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The Complete Guide

To Mergers and Acquisitions
Process Tools to Support M&A Integration at Every Level
by Timothy J. Galpin and Mark Herndon
Jossey-Bass Publishers 2000
249 pages

Focus
Leadership

Take-Aways
Most merger and acquisition (M&A) deals fail to achieve their desired goals.

Strategy
Sales & Marketing
Corporate Finance
Human Resources

Successful M&A deals demand a fast, clear, well-planned approach to integration.

Any M&A plan requires thorough due diligence, including non-traditional people
areas.

Technology
Production & Logistics
Small Business

Once a merger is underway, effective change management is essential.

Move fast to resolve difficult problems, even when theres no perfect solution.

Economics & Politics

Industries & Regions
Career Development
Personal Finance

Get the support and participation of senior management in the integration plan.
The integration effort should have a single leader who heads a full-time project
team, supported by focused task forces and sub-teams.

Self Improvement
Ideas & Trends

Avoid rumors and motivate stakeholders through honest, frequent communication.

Set specific goals and decide how to measure progress toward them.
Instead of trying to rule by decree, change the environmental factors that influence
employee behavior.

Rating

(10 is best)

Overall

Applicability

Innovation

Style

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Review
The Complete Guide to Mergers and Acquisitions
This thorough, detailed book focuses on the misunderstood aspects of merger and acquisition management. Timothy J. Galpin and Mark Herndon clearly have vast experience
and draw on case studies to illustrate their suggestions. They provide sample surveys and
integration flow charts to guide hands-on planning, and offer practical advice that you
can apply in real-world situations. Not all of these ideas are new, nor do the authors claim
them to be. Instead, they apply the most relevant ideas from management and psychology
to M&A. The authors hammer home an extremely consistent message: You must communicate. They present their ideas clearly, even though the book is often wordy and uses
a lot of passive voice (alas, business prose). Nonetheless, this is actually a very dense
book and the authors are careful not to waste the readers time. This is essential reading
for virgin M&A managers, and getAbstract thinks that even experienced acquirers may
find much to learn.

Abstract
The first rule of
mergers is that
there is absolutely
no such thing as a
merger of equals;
one of you is
always the big kid
on the block.

Merger integration is like pulling

off a bandage: It
can be slow and
painful, or it can be
fast and painful.

Given the highly

charged emotions
and the uncertainty surrounding
any deal, it is a
safe bet that most
employees understand the term
synergy to mean
only one thing: Im
going to lose my
job.

Integration: The Real Deal

Merger and acquisition (M&A) deals have become a part of daily business, yet most
M&A deals fail to achieve their intended goals. Merging two organizations is an inherently difficult process that demands effective planning. A well-managed, structured
approach leads to faster integration, lower costs and higher achievement. One M&A
method, the Watson Wyatt Deal Flow Model, lays out five parallel, linked stages:
1.
2.
3.
4.
5.

The formulate stage Set out concrete business objectives and growth strategies.
The locate stage Seek target companies along a logical path; look for synergies.
The investigate stage Perform due diligence on the target company.
The negotiate phase Address bridging and transition services.
The integrate stage Both organizations must decide how fast to move, how to keep
the focus on customers and how to communicate with stakeholder groups.

Integration Begins with Due Diligence

Often M&A deals fail due to people issues and clashes of organizational culture. The
neglected area of due diligence can have an enormous impact on post-merger integration,
including initial risk factors, organizational culture and human capital. The very notion
of due diligence is evolving to include both traditional and non-traditional elements. The
first non-traditional element is basic integration risk. Can these two companies really be
blended? Can both organizations fulfill their strategies? The second element is a comprehensive cultural analysis to discover whether the organizations are willing to adapt their
practices in order to merge. The third non-traditional element is a thorough assessment
of both companies and the human-capital-related risks of the deal. The two companies
must align approaches to human-capital issues to motivate the new workforce.
One experienced acquirer uses a six-step approach to cultural due diligence. Begin
your process with initial planning, and internal and external document research. Then,
your company should set interview guidelines and data-collection plans for preliminary
research that identifies critical issues. After you collect data through interviews with key
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executives, convey the information to your companys integration manager and officers.
Your next step is a kickoff meeting with task force leaders to set up the transition.

The most commonly referenced

sources of merger
failure are people
issues and issues
related to organizational culture.

Unless the organization is equipped with a

well-defined, replicable, flexible process, it is doomed
to repeat its mistakes or make
new ones in
every future deal.

If you are used

to moving quickly
and decisively and
the acquired firm is
not (or vice versa),
every decision is a
challenge.

People will be distracted by the integration for major

portions of the
workday, every
day, until their me
issues are resolved and the
integration is complete.

Welcome to the Big Leagues of Change Management

Focus on seven change management concepts in merger integration:
1. Address me issues quickly Performance, morale and productivity usually
decline as people worry about their futures. Move fast to clear up uncertainty.
2. Apply clear, defined leadership To help everyone get back to business, a single
skilled person, with clout and the respect of both companies must be in charge.
3. Provide extensive communication Tell people the direction of the company, the
purpose and timing of the merger and their specific tasks.
4. Ensure a focus on customers Organizations turn inward after a deal is announced.
Maintain high customer-service standards; use special incentives if necessary.
5. Make tough decisions Tough problems dont have perfect solutions, be decisive
and move.
6. Create focused initiatives Coordinate all elements of the combined organization.
7. Manage resistance at every level Keep people informed so theyll understand
goals, and have the ability and willingness to reach them.

