailing communication requires a clear plan that outlines what needs to be shared, when, how, and to whom. This strategy ensures consistent messaging and helps avoid confusion or misinformation — the silent killer of trust.
Your team wants to see management actively taking responsibility and accountability. All communication doesn’t need to come from you, so designate the role of communication lead to specific individuals or teams. Middle managers can be key communication conduits between senior leadership and frontline employees. Keep them informed and empowered to relay messages accurately and address their teams’ concerns. Reach all levels of the organization by sending out regular updates, even if there aren’t any significant developments, via multiple channels — emails, internal newsletters, town hall meetups, team meetings, and one-on-one conversations.
At the center of every deal is managing expectations, addressing concerns, and keeping everyone informed while acknowledging uncertainties and being sensitive to their anxieties. Your team wants to feel like they’re not simply being updated but involved. Establish a two-way communication stream by encouraging feedback and dialogue. This could be facilitated through Q&A sessions, suggestion boxes, or anonymous surveys, automatically fostering more trust and engagement.
Ax the tools that don’t add value
Deciding which workplace tools to ax is a collaborative decision that must involve representatives from both companies. That way, all perspectives are considered, and no questions are left unanswered
Start by taking an inventory of all the tools used by both companies. This list should include software, hardware, platforms, and any other tools used in the day-to-day operations of both businesses. Evaluate each tool based on functionality, cost-effectiveness, scalability, user-friendliness, and integration capabilities with other tools. Consider also the learning curve associated with each and the potential disruption that could be caused by switching to a new one.
Compare the tools used by both companies for similar purposes. If one company’s tool is superior in the above criteria, it might be the better choice. However, if both tools have their merits, consider an in-depth comparison or a pilot test. Once the team decides, create a detailed transition plan, including timelines, training for users, and an integration team to manage the change. The goal of this process is to not only choose the most efficient or cost-effective tools but also to minimize obstructions and ensure the combined company can operate effectively and cohesively.
Shop realistically — risks are inevitable
Most acquired companies find the more appealing suitor to be the one who plans to maintain the aspects of their company that are cared most about. Be transparent about all future plans for your employees, your brand, or your products or services, and remember that an acquisition with zero risk and an unlimited upside doesn’t exist, but the more detailed your integration plan, the smoother the deal and transition will be.