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Plenty of M&A deals look great on paper but ultimately fall apart in the post-deal integration phase. Here are the biggest pitfalls healthcare executives and stakeholders on both sides of a deal need to consider when managing this critical phase of the process.
An old adage compares the process of a successful corporate merger or acquisition transaction to trying to complete a large puzzle-when your right and left hand have never worked together. To put it mildly, the success of any merger and acquisition (M&A) deal requires the coordination of a plethora of moving parts.
Further complicating matters is the fact that there are suddenly two companies and additional stakeholders that now need to seamlessly work together and communicate with each other to bring the deal to completion.
But what happens after the deal crosses the finish line?
Research suggests that the results aren’t great. About 70% of all M&A deals will fail, often partly due to integration problems. Additionally, experts agree that even though stakeholders are paying greater attention to integration, it still proves to be a difficult process.
While there are many post-merger integration hazards for deal stakeholders to be aware of, here are four leading pit-falls that keep deals that look good on paper from being prosperous.
This is an especially problematic issue for buyers. The detail-laden pressures of the due diligence process often overshadow the extreme importance of executives planning and setting the tone for integration. Planning for integration can take several different forms. For instance, the buyer should host a kick-off meeting when due diligence begins and assign an immediate task to the target company. This helps the buyer gather key information about the target company, such as its ability to complete short tasks related to the upcoming integration in a short period of time.
Also, early in the process the buyer should ensure it is being connected to the right people from the seller. This will assist the buyer in getting a complete picture of the target company-something that is especially useful when dealing with smaller companies that may not have been through the M&A process before and may not have the manpower for an integration team.
Finally, all key stakeholders should have an open dialogue about post-merger integration issues throughout the deal process.
2. Lack of communication leading to redundancy and fatigue.
Not considering how teams will communicate and failing to realize that silos of information exist can lead to major problems, including redundancy, inefficiency, and fatigue. In some cases, teams don’t properly coordinate with each other and end up working on the same tasks.
Executives and post-deal integration teams can combat this problem by implementing short daily meetings for each workstream and weekly or bi-weekly meetings for the facilitators of these groups. This “reporting-up” should continue until the relevant information reaches the top level.
These brief meetings-often 15 to 20 minutes-have a variety of benefits such as establishing and maintaining clear roles for all employees and teams, eliminating redundant tasks, improving accountability-which helps fight fatigue that often sets in around day 100-and ensuring decisions aren’t being made in a vacuum.
Another way to help solve these issues is to invest in a data-sharing software platform. These project-management tools, which are designed for the demands of M&A processes, allows for increased transparency and efficiency.
3. Failure to consider the ‘change curve’ and company morale.
Just as individuals react with a variety of emotions to shifts in their personal lives, they also follow a pattern of emotional responses to variations in their work lives. Although models of the change curve use slightly different terms, when workers are faced with major changes at work-say, the overhaul of a new new-patient filing system, or the integration of new team members into a long-beloved process or way of doing things-they often progress from denial to anger to depression-and then, hopefully, to stages of acceptance, hope, and commitment.
In simpler terms, when changes are implemented or mergers and acquisitions take place, company morale often tanks and workers become preoccupied with fears and doubts-and productive work suffers.
Being cognizant of the change curve-and its impact on workplace environment and morale-is important to post-merger success. Specifically, using Agile project management has proven to help employees adjust to change because in an agile world, small changes are built-in over time. This gradual system of adjustment improves morale and balances risks and rewards.
Finally, addressing integration in this thoughtful manner helps companies hold on to key employees, who if left feeling frustrated and upset by the new environment, might otherwise leave, resulting in negative financial consequences.
4. Thinking you can manage M&A the same way you did 20 years ago.
The world of business and, more specifically, healthcare has changed drastically over the last few decades, with incredible advancements in the speed of communication and the depth of information available to corporate decision makers. Unfortunately, many companies have failed to adapt the ways they manage M&A to meet the demands of today’s environment.
Stakeholders need to work smarter than they did before. Agile principles can drastically improve workflow, transparency, and efficiency throughout the M&A process, thus making integration much smoother. Stakeholders must educate themselves on various project management methodologies.
Moreover, improvements in technology can also refine the M&A process and overcome the pain points often associated with integration. Virtual data rooms and project management platforms designed specifically for M&A can keep all parties on the same page. Executives can no longer simply rely on Microsoft Excel or other disparate document-sharing systems when there are more efficient tools and technologies.
The world of M&A is changing. Not only are more deals taking place, but many are also larger and more complex than in the past. For these deals to be successful beyond how the deal looks on paper, proper integration planning must be top of mind. Specifically, robust communication, Agile methodologies, and new technology can reduce common integration-related problems.
Ultimately, these tips will help avoid the worst pitfall of all: a semi-integrated company not living up to its potential.
Kison Patel is a former M&A transaction advisor with more than 10 years of experience. He has seen the challenges that the M&A lifecycle presents, from inception to post-closing. He has spent the last six years developing DealRoom, a multiparty project management software designed to simplify, innovate, and automate the M&A process.