Merger Integration
Merging two organizations is an enormous task, laced with uncertainty and stress. A
successful merger demands effective planning and execution. It also requires a compelling vision that all stakeholders understand and embrace; a methodical approach to aligning the two organizations processes, structures and cultures; and a fast and focused
transition. The process includes at least nine separate, concurrent, interdependent mission-critical responsibilities, or work streams, including leadership, responsibilities,
integration planning and implementation, communication, structure, staffing, re-recruiting, cultural integration, human capital-related integration, project management and
measurement and feedback.
Integration Task Forces
A single full-time project team, with clear roles, responsibilities and expectations, should
lead the merger effort. Set up task forces around different function areas. Choose their
leaders carefully and balance representation from both organizations. Encourage task
forces to create sub-teams. When you give people the chance to get involved, they add
tremendous positive energy to the process. Begin planning as quickly as practical. Each
task force should produce a charter, including an objective statement, synergy targets,
data and documentation requirements. Follow with weekly e-mail updates. The top-level
project team should keep the overall effort going with a consolidated project plan.
Tell it Like it Is: Honest Communication
The grapevine threatens M&A management. To avoid rumors, communicate often and
honestly and link your messages to the integration efforts strategic goals. Be proactive,
not reactive. Communicate early so you dont have to take a defensive position later.
Make your messages consistent and use varied channels. There are four phases in M&A
communications:
1. Build awareness and explain what is happening to the entire company.
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2. Identify current issues and report on the status of the project.

3. When the rollout occurs, disseminate information on proposed changes.
4. Get feedback and fine-tune the implementation of the integration plans.
If the merging
organizations lose
sight of the market,
then sales and
service the
points of contact
with the customer
become the
most vulnerable
areas.

To beat the
grapevine, especially during an
M&A transaction,
top managers
need to use communication effectively so that
rumors do not
become the main
source of information.

When senior level

managers try to
delegate ownership of the integration effort, they
send a strong
message that the
effort is not worth
their time.

For employees
who have been
identified as key,
it is important to
address the need
for job security
early the same
day the merger
announcement is
made, if at all possible.

Retaining Your Key People

Its difficult to retain key people during M&A transactions. Identify the people whose
loss would most hurt the organization. Then focus on basic human needs. Abraham
Maslow defined a hierarchy of basic human needs, starting with security, then progressing to inclusion, control, ego and doing the right thing. People need to feel secure
and want to feel part of whats going on. Address their job security and consider stay
bonuses for key people. Keep people in the loop by sharing information regularly. Give
them some merger-related decisions to make and theyll feel more in control. You can
also help peoples work egos by recognizing their accomplishment of critical integration tasks. Finally, once their other needs are met, people want to do whats right. Help
them feel that they are part of the decision-making process to reinforce their belief that
theyre doing the right thing.
Structure and Staffing Decisions
M&A staffing decisions share several common problems, including severance costs,
failure to link staffing with strategy, misinformation about competencies and failure to
establish a process for structure and staffing. To solve staffing problems:

Begin with a due-diligence analysis of human capital.

Make structure and staffing decisions based on strategic goals and a business plan.
Prepare carefully and act promptly.
Seek input from multiple sources, even outside personnel.
Communicate openly about structure and staffing decisions.
Train your hiring managers carefully; give them tailored instructions.
Catch and correct mistakes.
Capture your results and retain knowledge.
Start building and developing teams early.

Merger Measurement Systems

Youll need to be able to measure several areas to determine whether the M&A effort is
going according to plan. Integration measures assess how well the overall approach is
working. Operational measures track any merger-related impact on the companys ability to conduct day-to-day business. Process and cultural measures determine the status
of efforts to redesign processes and organizational culture. Financial measures track
whether you are achieving the intended synergies. You can use specialized questionnaires. Some feedback comes automatically, through technology, but always listen to
people in the organization.
Cultural Integration
Build the culture for your new company based on strategic objectives. Culture is complex and is based on processes in many areas, including rules and policies, goals and
measures, ceremonies and events, leadership behavior, communications and the physical environment. Eliminate legacy activities that are irrelevant to current goals, keep the
costs of the new processes low and make the redesigned process easy to use, implement
and measure. You must develop an implementation plan and stick to it closely. Dont
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make the common mistake of ignoring cultural integration; solid work in this area will
speed up the integration process.

Even with the

best technologybased feedback,
executives and
task force leaders
still have to get out
into the organization.

A failed merger
is, more often than
not, a failure of
leadership.

The Human Resources Function

Human resource priorities fall into two distinct phases. First comes initial transition
responsibilities, including organizational structure, selecting staffing (or deselecting),
compensation, benefits and retention. Full integration responsibilities include rationalization and alignment of all the acquired companys HR processes to support your objectives. Dont try to control peoples actions by edict.
Keys to M&A Success
Heed these key recommendations for M&A success:

Conduct due diligence in financial and human capital-related areas.

Decide the desired degree of integration.
Speed up decisions instead of focusing on precision.
Get support and commitment from senior managers.
Select a highly respected and capable integration leader.
Select dedicated, capable people for your core team and task forces.
Use best practices; learn from others mistakes and your own.
Set measurable goals and objectives.
Provide continuous communication and feedback.

Avoid integration killer phrases. A merger of equals never happens, so dont even
say so. Dont try to ease the changes in; move fast. Dont withhold information until
theres something to tell. These killer phrases lead to beliefs and actions that will wreck
your process. Use the tools here to design a process that achieves your M&A goals.

About The Authors

Timothy J. Galpin is global practice leader for Merger and Acquisition Services with
Watson Wyatt Worldwide and has been involved in more than 30 successful mergers. He
is the author of two previous books, The Human Side of Change and Making Strategy
Work. Mark Herndon serves as regional leader for Merger and Acquisition Services with
Watson Wyatt Worldwide.

Buzz-Words
Change management / Charter / Due diligence / Enablers / Influencers / Integration
risks / Measures / Motivators / Navigators / Organizational culture / Synergies / Work
streams

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