According to multiple sources, 70-90% of merger and acquisition deals often fail to create the desired value. And the standard explanation for such higher failure rates point
s to one thing that organizations usually overlook during mergers & acquisitions: poorly planned or, in some cases, a lack of post-merger data integration.
“The global M&A market plunged to $3.2 trillion, the lowest in 15 years, but 2024 is expected to keep the hope alive for deal makers across the globe”Bain & Company, Looking Back at M&A in 2023
To ensure long-term success and value from M&A deals, an effective post-merger data integration strategy must be complemented with due diligence and other key factors for a successful M&A deal. Whether you’re a first-timer or an M&A veteran, this blog helps you understand the importance of data integration during/after an M&A deal and how Aspire’s data integration services help you realize better value from your next M&A deals.
Why Post-Merger Data Integration Strategy Matters in M&A Deals?
Many M&A deal makers reported that developing a proper M&A strategy and value gap were the most challenging obstacles in getting any M&A deal in order. There were times when even a seamlessly completed deal went wrong due to an ineffective post-merger data integration strategy in place.
In a few words, to eliminate major risks and realize value in your M&A deal, due diligence must be complemented with an integration plan. If data integration after an M&A deal isn’t done right, the big plans and goals behind the M&A deal could fall apart. That’s why it’s crucial for companies to see PMI as essential for M&A success and to invest in it to make sure everything goes smoothly, and the deal adds value.
Four Reasons Why a Poorly Planned Post-Merger Data Integration Strategy Can Be an Expensive Business Mistake?
An efficiently planned post-merger data integration strategy stands as the linchpin in any M&A process. This phase of an M&A process is often considered a dealmaker or deal-breaker of mergers and acquisitions. Many successful M&A deals that have happened in recent years tell us that post-merger data integration has been a powerful catalyst in achieving the desired value expected from a deal making. Moreover, it’s the bridge that connects strategic intent with operational reality, creating a seamless transition from two separate entities to a unified, stronger force in the market. Here are four reasons why you should not overlook a properly planned post-merger data integration strategy while buying a new M&A deal:
- Inefficient Operations
Without a data integration strategy after an M&A process, the newly merged/acquired company may have to continue to operate with the same systems and processes. This leads to redundant efforts, inefficiencies and increased operational costs. For example, if customer data is not integrated, sales teams may duplicate efforts by contacting the same customers separately, leading to unwanted confusion and loss of time and money.
A lack of data integration strategy in M&A can result in a variety of negative consequences, including inefficient operations, inaccurate decision-making, cultural friction and loss of competitive advantage. By partnering with a reliable and experienced data integration services provider, companies can mitigate these risks and unlock the full potential of the newly acquired deals for elevated growth and easy business continuity.
- Poor decision-making
Following a merger and acquisition, both the parent and the merged entity majorly rely on financial reports generated from disparate systems. This creates several unfortunate situations that may later lead to inconsistent revenue figures and under-performing revenue strategies. Without a unified view of financial performance, decision-makers may allocate resources based on incomplete or inaccurate information, leading to suboptimal investments and financial outcomes. This is when companies, in retrospect, wish that they wouldn’t have overlooked when finalizing their M&A deals.
Imagine this: if the HR departments from both companies continue to use an unintegrated payroll system after an M&A, especially when calculating employee benefits and compensation, there is a high chance for inaccurate paychecks and renumerations issues which later lead to employee dissatisfaction and lawsuits, in some cases.
- Cultural Shift & Higher Attrition Rate
Failing to address the cultural differences between the acquiring company and the target company can significantly slow down value creation. Here is a real-life example of why putting a people-first strategy always works: When Amazon acquired Whole Foods, a popular organic supermarket chain in the US, in 2017, its highly hierarchical and centralized culture did not quite sit with Whole Foods’ relaxed and decentralized culture. This culture incompatibility between Amazon’s customer-first culture and Whole Foods’ employee-first culture taught a lesson to think through an overlooked part of the acquisition – Culture & Employees.
- Decreased Customer Engagement and Disrupted Vendor Management
One of the most common mistakes companies make when merging with the target company is to believe that this arduous journey of M&A only concerns the people from the inside and not the outside. This means the brand’s reputation, customers and vendors.
Inconsistent messaging and branding due to a lack of a unified system in place can confuse customers and dilute brand identity. For example, if a luxury fashion brand acquires a more affordable clothing retailer but fails to maintain distinct brand identities, customers may perceive a decline in quality and exclusivity. This can affect the brand’s loyalty and customer satisfaction rates.
If the merging companies have different vendor management systems or processes, integrating them can be challenging. This creates inconsistencies in communication, payment terms and contracts with suppliers.
Post-merger data integration strategy: the biggest value generator in M&A deals
M&A deals inherently involve risks, including those related to data integration. Without a fail-proof post-merger data integration strategy, things could go wrong on so many levels, especially when migrating and evaluating data from the target company to the acquiring company. It takes a team of experienced data integration specialists to come up with a post-merger data integration strategy that helps companies understand the risks and challenges of M&A deals. Now that you know the role of an efficient post-merger data integration strategy during M&A deals, it is time for your business to be aware of the challenges and possible consequences that a poorly planned M&A process could bring in.
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