How do you plan for post-merger integration success? Alka Bharucha and Justin Bharucha explain
External counsel are typically engaged intensively in the early stages of a transaction with increased participation up to completion. After this, we drop off the radar. As a result, most external counsel view transactions in terms of “getting the deal done”.
This results in an inefficient use of the acumen and experience which external counsel can bring to the table and detracts considerably from value contribution. The excitement of closing and the pleasure of a closing dinner are all very well, but for our clients, the real work starts only after these initial celebrations.
It is a trope that any M&A transaction succeeds only if integration succeeds and, increasingly, clients have tasked us to assist the integration team to plan for that success. Clients expect holistic lawyering during the timeline typical of external counsel engagement to help lay the foundation on which the integration team can build.
The first and most important step to planning post-merger integration is identifying whether the deal is an acquisition or a merger.
An acquisition-oriented client will require the seamless and efficient setup of its systems, processes and culture, with an effective redundancy plan for those at the target company prior to transaction completion.
By contrast, a merger may be driven by various factors which may or may not operate together – increasing the client’s geographic spread, vertical or horizontal integration, business exigency and product enhancement, to name a few. Identifying the drivers helps set the paradigm for the integration process.
Much depends on the structure and scope of the integration exercise as well as the client’s organizational and human resource (HR) footprints. There is a lot to be said about different models of integration teams, but that is a separate topic. For now, it is sufficient to note the benefits of engaging with external counsel as part of that team.
We cannot overemphasize the importance of senior, experienced lawyers engaging with the integration team. The classic “deal” skill sets which lawyers offer are insufficient and, arguably, irrelevant to the integration exercise. Deal skills are crucial and the principal point of our engagement with a M&A mandate, but negotiation, risk mitigation and elegant documentation are not the focus when structuring integration.
Holistic lawyering, which helps identify business synergies and dissonance and analyses how each of these will play out after closing, is vital. Thereafter, the most compliant and efficient way of effecting migration from the existing platform to the integrated platform needs to be set out without detracting from the larger vision of the integrated organization.
Collaboration between external counsel and the integration team can help:
- Relating diligence findings to the integration process: Often, identifying lacunae in contract execution or management as part of the diligence review will enable the integration team to focus on contract management systems and protocols, establishing a responsibility identification matrix overlaid on the decision-making workflow and maker-checker protocols, and, almost always, engaging with HR to better manage the transition.
- Forcing conversation on issues which may be contentious, but where resolution is not critical to deal completion: External counsel engagement with the integration team can flag these up and force senior management to address issues during the course of transaction negotiation. Management can then identify substantive solutions which may need to find place in definitive agreements.
- Reducing aspirational statements and subsequent conditions: These can cause friction after closing and may require external counsel to re-engage as part of formal dispute resolution!
- Translate the verbose nuts and bolts of a diligence review and counterparty negotiation: Distil clearly the data gathered and identify line items for the integration team to deliver. This can also help in-house counsel work to plan their engagement with the business and management functions to maximize efficient and timely legal support.
In conclusion, successful integration depends on cooperation and collaboration between external counsel, in-house counsel, and operations and management teams. This requires moving beyond the paradigm of pure lawyering and reclaiming the traditional position of the external counsel as a trusted and integral part of the client’s organization.