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Enabling post-merger integration deal success

Philip Whitchelo
11-Jan-2023 16:35:11

Most mergers or acquisitions involve teams of people undertaking many months of hard work, and a sense of euphoria when the deal finally closes. There is a temptation to believe that all the effort in getting to this stage is itself an indicator of the success of the deal.

However, the M&A history books are littered with examples of transactions that made it over the finishing line but then proceeded never to achieve the expectations and targets that were set for them, ranging from the merely disappointing to the catastrophic – some of which blew up their acquirors.

Experienced, serial acquirors know that the key to realising the hoped-for revenue and cost synergies, strategic fit, cultural integration, and increased shareholder value that underpinned the deal rationale depends on a well-planned and executed post-merger integration (PMI) process.

A successful PMI involves planning as well as execution and begins many weeks or months before the deal closes. In his book[1], Danny Davis, an expert PMI practitioner, identifies the best practices and “golden rules” to follow to maximise the probability of deal success and the realisation of anticipated value from the deal.

A PMI, especially for larger transactions, faces many challenges, not least the copious volume of documents and information that need to be shared among the deal and PMI teams – which may be geographically dispersed and involve participants from both the acquiror and the target as well as advisors and consultants.

The information to be shared is usually confidential and involves personally identifiable information which will need to be safeguarded and shared in a secure manner which complies with data privacy regulations. Tools such as internal network drives, e-mail and even collaboration or document storage platforms such as Teams and SharePoint are not robust enough or suited to the task of managing and collaborating on very large volumes of documents where features such as security, information rights management, data privacy compliance, redaction, audit trails and reporting are important.

An online virtual data room, which may have been used by the target for sharing due diligence information with bidders during the deal, is an ideal solution for managing the PMI.

PMI golden rules
  • Plan integration as early as possible
  • Have a controlled process for gathering and sharing information
  • Work collaboratively as a team and enable fast decision-making
  • Focus on understanding where the big synergies are
  • Share delivery plans early with key stakeholders
  • Communicate with key customers - don't lose revenues
  • If this is your first PMI, get expert advice

A VDR can be rapidly deployed to provide access to documents for the entire PMI team, while maintaining the highest levels of security, information rights management (to ensure that access to information is strictly permissioned and controlled), audit trails, activity reporting and data loss prevention. Collaboration and productivity tools such as built-in Q&A, automatic translation of content, and redaction can also enhance the timeliness of analysis and decision-making, while keeping sensitive information secure and complying with data privacy regulations. The VDR can also integrate with common corporate document management systems such as SharePoint to allow for the seamless transfer of documents into a secure repository which becomes the single “source of truth” for the PMI.

Another challenge facing the parties on deals where there is a significant time gap between signing and closing (due to the need to obtain merger control or anti-trust approvals from regulators) is that certain sensitive information, such as customer or pricing data, cannot yet legally be shared between acquiror and target, and the parties must still operate as two separate businesses to ensure that business material is not co-mingled, until regulatory approvals for the deal have been obtained.

During this period, the parties may be asked to provide significant amounts of information to regulators and approval of the deal may be conditional on disposals by one or both of the parties.

One solution to these challenges is to set up a VDR configured as a “clean room”, which functions as a repository where sensitive information is uploaded by both acquiror and target, but where each party can only see its own information.

The entire contents of the clean room are accessible to a select group of individuals - typically a third-party consultant or advisor – who are responsible for analysis of the information and for the provision of guidance to both parties on key questions such as synergy attainment and integration risks.

Information rights management features, such as document protection and permissioning, access reports and audit trails can be used to ensure and demonstrate compliance with regulatory requirements relating to non-sharing of potentially anti-competitive information.

The clean room can also be used to enable secure access to documents by regulators during the review process, while maintaining visibility into what information has been shared and accessed.

The use of a VDR for PMI can also accelerate the launch to market of any disposals that need to be made as a condition of regulatory approval for the deal. Due diligence information on disposal candidates can be compiled and segmented during the PMI and spun off as separate VDRs which can then rapidly be deployed for bidder due diligence in subsequent sell-side processes.

Check out our recently published Annual M&A Success Survey for a deeper dive into the enablers of deal success.

For more information on how Sterling Technology can help make your next deal a great deal better, please complete the form below or contact us.

[1] Davis, D 2012, M&A integration - how to do it: planning and delivering M&A integration for business success, John Wiley & Sons, Chichester

Philip Whitchelo is Sterling's chief strategy & marketing officer.