Chapter 6: Integration:

Mergers, Acquisitions, and

Business Alliances
Chapter Summary and Learning Objectives
This chapter assumes that integration is the goal of the acquirer immediately after the transaction
closes. Slow or ineffective integration is one of the commonly cited reasons for mergers and
acquisitions failing to meet expectations. If done correctly, the integration process can help to
mitigate the loss of key employees, customers, and suppliers. The chapter identifies the most
important factors contributing to a successful integration effort and discusses ways in which
obstacles can be overcome during the integration process.

Chapter 6 Learning Objectives: To provide students with knowledge of

1. Factors critical to successfully integrating businesses;

2. Viewing integration as a process;

3. Developing communication plans;

4. Creating a new organization;

5. Developing staffing plans;

6. Functional integration;

7. Developing a new corporate culture; and

8. Mechanisms for integrating business alliances

Learning Objective 1: Factors critical to successfully integrating businesses

 Integrate as rapidly as is prudent. Plan carefully, but act quickly. Rapid integration enables
the combined firms to more readily realize projected synergies and minimizes the loss of key
employees, customers, and suppliers due to the uncertainty associated with a protracted
integration.
 Introduce project management: Integration should be managed as a fully coordinated project
with clearly stated objectives, supporting timetables, and individuals responsible for
achieving each objective.

 Communicate from the top of the organization. Tell stakeholders as much as you can as soon
as you can. Address the “me-issues.”

 Focus on customers: Stay in touch with customer needs as customer attrition immediately
following closely can escalate.

 Make the tough decision early. Decide on organizational structure, reporting relationships,
spans of control, people selection, roles and responsibilities, and workforce reductions as
early as possible during the integration phase.

 Focus on the critical issues. Prioritize objectives carefully and concentrate resources on
achieving those offering the greatest payoff first.

Learning Objective 2: Viewing integration as a process

 Integration planning: Planning should begin before closing when the buyer has greatest
leverage over the seller. Refine valuation, resolve transition issues such as payroll and benefit
processing immediately following closing and customer checks sent to the seller after
closing, and negotiate contract assurances.

 Developing communication plans: Plans should be developed for all major stakeholder
categories including: employees, customers, suppliers, investors, communities, and
regulators.

 Creating a new organization: Business needs drive organizational structure

 Developing staffing plans: Determine personnel requirements for the new organization;
determine resource availability, establish staffing plans and timetables; develop a
compensation strategy, and create supporting information systems.

 Functional integration: Revalidate due diligence data, conduct performance benchmarking,

and integrate functions.

 Building a new corporate culture: Identify cultural issues and integrate through shared goals,
standards, services, and space.

Learning Objective 3: Developing communication plans

 Employees: Address the “me issues” immediately.

 Customers: Undercommit and overdeliver.

 Suppliers: Develop long-term vendor relationships.

 Investors: Maintain shareholder loyalty by presenting a compelling vision of the future.

 Communities: Build strong, credible relationships.

Learning Objective 4: Creating a new organization

 Learn from the past. Building a new structure requires an understanding of past structures.

 Business needs drive structure. A well-structured organization should support the acceptance
of the culture desired for the new corporation.

 Integrating corporate structures. Balance need for control with need for flexibility.

 Integrating senior management. The management integration team that provides direction for
the overall integration effort should consist of senior managers from both the acquiring and
target organizations.

 Integrating middle management. Jobs should go to the most qualified from either the acquirer
or target firms.

Learning Objective 5: Developing staffing plans

 Identify staffing requirements based upon operational requirements.

 Determine the number of each type of employee required both inside and outside of the firm.

 Establish plans and timetables for filling the needed positions.

 Determine types of compensation plans needed to attract and retain needed personnel.

 If the two firms are to be wholly integrated, integrate compensation plans for both the
acquirer and target firms.

 Merge personnel information systems if the acquirer intends to merge the target into the
acquiring firm.

Learning Objective 6: Functional integration

 Due diligence data revalidation: Ensure that data collected during the initial due diligence is
accurate by revisiting those individuals or facilities not sufficiently covered during the initial
due diligence activity.
 Performance benchmarking: Benchmarking provides the data necessary to determine and
implement “best practices.”

