Why third party expertise is vital for merger integrations

August 23, 2021

By: Sean Mooney

At a time when private equity (PE) deals are soaring, merger integration (MI) has become a top priority for PE funds and their portfolio companies. Considering the huge number of moving parts in any merger, acquisition, or add-on transformation process, it’s vital for funds to make the experience as streamlined and comprehensive as possible. Increasingly, PE funds are looking to third parties with specialized expertise to help them execute mergers in a way that will realize their investment thesis, keep employees happy, and ultimately lead to more successful outcomes and accelerated growth.  

According to PwC, the first five months of 2021 saw PE deal volume increase by almost 22 percent. This influx is being driven by concerns over impending tax changes, low interest rates, and record levels of dry powder: more than $150 billion in the United States alone. To capitalize on this unprecedented market, PE funds have to be capable of moving beyond the 1 + 1 = 2 mindset when it comes to mergers – they need the resources that will enable them to make mergers worth more than the sum of their parts. This is where third-party merger integration experts come in.  

Create a dedicated team responsible for merger integration 

One of the biggest obstacles companies face in the merger integration process is the lack of communication and organization that can result when there aren’t clearly defined positions and policies undergirding that process. This is why the establishment of a dedicated integration team can make mergers far smoother and more productive by centralizing responsibilities, providing expert guidance, and freeing up time to focus on daily activities.   

According to a 2021 survey by Bain & Company, finding teams with the “right depth and breadth of experience” is the top integration challenge companies cite. Practically all the other challenges are directly related to getting people aligned around the same processes and goals: coordinating with business units, delegating authority within and between teams, bringing partners together, structuring teams properly, and developing a coherent and consistent merger mandate. When companies deploy dedicated third-party merger integration teams, they’re in a much stronger position to address these challenges.  

What the pre-merger phase should look like 

Although mergers can help companies create value very quickly, they can actually have net negative effects – from clashes between newly integrated teams to a lack of alignment on core objectives. To minimize these risks companies should use expert third-party resources to ensure that they’re accounting for potential misalignments and identifying areas where they can build on shared strengths with their partners in the premerger phase.  

For example, companies should conduct a synergy assessment (a review process that often takes several weeks) as early as possible. According to PwC, 70 percent of companies have synergy plans in place at deal signing, but these plans should be developed and integrated early to be effective – the companies that involve MI teams early in the deal process are 40 percent more likely to see favorable outcomes. Companies also have to conduct due diligence to identify potential problems before they arise – as a Deloitte report explains: “Premerger due diligence will ferret out things that are measurable, with an emphasis on financial data.” Finally, it’s crucial to focus on planning during the post-signing and pre-closing period, which will set teams up for success moving into the post-merger period.  

Guiding companies through the post-merger phase 

The first few months after a merger are critical to the development of a healthy and productive relationship between new partners. This is where third-party resources can really demonstrate their value – they have the necessary expertise to make the essential elements of the transition flow smoothly. These experts often have experience with the merger integration process that business leaders lack, which gives them a unique perspective on cultural issues that can arise, the importance of clearly assigning post-merger roles, and the ability to identify the most essential goals and track progress toward them.  

Third-party resources don’t just offer specialized merger integration expertise – they can also give senior company leaders the time and space to focus on the more strategic elements of the merger while knowing that they have experts monitoring the tactical elements of the combination and keeping all parties on track. These are all reasons why companies should consider working with third parties throughout the MI process – they can make the process more efficient, anticipate problems and address them when they arise, and increase overall performance and growth.  

We have a deep bench of PE-grade, pre-vetted merger integration resources in our network. Allow us to connect you with the provider best-fit for you based on industry, budget, and more. Contact us here and we will be happy to help.