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


Making the Most of M&A

Stage 4: Executing Successful Integrations

By the time a company reaches this point, it has considered a wide range of scenarios and has created alternative plans to manage them. However, for the promises of the deal to bear fruit, the company must convert plans into reality. This is the work of the final stage: staying the course after the excitement of the deal has subsided.

The most significant risk to a well-designed implementation plan is drift. In a business world that increasingly values decentralization and the empowerment of line managers, keeping a complex, interdependent implementation on course can be a challenge. It requires adherence to the outline of the plan, yet also requires that managers be granted the flexibility needed to adapt to changing circumstances.

Postmerger governance demands a team with the authority to manage and enforce plan execution and to oversee plan variations. That team may be the executive or management committee, or it may be a separate, dedicated integration oversight team. In either case, the team needs to have had some continuity through all four stages, so that it now has an innate sense of the newly merged company’s needs. Avoid the common error of handing off governance responsibility to managers who were not substantively involved in planning — or if you must make them responsible, then at least provide an oversight safety net.

Clarity in strategic intent, especially in the beginning, provides a touchstone that carries all the way into this final stage. Henkel KGaA, the global household products company based in Germany, offers a good example. When Henkel undertook its $2.9 billion acquisition of the Dial Corporation in 2003 (the deal was concluded in April 2004), the management teams of the two companies had to resolve very different visions of the integration, which could easily have derailed the execution.

Henkel Chief Financial Officer Lothar Steinebach explains, “Dial’s management knew that they would become part of the bigger Henkel organization, but they were hoping to be left to operate the business as they had in the past. However, at Henkel, the businesses Dial is in — home care and personal care — are managed in different divisions. To avoid adding complexity to Henkel globally, we decided to align Dial with these existing divisions. There was a lot of friction. In the end, we had to make clear that the integration plan was not up for negotiation.”

Unfortunately, the necessary measures are often painful for stakeholders. But not heeding them, and not making the purposeful decisions needed to resolve them, is dangerous. An on-course implementation requires “knowing thyself.” Just as a smoker trying to quit needs to recognize and avoid the situations that produce cravings, a newly merged company needs to understand its own cultural tendencies (for example, “we always come back to cost cutting” or “we always defer to local management”) and how those tendencies can lead a company away from its declared design and time line, or from carrying out the difficult decisions made earlier.

Capabilities and Momentum

The companies that master the capabilities of successful M&A and build their teams accordingly are the most likely to succeed in the uncertain, hyperactive M&A environment of the coming years. When an M&A team is skilled and capable, a certain momentum takes hold. The systems and processes, management, and lines of business start acting in alignment. Physical locations shut down as planned; some people are reassigned, others are promoted; business partners are chosen; IT systems are linked or eliminated; incentive structures are combined; and cultures are harmonized.

In the end, the two companies become one. The process of the acquisition is completed, and the new company turns its attention, once again, to the prospects of growth.

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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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