Merger Planning & Integration: Best Practices for Private Equity Firms

Mergers and acquisitions are a key strategy for private equity firms. The process of integrating two companies, however, can be complex and difficult in practice.

That’s why a detailed, well-thought plan is key to success.

“Middle-market and lower-middle market businesses don’t have the surplus of people that publicly traded businesses would,” BluWave co-head of research and operations Scott Bellinger says. “Bringing in a BluWave resource will let those resources focus on their day-to-day jobs while outsourcing the integration to an expert who can do it on a much quicker and efficient timeline than trying to do it internally.”

We’re going to walk through the various steps and best practices at a high level.

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Merger Planning & Integration Process

Identifying Potential Targets

The first step in any M&A process is to identify potential targets that align with investment strategies and offer growth prospects.

This involves conducting market research, evaluating competitors and considering companies that fit specific criteria. It’s important to consider factors such as the target company’s financial performance, product offerings and market position.

Conducting Due Diligence

Once potential targets have been identified, it’s time to conduct a thorough due diligence process. This is done to assess things like the target’s financial and operational health, legal and regulatory compliance, and management and personnel.

Bellinger says this essentially comes down to a “synergy assessment” of the buyer and the target.

This is critical to thoroughly understanding the organization before it’s acquired. Reviewing financial statements, interviewing key personnel and evaluating systems and processes are integral parts to most diligence exercises.

Negotiating Terms

After due diligence is finished and a company has decided to move forward, it’s time for both sides to negotiate.

The better the communication between the buyer and the acquisition target, the more likely both will be satisfied with the outcome. That being said, they should carefully consider the terms of the deal before signing to ensure it makes sense for their business.

Integrating the Acquired Company

The final step of any M&A process is integrating the acquired company into the portfolio.

Bellinger says this typically takes between 90-120 days and is focused on integrating various integration streams.

This often involves combining operations, systems and processes. The more detailed and clear the integration plan, the better.

Typical key factors include cultural differences, employee morale and operational efficiency.

An experienced interim CHRO can be a valuable resource in these situations.

Best Practices in Merger Planning & Integration

A cross-functional team of experts from finance, operations, legal and other areas can make for a comprehensive and coordinated approach.

The right plan will outlining the required steps – in detail – to smoothly integrate the acquired company into the PE firm’s portfolio.

To the degree that it’s legally permissible, the firm should keep employees, customers and other stakeholders informed throughout the process. Sometimes no news at all can spook key stakeholders, even if everything’s going according to plan.

It may make sense to hire an interim CFO who’s experienced in these situations and can hit the ground running.

Merger planning and integration is a specialty of the service providers in the exclusive BluWave-vetted network.

“Engaging these firms pre-close can help you understand and validate cost synergies after the acquisition is complete and integrated,” Bellinger says.

Each resource goes through a rigorous evaluation before its admitted into the network, and again before we connect them with you. Instead of spending days or weeks searching for the right resources to plan your merger, we’ll provide the two or three “best fits” within a single business day.