Mergers and acquisitions are aimed at growing an organisation and gaining access to a wider market.
After completing the due diligence phase, the Post Merger Integration (PMI) phase begins, the objective of which is to achieve synchronisation between different structures, processes, cultures and forms of leadership and, as a result, maximise the value of mergers and acquisitions.
If you are involved in a merger or acquisition process, this article will be of great help to you. Here you will find the answers to the following questions: What is PMI? How is it done? And what mistakes should be avoided when implementing it? Let’s get started!
What is Post Merger Integration?
Post-Merger Integration is a complex business reorganisation process that leverages the strengths and synergies of each of the parties involved by combining various organisational systems (including assets, people, resources, tasks and technologies).
How do you integrate after a merger?
After assessing the challenges and benefits of a merger or acquisition and concluding that it is a good idea, you should follow the three steps described below.
1. Prepare the Common Merger Plan
It is absolutely essential from a legal point of view that all companies involved draw up and sign a Joint Plan of Merger (JMP).
The document in question must contain the name, rights and articles of association of the resulting company, the domicile and corporate type of the companies involved in the merger transactions, the type of exchange that applies and the date on which the merger becomes effective.
2. Approval of the merger
The merger must be approved by the shareholders within a maximum period of 6 months from the approval of the PCF.
The merger resolution requires the consent of all the shareholders, who must be prepared to be liable for the company’s debts, although there is no personal liability since the shareholder is liable for the company’s debts only with the contributions made to the company’s capital.
The consent of the holders of special rights other than shares or participation will also be necessary if they will not enjoy benefits equivalent to those to which they were entitled in the defunct companies.
3. Formalisation and registration of the merger
The companies must execute the public deed of the merger agreement adopted. The merger will come into effect when the new company is legally registered in the corresponding Commercial Register. The registry entries of the defunct companies will then be cancelled.
¿Cuáles son los problemas de Post Merger Integration?
Many merger and acquisition transactions fail due to a number of mistakes on the part of the owners. Let’s look at 9 mistakes to avoid if you don’t want the success of the integration to suffer.
1. Do not take employees with you
The key to successfully completing a merger or acquisition is to manage your staff well. To maintain their loyalty and sense of commitment, it is essential that you offer them incentives and acceptable working conditions. Retaining the most qualified workers is more cost-effective than replacing them.
2. There is no strategy
Given the magnitude of change involved in a merger or acquisition, some employees may consider looking for another job. To ensure their job security, we recommend a two-way strategy.
On the one hand, a team (or skilled professional) will personally manage the merger-related aspects of the merger. On the other hand, you should appoint one or more managers to oversee the day-to-day running of the new company.
3. Synergies do not apply
If you do not calculate the synergies between the companies involved in a merger correctly, you will incur more costs and put the profitability of the new company at risk. In many cases, there will be two different ways of doing the same task. With this in mind, you need to create new standards that take advantage of the best practices of defunct companies.
4. No focus on financial functions
Mergers and acquisitions can sometimes bring with them problems related to debt, accounting, tax or commercial issues.
To minimise such risks, you should have a buy-side audit carried out during the due diligence phase. This is a measure to assess the financial risks and to determine whether the price and terms agreed by the other party are correct.
5. Integration without change management
It is important to start planning the integration process as early as possible, even before closing the merger or acquisition deal. You can enlist the help of the change management and the project leadership team to provide valuable guidance throughout the process.
6. No rigorous project management
In addition to forming teams in different departments, it is important to appoint a committee to oversee integration efforts.
Its functions include overseeing the integration teams, organising regular meetings, monitoring the progress of projects, and verifying that there are enough qualified staff and the right tools for the work to proceed according to plan.
7. Lack of communication about the company’s intentions
Business meetings, workshops and individual discussions should be a regular occurrence during the first phase of Post-Merger Intregration.
In order to build trust and an interpersonal basis for successful joint work, face-to-face meetings remain the most important communication format. However, that does not mean that you cannot use other channels depending on the circumstances.
8. Difficult decisions are postponed
Early on in the integration process, you need to define what actions will be taken, however difficult they may be. You may have to make unpleasant decisions, such as cutting some staff, but delaying them can increase costs and distract workers from other tasks.
9. Unrealistic expectations during the due diligence phase
Despite the dangers of setting unattainable goals, many companies set them only to be disappointed when they are not met, which in turn undermines executive credibility.
By setting reasonable goals, however, you will be able to keep employees motivated throughout the Post-Merger Integration process.
Conclusion
Successfully implementing the Post-Merger Integration process is not an impossible mission. It is all a matter of following the steps and avoiding the mistakes described in this article. With proper planning and follow-up, the merger or acquisition will contribute to the expansion and consolidation of your company.
If you have any doubts on this subject, please contact our tax advisors in Barcelona.
