210 6.

POSTCLOSING INTEGRATION

TABLE 6.1 Viewing Merger Integration as a Process

Building
Developing a new
Integration communication Creating a new Developing Functional corporate
planning plans organization staffing plans integration culture
Premerger Stakeholders: Learn from the Determine Revalidate due Identify
Planning: Employees past personnel diligence data cultural
Select Customers Business requirements Conduct issues
appropriate Suppliers needs drive for the performance through
integration Investors organizational new organization benchmarking corporate
strategy Lenders structure Determine Integrate profiling
Refine Communities resource functions: Integrate
valuation (including availability Operations through
Resolve regulators) Establish staffing Information shared:
transition plans and technology Goals
issues timetables Finance Standards
Negotiate Develop Sales Services
contractual compensation Marketing Space
assurances strategy Purchasing
Create needed R&D
information Human
systems resources

available publicly. This enables the acquirer to make more accurate assessments of potential
synergy, a reasonable timetable for realizing synergy, and any costs that are likely to be in-
curred during postmerger integration. The planning activity involves identifying and priori-
tizing the critical actions that must be completed to combine the businesses. Planning enables
the acquiring company to refine its original estimate of the value of the target and deal with
postclosing transition issues in the context of the merger agreement. Furthermore, it gives
the buyer an opportunity to insert into the agreement the appropriate representations and
warranties as well as conditions of closing that facilitate the postmerger integration process.
Finally, the planning process creates a postmerger integration organization to expedite the
integration process after the closing.
To minimize potential confusion, it is critical to get the integration manager involved in
the process as early as possible—ideally as soon as the target has been identified or at least
well before the negotiation process begins.14 Doing so makes it more likely that the strategic
rationale for the deal remains well understood by those involved in conducting due diligence
and postmerger integration.

Putting the Postmerger Integration Organization in Place Before Closing

A postmerger integration organization with clearly defined goals and responsibilities
should be in place before the closing. For friendly mergers, the organization—including
supporting work teams—should consist of individuals from both the acquiring and target

14
Uhlaner and West (2008).

II. THE MERGERS AND ACQUISITIONS PROCESS

 INTEGRATION IS A PROCESS, NOT AN EVENT 211
companies with a vested interest in the newly formed company. During a hostile takeover, of
course, it can be problematic to assemble such a team, given the lack of trust that may exist
between the parties to the transaction. The acquiring company will likely find it difficult to
access needed information and involve the target company’s management in the planning
process before the transaction closes.
If the plan is to integrate the target firm into one of the acquirer’s business units, it is critical
to place responsibility for integration in that business unit. Personnel from the business unit
should be well represented on the due diligence team to ensure they understand how best to
integrate the target to realize synergies expeditiously.

The Postmerger Integration Organization: Composition and Responsibilities

The postmerger integration organization should consist of a management integration team
(MIT) and integration work teams focused on implementing a specific portion of the integra-
tion plan. Senior managers from the two merged organizations serve on the MIT, which is
charged with realizing synergies identified during the preclosing due diligence. Involving
senior managers from both firms captures the best talent from both organizations and sends
a comforting signal to all employees that decision makers who understand their particular
situations are in agreement.
The MIT’s emphasis during the integration period should be on activities that create the
greatest value for shareholders. Exhibit 6.1 summarizes the key tasks the MIT must perform
to realize anticipated synergies.
In addition to driving the integration effort, the MIT ensures that the managers not in-
volved in the endeavor remain focused on running the business. Dedicated work teams per-
form the detailed integration work. These teams should also include employees from both
the acquiring company and the target company. Other team members might include outside
advisors such as investment bankers, accountants, attorneys, and consultants.

EX HI B I T 6 .1 KEY M ANAGEM ENT I NTEG RATI O N TEA M

RES PONSI B I LI TI ES
1. Build a master schedule of what should be done by whom and by what date.
2. Determine the required economic performance for the combined entity.
3. Establish work teams to determine how each function and business unit will be combined (e.g.,
structure, job design, and staffing levels).
4. Focus the organization on meeting ongoing business commitments and operational
performance targets during the integration process.
5. Create an early warning system consisting of performance indicators to ensure that both
integration activities and business performance stay on plan.
6. Monitor and expedite key decisions.
7. Establish a rigorous communication campaign to support aggressively the integration plan.
Address both internal constituencies (e.g., employees) and external constituencies (e.g.,
customers, suppliers, and regulatory authorities).

II. THE MERGERS AND ACQUISITIONS PROCESS