 Integrate functions

--Manufacturing and operations

--Information technology
--Finance
--Sales
--Marketing
--Purchasing
--Research and development
--Human resources

Learning Objective 7: Developing a new corporate culture.

 Cultural issues differ by size and maturity of the size of company, the industry, and
geographic locations.

 Use cultural profiling to determine the extent to which the two organizations are alike or are
different.

 Techniques for integrating corporate cultures include the following:

--Create shared goals, which serve to drive different units to cooperate.

--Establishing shared standards enable the adoption of the “best practices” found in one unit
or function by another entity.
--Create shared services by centralizing selected services in support of multiple units.
--Share space by co-locating employees and managers.

Learning Objective 8: Mechanisms for Integrating Business Alliances

 Leadership: Provide clear direction, values, and behaviors to create a culture that focuses on
the alliances strategic objectives as its top priority.

 Teamwork and role clarification: Teamwork is the underpinning that makes alliances work.

 Coordination: In contrast to an acquisition, no one firm is in charge. Actions must be

carefully coordinated among participating parties.

 Policies and values: Employees need to understand how decisions are made, what the
priorities are, who will be held responsible, and how rewards will be determined.

 Consensus decision making: Make decisions with everyone having an opportunity to provide
input.
 Resource commitments: All parties to the alliance must live up to their resource pledges.

Chapter 6 Study Test

True/False Questions:

1. Rapid integration increases the likelihood of the merger achieving its goals by enabling
the realization of planned synergies sooner and by minimizing employee and customer
attrition. True or False

2. Customer attrition often escalates immediately following an acquisition. True or

False

3. The bulk of integration planning should wait until just before closing because of the huge
demands of negotiating. True or False

4. Agreements of purchase and sale rarely indicate how target firm employees will be paid
and how their benefit claims will be processed immediately following closing. True or
False

5. “Buyer reps and warranties provide the buyer with recourse to the seller if any of their
claims or promises are untrue. True or False

6. Sellers are often inclined to warrant the accuracy of their sales and profit projections.
True or False

7. Post closing integration organizations are difficult to assemble during a hostile takeover.
True or False

8. The post merger integration organization should consist of a management integration

team and a series of work teams, each of which focuses on implementing a specific
portion of the integration plan. True or False

9. Communication during the early stages of the integration process should be kept to a
minimum due to the potential for litigation if what is communicated is not likely to be
entirely implemented. True or False

10. Empirical studies show that a newly merged company can expect to lose on average at
least 5 to 10% of its existing customers because of the merger. True or False

11. Given the benefits of rapid integration, it is usually preferable to impose the acquirer’s
organizational structure on the target firm. True or False

12. It is best to staff positions in the new organization following a merger with employees of
the acquiring firm to ensure their loyalty. True or False
13. Performing additional due diligence after closing is redundant and expensive since the
acquirer had an opportunity to perform due diligence prior to closing. True or False

14. Encouraging an atmosphere of shared goals is a common way of integrating disparate

corporate cultures. True or False

15. Integrating alliances relies more on teamwork than on top-down direction. True or False

Multiple Choice:

16. All of the following are common integrating mechanisms for business alliances except
for

a. Team work
b. Top-down direction on a daily basis
c. Consensus decision making
d. Parties to alliance living up to their resource commitments

17. Which of the following are commonly used in integrating corporate cultures?

a. Shared goals
b. Shared standards
c. Shared services
d. All of the above

18. Corporate cultures are more likely to be significantly different if the acquirer and target
firms are in

a. The same industry

b. Different industries
c. In different countries
d. In different countries in different industries

19. Communication plans should be developed for which of the following stakeholder groups
prior to closing.

a. Employees
b. Customers
c. Suppliers
d. All of the above

20. All of the following are often considered transition issues except for

a. Ensuring continuity of payroll and benefit processing functions

b. How the seller should be reimbursed for products shipped by the seller before
closing but not paid for by the customer until after closing
 c. How the buyer will be reimbursed by the seller for monies owed to suppliers for
product provided to the seller before closing but not billed until after closing
d. Non-compete agreements

Answers to Test Questions

True/False 1. True
2. True
3. False
4. False
5. True
6. False
7. True
8. True
9. False
10. True
11. False
12. False
13. False
14. True
15. True
Multiple Choice 16. B
17. D
18. D
19. D
20. D