How to Maximize Deal Value in Post-merger Integration (PMI): The PMI Process

Editor's Note: Take a look at our featured best practice, Post Merger Integration (PMI) Best Practice Framework (28-slide PowerPoint presentation). This document provides a guide and framework for best practice in post merger integration. Post merger integration is the process of combining two separate companies in a way that quickly creates the most value and fulfils the expectations outlined in the acquisition vision. The framework [read more]

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Post-merger Integration (PMI) can be complex, time-pressured, and unfamiliar for most organizations. It is a highly complex process. It requires swift action as well as running the core business activities simultaneously.  There is no one-size-fits-all approach to a successful PMI Process. However, careful planning focusing on the strategic objectives of the deal and the identification and capturing of synergies will help maximize deal value.

It is inevitable that some elements of information will be withheld from a Buyer pre-deal. Further, not all the synergy benefits originally identified in the deal will prove to be achievable. The foremost challenge for management at the onset of the PMI process is to identify how value can be captured from the newly combined organization via synergies and cost savings.

Hence, undertaking the PMI Process requires a clear roadmap that will take the post-merger integration journey toward a more strategic and effective direction. This is where Strategy Development comes in.

The 5 Core Components of the PMI Process

Organizations must have a good understanding of the integration process to ensure that target results are achieved and that expectations are met. There are 5 core components of the PMI Process organizations must follow to make the process more successful where the deal value is achieved and realized.

1. PMI Structure. This is the first component of the PMI Process that establishes the stages of the integration process. It consists of sub-projects that take place before and after the closing or change of ownership.

2. Management Alignment. The second core component, Management Alignment is focused on aligning top managers of both Buyer and Target. For the first time, top managers of the Buyer and Target become part of the same organization. It is at this stage wherein there is a change of priorities and commitment of top managers. The new management team must be aligned and committed to the same goal.  This way, they convey the same message to the new organization.

3. First 100 Days. The First 100 Days is where the PMI Process starts focusing on making changes. The First 100 Days is the maximum period people can live with the uncertainty regarding the new organizational structure and decision on redundancy. This core component is highly critical as this paves the way towards a smooth transition to a new organization.

4. PMI Project Management. The fourth component is focused on budget planning and management. It is at this stage wherein the preparation of the first estimates of integration costs during the transaction or purchase phase is undertaken.

5. Kick-off Meeting. The fifth or final core component is the Kick-off Meeting. Starting teamwork is its main focus. Participants are brought up to speed on events in both predecessor entities and the joint strategy.  This is the avenue to provide instructions, guidelines, and templates. A Kick-off Meeting is typically a 2-day session including the time to socialize.

The Red Flag Warning in Post-merger Integration

When going through Post-merger Integration, we can expect some red flag warnings.  These are disturbances that may warrant such a red flag warning.  As organizations go through the deal, there will be critical issues on personnel and customers that will arise.

One critical issue that may raise the concern of the Integration team is the possibility of losing your key personnel. Losing your key personnel can cause a dent in any organization. At this point wherein integration is happening, the more the support of the key personnel is of utmost importance. Losing them would be a great loss.

Aside from red flag warnings, there will also be key considerations organizations must take note of during integration. Being aware of these will prepare them as they move on forwards to achieving a successful deal.

Interested in gaining more understanding of the PMI Process? You can learn more and download an editable PowerPoint about Post-merger Integration (PMI): PMI Process here on the Flevy documents marketplace.

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M&A is an extremely common strategy for growth. M&A transactions always look great on paper. This is why the buyer typically pays a 10-35% premium over the of the target company's market value.

However, when it comes time for the Post-merger Integration (PMI), are we really able to capture the expected value? Studies show only 20% of organizations capture projected revenue synergies and only 40% capture cost synergies. Not to mention, the PMI process is typically very painful, drawn out, and politically charged, often resulting in the loss of key personnel.

Learn about our Post-merger Integration (PMI) Best Practice Frameworks here.