How to Prevent Value Attrition in Mergers & Acquisitions

While companies engage in M&A activity to increase profits, in reality, profit margins often decrease rather than increase following a merger or acquisition. How likely is post-M&A value erosion? Although figures vary from study to study, most studies maintain that value erosion is present roughly a quarter of all mergers and acquisitions. The 2014 State of M&A Integration Effectiveness Survey, for example, found that 55% of respondents indicated value erosion in more than 25% of all integrations. Fortunately, there’s a growing body of research and best practices focused on identifying actionable strategies to minimize value erosion during the integration period. This article discusses five actionable strategies that acquirer’s can adopt to reduce the risk of value erosion in M&A.

Step 1: Develop a Comprehensive Integration Strategy Framework

While this step may appear obvious, many organizations fail to have a strategy in place at the time of a merger. Yet, if left to unfold on their own, the vast majority of mergers and acquisitions fail. From determining how best to integrate software across two companies to managing the rumors that often circulate in the wake of a merger to ensuring that day-to-day operations are not neglected during the integration period, it is important to have a comprehensive integration strategy in place prior to merging and a timeline in place for the completion of the integration process. Identifying key milestones is one way to ensure that the integration is carried out and more importantly, that it is carried out at a fast pace. Speed, after all, is critical to producing synergies across the two merging entities.

Step 2: Develop an Effective Staffing Model for Integration

Expecting your existing staff, even experienced managers, to be experts on integration is presumptuous. Indeed, in the 2014 State of M&A Integration Effectiveness Survey, 47% of respondents reported feeling unprepared to deal with a merger. But even if one’s staff are prepared, expecting day-to-day operations to continue at their regular pace while staff also manage integration-specific tasks may prove unreasonable. Notably, burn out, low workplace morale and of course, talent loss (if key employees leave for brighter pastures elsewhere) are often consequences. As such, when staffing is ignored, value erosion is nearly inevitable. There are, however, at least two key steps one can take to ensure that their staffing model supports their M&A objectives. First, unless you are certain that you have the managerial expertise on staff to manage the merger, consider bringing in a post-merger integration (PMI) manager or management team. As outsiders with no direct stake in the acquired or acquiring company’s past, present or future, a PMI consultant or team can also serve as a neutral third party to help facilitate any conflicts that arise. Second, ensure that all staff are fully aware of their responsibilities during the integration period (e.g., if regular tasks can be put on hold, clearly communicate this fact).

Step 3: Stay Focused on Essential Integration Complete Objectives

It can be easy to get sidetracked during the integration process. On the one hand, day-to-day operations may call managers away from the integration work to which they have been assigned. On the other hand, integration tasks may eclipse day-to-day operations. Either way, value erosion is nearly bound to take place. To ensure profit margins remain steady or better yet, grow during the integration period, it is important to stay focused on key objectives—both those pertaining to day-to-day operations and the integration process itself. Becoming muddled in more petty concerns, including individual’s specific concerns, is a major pitfall. While this is not to suggest that individual employees’ anxieties should be ignored, it is to suggest that the integration period is time when the “big picture” needs to be a sole focus.

Step 4: Retain Key Talent

As already noted, retaining key talent can be difficult during a merger. If there is poor communication, low morale or excessive chaos in the organization (and all three of these factors are common in the case of poorly managed mergers), talent loss is likely to follow. In cases where a company has been acquired primarily for its human resources, talent loss can be especially devastating. In short, it may mean that the acquiring company has purchased something of little or no value to them in the end. To retain key talent, it is important for the acquiring company to:

  • Convey a clear and consistent message on strategic fit, value, respect and alignment;
  • Establish financial retention strategies (e.g., base compensation, incentives, stay or performance bonuses, and project team or integration objective bonuses);
  • Sell themselves to their existing and new employees; in short, acquiring companies need to send out a message that they are the right fit for the key talent already residing in the merged organization.


How important is retention of key talent? Most researchers and managers agree that is it the most important factor driving the success of mergers. After all, if you lose key talent, the likelihood of attracting comparable talent is very low (a major loss of talent will be news across the industry and new talent will likely already know to stay away). In short, taking steps to retain key talent, even if it comes at a high cost, typically yields a much higher ROI than attempting to replace key talent following a poorly managed integration.

Step 5: Inject Speed into the Integration Process

A shocking 61% of companies report that during mergers, they are “very poor,” “poor” or at best, “average” when it making “timely, effective decisions” at an executive level. The consequences of failing to make decisions in a timely manner, however, is major. Evidence-based research shows that time and time again, mergers that fail to capture value fail to do so because they’ve moved too slowly. On the contrary, mergers that move quickly are more likely to capture value. The inability to make timely decisions, of course, is a key part of injecting speed into the process. What holds people back from making decisions during a merger? More often than not, it is due to a lack of knowledge. To this end, companies are advised to take the following steps:

  • Conduct a Responsibility Assignment Matrix to clarify and communicate governance accountabilities, responsibilities, involvement and so on. Put another way, ensure that everyone knows his or her role prior to the entering into a merger.
  • Establish an integration management office (IMO) and clarify expectations any work that will be carried through the office.
  • Clarify the escalation process for the integration period in order to ensure adequate steering team/executive committee involvement on major issues and ensure the involvement takes place in a timely manner.
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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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