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 / Summer 2009 / Issue 55(originally published by Booz & Company)


Making the Most of M&A

Stage 3: Plotting the Postmerger Integration

It is easy to recognize poorly crafted integration plans. They often set lofty goals but leave line managers to figure out the details. The worst plans are simply paper exercises that no one really intends to follow after the close. By contrast, in a well-designed planning process, the integration team articulates what each function, business, and geography should look like after the merger, and what each team should do to bring the plan to life:

• Translating the strategic intent into integration guidance. In the new, postmerger company, the important functions, geographies, and lines of business will have questions. They may ask if the merger is part of a push toward consolidation or an entry into an adjacent market. Some will want to know if the acquiring company intends to transform the entire organization, absorb the merger partner, or simply attach it and allow it to function independently.

• Building external stakeholder enthusiasm. In the wake of a merger, it’s easy to become consumed by internal tumult, but often the ability to succeed in the long term is shaped by the response from outside. Important constituents include customers, franchisees, supply chain partners, regulators, schools and other talent markets, local communities, municipal governments, and alliance partners. For communications with each of them, the integration plan needs to spell out what to say, when to say it, and what specific action plans need to be in place to deal with their concerns.

Focus first on those stakeholders who are critical to the deal’s success and whose support the company is most at risk of losing. Learn about their concerns and the reasons the merger has triggered resistance; then, armed with this knowledge, explain the purpose of the merger and its benefits for them.

• Designing “one company.” Creating a single enterprise from two formerly independent, and often competing, organizations is a daunting task. It requires lofty thinking, but it also entails sweating the smallest details, such as identifying which contracts contain change notification clauses and which signs must be changed on which buildings. One newly merged company had to delay its launch schedule to arrange a helicopter capable of hoisting the letters of its new name to the top of its headquarters building.

A good plan for a positive “one company” outcome describes the necessary changes in organizational structures, systems, and processes. It specifies the staffing levels needed by the merged company, which physical locations will be eliminated, which business partners will be kept, and which incentive structures and business systems can be combined. It sets forth specific milestones and identifies who will be responsible for each element of the plan. This detailed sequencing of all the transition steps allows management to approve the timing of captured synergy and implementation costs. It also helps functional teams plan how to fill resource needs in critical areas such as IT, training, and finance.

• Capturing near-term value and positioning for upsides. There is enormous pressure to demonstrate clear progress during the first year or two of a merger. The key to managing that pressure is to enable a balanced pace of short-term synergy: fast and fierce enough to keep the faith of stakeholders by demonstrating tangible results, but not so aggressive as to sap the new organization of morale, talent, and energy. Typically, a company has six to 12 months to start delivering results in the most obvious areas, such as savings from eliminating redundancies and capturing cross-selling opportunities. But to fully deliver on a merger’s promise and unlock the new company’s potential, the transition teams must improve the way business is done — not just folding together the combined companies, but rethinking the new company’s infrastructure and processes.

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  1. Gerald Adolph and Justin Pettit, with Michael Sisk, Merge Ahead: Mastering the Five Enduring Trends of Artful M&A (McGraw-Hill, 2009): Context, business cases, and practical advice for the growth strategist.
  2. Irmgard Heinz, Jens Niebuhr, and Justin Pettit, “Six Rules for the New CFO,” s+b, Winter 2008: How CFOs can be more effective merger strategists, synergy managers, and business integrators.
  3. Robert Hertzberg and Ilona Steffen, editors, The CFO as Deal Maker: Thought Leaders on M&A Success (strategy+business Books, 2008): In-depth interviews with 15 leading chief financial officers on successful M&A. Source of several quotes in this article.
  4. For more business thought leadership, sign up for s+b’s RSS feed.
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