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Importance of the Post-Merger Phase

Updated: Jan 22, 2021

After both parties have successfully sealed an M&A transaction, the integration of the purchased company into the buyer's company begins. This phase should by no means be underestimated. Rather, it places high demands on everyone involved. The success of all previous M&A activities depends on the outcome of the integration phase, also known as the "post-merger phase". The key to achieving the planned acquisition targets now lies in successful post-merger management.


Every company can be understood as a microcosm made up of innumerable social factors and processes. These influence the behavior of employees in many ways such as their cooperation, communication, motivation, and mannerisms. These factors are often subsumed under the term "corporate culture". The corporate cultures of the buying company and the company to be integrated with often differ greatly, especially when both companies vary significantly in size. When such integration occurs, the following typical problems. First, the complexity of the integration phase is significantly underestimated. This often means that too little time is planned for the post-merger phase. To make matters worse, too much focus is often placed on quick economic success, which is manifested solely in financial figures to better justify the M&A transaction. And second, the emotions and sensitivities of the employees are often underestimated after an M&A. A company integration often represents a significant change in their everyday work. This change is often associated with uncertainty and fear of the future. Many employees fear changes in the form of downsizing, relocation of the workplace, and integration into an unknown organizational structure with new superiors. If post-merger management does not counteract this, a feeling of powerlessness can quickly develop in the employees, which can quickly turn into rejection, anger, and resignation. An internal termination of the affected employees or even a migration of service providers can be the result.


Often the owners of medium-sized enterprises, the most important manager and central knowledge carrier. These companies are, therefore, strongly influenced by the entrepreneur who, ultimately, unifies the two companies. So, when the owner leaves, many managers first have to be introduced to their future management tasks. Often the corporate identity of small and medium-sized companies grows over decades and is characterized by flat hierarchies, unbureaucratic cooperation, quick decisions, informal communication, and the variety of tasks of the employees. If the acquiring company is a large company, it can be assumed that its corporate culture will differ significantly from that of its acquired company.


To be able to control a large company appropriately, its organization is usually much more structured and formalized. Decisions have to go through several levels and the tasks of the employees are usually more specific. Much emphasis is placed on a comprehensive documentation of the processes. With the merger, the corporate culture of the medium-sized company will inevitably have to adapt to that of the large company, which often results in a loss of the medium-sized corporate’s identity. As the corporate identity grows over time, employees must also be given adequate time to adapt to the culture of the merging company. Therefore, the sensitivities of the employees should be the focus in this phase. A post-merger process structured in this way can contribute to the long-term success of the mergers and acquisitions transaction.

 

Note:
All blog articles are to be understood as experience reports and do not claim to be either correct or complete. Nor do they represent legal and tax advice. They replace in no way an individual advice. The author assumes no guarantee or liability. Use at your own risk.