In 1998, the German carmaker Daimler-Benz acquired Chrysler for USD 36 billion. Chrysler was at that time the third largest car manufacturer in the US. The deal was then the largest cross-border transaction in the world and was expected to become a textbook example of how two giant global businesses could be combined. Instead, it became an example of failed post-transaction integration. After the acquisition, the differences between the corporate backgrounds of the two companies caused a deep rift, and after several difficult years Daimler sold Chrysler to Cerberus Capital Management in 2007. This enormous transaction shows how crucial the integration process is in every M&A transaction.
The main motivation behind an M&A transaction is the investors' wish to increase the value of the target company. By using the synergies they expect to arise from combining different operations, investors aim to reduce risks, increase profits and gain a competitive advantage in the market. For this reason, most companies prefer to pursue M&A opportunities rather than organic growth. Although an M&A transaction offers many advantages over organic growth, its core goal can only be achieved if the process is managed professionally and carefully before, during and after the deal.
In every transaction, the activities of the target company should be examined in detail before the deal, and the transaction should only go ahead if the results of this review are satisfactory. During this preliminary review, the legal structure, financial position, compliance with applicable laws and operations of the target company should be examined thoroughly in order to identify, as far as possible, all risks associated with its operations. These preliminary investigations are needed to understand the possible implications of the transaction, but the process of creating value from the target company, which is the main reason for the transaction, begins after completion. If a comparable process is carried over to the post-completion stage and is managed as effectively and diligently as the preliminary work, investors are likely to achieve the increase in value they anticipated. This is where a post-completion integration plan comes in.
A post-completion integration plan involves complex procedures that require the business practices and corporate traditions of two separate and independent companies to be reorganised. It is not limited to combining the existing systems of the two organisations. It also requires a completely new plan that suits both companies. When managed carefully, the integration process can bring great success on both sides. If, on the other hand, integration is poorly planned or implemented, it may harm productivity, cause problems with employee engagement and value creation, and disrupt relationships with customers and clients. It is also worth bearing in mind that a failed M&A transaction will inevitably call for costly legal solutions. What principles, then, should investors observe?
To complete the integration period successfully, certain steps must be taken before completion. The first key element is to prepare a comprehensive yet realistic business plan to be implemented after completion. It is also essential that all theoretical studies and possible scenarios are assessed during this preliminary work. Steering committees, in which senior executives take part in person and set the systematic approach to integration, are particularly important in implementing the business plan after completion. In addition, the transaction documents should clearly state how and by whom management powers over the target company will be exercised. Failing to do so may seriously disrupt decision-making mechanisms and create real difficulties for the company's operations.
The second key component of the integration process is bringing together the corporate cultures and organisational structures of the two companies, in effect creating an environment that works for employees. Rather than imposing an entirely different corporate culture after completion, gradual changes within the existing culture of the target company will support successful integration. A thorough review of the target company's human resources function and identification of the core elements of its corporate culture will help prevent incompatibilities after completion.
The third pillar of the integration process is ensuring that the customers, suppliers and brand value of the target company are not harmed by the transaction. A successful integration plan should include comprehensive public relations work to secure the value creation expected from the transaction and to dispel any negative public perception. The parties may also seek professional support to manage all of these post-completion matters. Since the integration process has many dimensions, including commercial, legal, financial, human resources and public relations aspects, the support of professional advisers is important in areas that call for expertise.
Closing the deal is only the first step toward full success. Integration is a demanding process requiring a high level of attention, effort and coordination, but it is essential in every transaction. If the integration process cannot keep up the momentum that launched the deal in the first place, it becomes difficult for the transaction to create the expected value.