Merging or acquiring businesses often struggle with the transition from due diligence to post-closing integration. The deal may look good on paper, but once integration begins, a different picture often emerges. It takes longer to integrate businesses than expected. The synergies or economies of scale fail to appear. Market opportunities evaporate. Press stories about integration problems and unexpected difficulties depress share prices.

The struggle is often so great that most mergers and acquisitions fail to live up to expectations. In fact, studies show that two out of three M&A deals fail to achieve announced goals. What accounts for this low success rate?

Most of the time, it’s not faulty due diligence, but rather a lack of attention on the part of dealmakers to the inevitable integration challenges that arise after a deal is closed. This isn’t that surprising since the focus of most senior executives is on the deal itself, not on the aftermath. They complete the deal, move on, and leave the integration of different business entities to others in the organization.

Pay attention to integration issues during due diligence

You can easily see why problems arise when you look at the way most mergers and acquisitions are transacted. Usually two separate groups are involved. The first group is the due diligence team, which may consist of senior business executives, business development specialists and financial and legal experts. This team does the work of identifying potential merger or acquisition targets and all the financial, legal and business analysis the term due diligence encompasses. Once this team’s work is done, the second group, the integration team, takes over. This team may consist of a team leader and specialists in HR, finance, operations and IT. This team’s job is to ensure that operations are combined smoothly and that the newly combined operation delivers on the "value drivers" executive dealmakers originally identified.

Often the gap between the two teams is wide, which leads to a variety of problems during integration. In many deals, there are simply too many inadequate hands-offs from due diligence teams to integration teams. Often these hand-offs are simply checklists of completed due diligence items which barely address integration challenges and resource requirements, and transfer only limited knowledge from the due diligence team to the integration team.

The solution to this problem is identifying the point person in charge of the M&A integration team early—and to coach that individual on how to manage the process. This person should be become a member of the due diligence team as soon as the deal looks viable—not after the deal is closed. His or her duties should include a cultural and organizational assessment of the different organizations involved, the identification of potential conflicts, and the development of an integration plan that is ready to be put into effect on Day 1 after the close. Similarly, dealmakers should not expect their job to be done as soon as the deal is closed. Instead, members of the due dilligence team should be members of the integration team to ensure that integration activities are aligned and stay aligned to deal drivers.

The integration team member on the due diligence team should be the ultimate "owner" of the integration. This can be a business unit manager who will ultimately manage the integrated entity, or a program manager who project-manages the integration but is not part of the new business unit. Chose this person wisely. Companies often select business unit managers who are good at operations but lack the cross-functional management skills needed to oversee the entire scope of the integration. Program managers may have these cross-functional skills, but often they lack experience in the business units affected. Both may need the services of an outside integration specialists who can be a mentor and "shadow" them throughout the integration process.

When to stop planning and start executing

After a deal is closed, integration activities should focus on activities designed to quickly deliver the business value that drove the deal. It’s simple: on Day1, plans should be in place and execution should begin. You’ll need a plan for the first day, the first week, the first 30 days, the first 60 days, the first 90 days and so on. These plans should holistically address all affected areas, including customers, sales and marketing, HR, IT, and finance as well as including all functional areas that will be affected by the integration. Since these plans should be completed prior to close, they become the responsibility of the due diligence team and require close cooperation between due diligence and integration teams.

Why so many plans? Why not one comprehensive 150- or 180-day plan? The success of an integration often depends on your ability to show incremental value and "quick wins" – the milestones you want to achieve in the first 30 days, 60 days and 90 days. This helps you keep the integration on track, ensures that activities focus on deal drivers, and gives you periodic "sanity checks" throughout the integration process that help you measure progress against the metrics and goals defined.

Overcoming resistance to change

Studies show that approximately 70 percent of employees on both sides of a merger or acquisition will be resistant to change. That’s why it’s so important to conduct a cultural assessment before the integration begins, since issues such as lowered trust, job insecurity and loss of loyalty can have a real affect on how quickly deals start delivering on their value drivers.

Communication is your best tool for overcoming resistance to change. That means you need a solid communication plan you can put into effect on Day 1 of the integration. This plan must work out the right messaging to employees on both sides of the deal and answer employees’ questions on the strategic rationale for the deal, the impact to the business, and what it means to employees personally (from benefit changes to organizational changes).

How to make it work

Integrating different companies in the aftermath of a merger or acquisition will never be easy. But if you avoid the common mistakes described above, you can dramatically speed up the integration process and more quickly achieve the business value you envisioned. The key mistake, of course, is neglecting integration planning during due diligence. The common outcome of this mistake is that when you’re ready to start the integration process after the deal is closed you’re still planning or have barely begun planning at all. This leads to disorganized integration efforts that confuse and demoralize employees, alienate customers, and all too often put the goals you envisioned during due diligence permanently out of reach. Avoid these problems by following a few simple rules:

• When possible, select members of the integration team early in the due diligence process and place them on the due diligence team. Post-closing allow key members of the integration team to commit to the integration on a full-time basis post-closing (usually on-site of the target) for a 6-9 month period of time.
• Create Day 1, first week and 30 and 60 day integration plans in great detail prior to closing. Create 90 to 120 day plans prior to closing in less detail but with a focus on the integration vision.
• Make sure plans focus on deal drivers. When possible, on larger transactions, organize integration sub-teams around the key deal drivers and the support that will be needed by functional areas. Identify Key Performance Indicators that will be the ‘milestones’ that provide evidence of progress in realizing each of deal drivers.
• Revisit plans often to assure they are aligned with the deal drivers and make sure resources are working on the most critical activities.
• Recognize that communication plans will be critical once the integration begins. Make sure all constituents are communicated with often and in many different ways. Communicate frequently particularly around the items most important to the target company personnel. Also, engage your customers to ensure that they are not confused by the acquisition.
• Recognize that cultural issues between the companies will exist. Conduct cultural assessments of both entities during due diligence and identify the pain points that will inevitably exist. Make sure plans address these differences and communicate openly to all the ideal culture that will be in place.