There can be a number of big challenges, such as agreeing at the outset on the key elements of the plan such as the leadership of the combined company, appointing a senior executive to lead the integration process, and effective communication. Even if those challenges are met and the plan itself is not materially flawed, adhering to the plan timetable often proves to be a big challenge.
Source: http://www.mergermarket.com/
Notwithstanding robust diligence pre-signing, it’s a virtual certainty that issues that impact integration will not be identified until after closing. That will be the case even if the acquirer undertook a perfect diligence process, and given the usual time pressure around the diligence exercise, rarely does an acquirer get to execute perfect diligence.
Despite robust diligence, it is hard to know what a company really has bought, although due diligence has been conducted. Sometimes it is hard to really know how the integration is going to work until people are in action and that takes time. It is important to do the integration quickly, but important not to do it poorly. So I think the biggest challenge is how quickly a company can integrate and how long it will take to assess the situation. A lot of times competitors don’t get a lot of access to information about each other and neither do buyers on their targets. So it is a balancing act as to how much access a buyer is given to really think through the integration during the diligence process.
Deals are fraught with these risks, and a plethora of challenges are encountered during the integration process. A survey identified some common integration areas that pose the greatest challenges. Survey respondents reported integrating information technology and systems and aligning operating procedures and business process as the most common post-close difficulties, followed by getting the right organizational structure, people management and work practices. Additionally, among all functional areas, survey respondents overwhelmingly reported the Research & Development function as the most difficult to integrate.
The biggest challenge to integration is cultural. Unless the companies are very close in culture, there can be resistance that can come about as a result of not doing things the same way. This is the hardest challenge and the one that companies are least prepared for, since they always think operationally and not culturally. The question is how to make sure that new employees are integrated in a way that doesn’t create cultural clashes from the beginning.
Aside from these cultural challenges, perhaps the most challenging part of integrations is achieving what is called “transformational†synergies. Going beyond basic revenue and cost synergies, transformational synergies drive the highest levels of value creation such as game-changing innovation, organic growth and operating efficiencies. Naturally, these are more difficult to predict and to capture but these synergies can make the difference between a well-executed integration and one that reshapes industries and sets new standards for success.
Similarly, change management has a much more significant role in integrations today because so much of what integration accomplishes is based on improving on existing systems and processes for enhanced value. This is why it is important to have an effective change management component to integration and to go beyond just a check-the-boxes approach. It is also important for the integration leader and teams to carefully identify and address key interdependencies among all the functions/workstreams pursuing their respective integration agendas. Another key challenge for corporate acquirers is to capture learning and incorporate best practices from prior integrations to further develop internal PMI capabilities.