data rooms and m&a integration

How to Successfully Implement M&A Integration?

Sep 29, 2021

According to Statista, the M&A industry has witnessed 20,686 deals as of September 2021. Even more surprising is the fact that the overall value of M&As of $1 billion totals $966 billion.

However, up to 70% of deals still end up failing, according to Forbes. The reasons for failure vary, but lack of proper preparation is one of the most common. That’s why it’s crucial for you to ensure all the needed steps for M&A integration.

What is M&A integration?

M&A integration, also known as a post-merger integration, is the process of uniting companies or their assets to increase growth and market value, gain advantages, and eliminate competition by increasing market share.

This process can be extremely complicated, as it includes up to a dozen steps. Therefore, it might be especially time-consuming and, as a result, very expensive. That’s why some companies rush through processes to try to save on resources. 

However, this is the point where they run into problems. Tom Jones, DHJJ, Ltd. CPAs and Business Consultants, claims that it’s crucial to be patient with the whole process of M&A integration. He advised not to “skip the details but be flexible enough on the details to not lose sight of the goal of a successful sale, purchase or merger.

Such cautiousness is needed to make sure that a deal looks good not only on paper but brings real beneficial results. That’s why it’s vital for your company to plan the M&A process before the deal begins.

M&A integration process steps

M&A integration doesn’t happen out of the blue, as it requires thorough preparation beforehand. To make the process smoother, take a look at the seven main steps of M&A and find out what to expect. 

Step 1. Establish a base

A successful start determines the outcome of the whole process in any business sphere, and M&A integration is no exception. That’s why you need to ensure that you have a strategy in place.

According to PwC’s 2020 M&A Integration Survey, 62% of executives stated that they all had an integration strategy before signing their biggest deals. Considering all the pros and cons, as well as for deciding on such important points as the type of M&A, would help you set a solid foundation.

Step 2. Choose a criterion of M&A 

Once you’ve prepared yourself with a reliable plan, it’s time to select the criteria for choosing a target company. You can base your M&A integration on a location or customer base. For example, if you’d like to expand your market to Europe or America, you can focus your search on this area and thus speed up the acquisition process.

Step 3. Start negotiating

When you’ve selected the company that matches your criteria, start preparing for closing the deal. Before discussing the details, it’s a great idea to present your offer based on the valuation models of the target company.

Negotiating a letter of intent is what will improve this stage of the M&A integration. Richard Harroch, Managing Director and Global Head of M&A at VantagePoint Capital Partners, emphasizes its importance by stating that “the more detailed the letter of intent, the more likely that a definitive acquisition agreement can be negotiated successfully.”

Step 4. Set up a deadline

Let’s be realistic here. Every company does its best to close a deal as quickly as possible. However, keep in mind that M&A integration requires anywhere between six months and several years, depending on its scale and implementation quality. 

To streamline the process, you’d better set up the deadline and divide the major timeline into smaller periods. This way, you can place M&A goals and track every stage of the implementation process more efficiently.

Step 5. Assign a due diligence unit

Even though you’ve previously done thorough research on the target company, you weren’t able to get a real picture of its internal affairs. That’s why it’s better for you to establish a unit that will help you make sure you’re not taking a risk by purchasing the company. 

The diligence report is what can assist in identifying the potential defects of the M&A integration or including the valuable information for valuing the deal. Such a step will considerably increase the chance of a successful deal. 

Step 6. Sign the contract

At this stage, you have all the necessary information about the target company. And now is the time to make a decision whether the data gathered complies with your objectives. If your answer is yes, go on to structuring your deal of M&A integration. 

As noted by Ramkumar Raja Chidambaram, the Head Of Corporate Development: M&A at Tata Elxsi, “It is the process of prioritizing the objectives of a merger or acquisition and ensuring that the top-priority objectives of all parties involved are satisfied considering the weight of risk each party can bear.”

Step 7. Keep going

Closing the deal is not the end result, as it’s only an intro to a much longer and harder process. During this period, both target and acquiring companies need to work on realizing the contract. As stated by Boston Consulting Group (BCG), this process includes 12 stages that are grouped into three phases: setting the direction, capturing the value, and building the organization.

The main benefits of a VDR for M&A integration

Here are the main benefits of implementing a VDR into your M&A integration process:

  • Store important documents in a safe place. The primary advantage of a data room is that it guarantees the security of sensitive data. Your financial reports and contract details will be protected by a variety of security features, including two-step authentication, data encryption, and access restriction options. This way, you are sure that no third party can get access to your data.
  • Make the collaboration more efficient. With the help of a virtual data room, negotiating the deal of M&A integration doesn’t require your physical presence in a conference room. A VDR is a tool that connects two parties no matter their location. Moreover, the documents needed for such meetings are stored in a centralized hub — the VDR — so that any authorized user can easily access them.
  • Accelerate the due diligence process. The due diligence unit uses digital resources such as financial reports, corporate records, and stockholder information. Using a VDR for this process saves the time and effort of printing out all the needed documents. Moreover, if the information in the resources changes, your shareholders will have immediate access to the updated version of the diligence report.
  • Get a full overview. The process of M&A integration has many different stages that require your constant supervision. Here, VDR’s auditing and reporting tools are especially useful. They provide you with the opportunity to track bidder interests. That’s how you can easily check the engagement of each team member, detect and redirect issues that come up, and see the overall progress of the deal.

Conclusion 

There is some good news for those who feel insecure about all the possible risks of M&A integration. The first being that you can almost guarantee the success of the process by simply following a step-by-step guide. 

The second is that you can speed up each stage by implementing a virtual data room for M&A. One piece of software could significantly eliminate dozens of potential risks and save a huge amount of your resources.