Post Merger Integration: Hard Data, Hard Truths [Archive.org URL]

The numbers don’t lie. Many top corporate managers are faced with the challenge of a post merger integration (PMI) at least once in their career. And empirical studies indicate that one of every two PMI efforts fares poorly.1 These statistics are particularly telling given that mergers and acquisitions have been a staple management instrument for almost a century now and that there has been growing professionalism in corporate M&A efforts over the last decade: practically every transaction is accompanied by due diligence, with the increased involvement of external specialists such as lawyers, auditors, tax consultants and investment bankers. Yet challenges with post merger integration are consistently high and the resultant threat to a company’s performance perhaps higher than it needs to be.

There are no hard and fast rules to ensure that a given merger will result in corporate wedded bliss. But we have found that quantitative analysis — something PMI managers have largely overlooked — can evoke both surprising questions and even more revelatory answers. Certain post merger integration scenarios, which we describe below, can create very difficult starting points for the companies and the managers involved. If a company faces one of the less favorable scenarios, it becomes doubly important to assess the likely causes of difficulty and to address these proactively and thoroughly.

In an empirical examination of one of the world’s largest PMI databases by the authors and the University of Muenster in Germany, a set of risk factors have emerged that are statistically significant — as opposed to just hearsay — in influencing PMI success, as defined by criteria described below. These factors also can be used to help determine the types of “risk profiles” that pertain to a merger, each profile having a unique statistical likelihood even before any integration measures have been implemented. Identifying the risk profiles before closing a deal is thus crucial.

Extrapolating from our quantitative analysis, certain PMI myths emerged that can influence both the effectiveness of the PMI process and the comparative difficulty in realizing the value of the merger – proposed or imminent. Using statistical analysis in an effort to minimize risks and discard outdated notions can help an organization stack their odds in favor of a more successful post merger integration.

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