Post-merger integration – a practical perspective
Whether our clients are acquiring, being acquired or part of a divestment, business transactions can be chaotic events.
People, programs, procedures and systems that previously were known, understood and relied upon may suddenly cease to exist, requiring individuals to adopt new programs and procedures and to forge new relationships – or suffer the consequences. Often, the sustainability vision, strategy and approach implemented by the acquiring and acquired companies differ significantly, creating significant integration challenges.
According to Michael Bittner, Post-merger Integration Managing Partner, “The value and volume of global mergers and acquisitions have grown substantially over the past few years, with significant activity recently in the pharmaceuticals, life sciences, oil and gas, chemicals, technology, media and telecommunications sectors. For the past three years, ERM has supported a new company that was divested from a large chemical manufacturer. ERM helped this new company develop its sustainability strategy, prepare a company sustainability report, conduct a detailed review of the product stewardship function, obtain and revise operating permits in several countries and address liabilities associated with legacy sites.” ERM’s support has helped the client both develop its new corporate identity, which includes sustainability as a competitive business advantage, and assure that the company’s new and existing products are available for manufacturing and use in target geographies.
Forging a new direction
While a merger, acquisition or spinoff can be very challenging, these events are also an extraordinary opportunity to forge a new direction for the sustainability program. Companies in transactions inevitably seek to identify and capture synergies, which often take the form of operating efficiencies, cost reductions, and revenue growth. Proactive environmental, health and safety (EHS) and sustainability leaders view the synergy process as an opportunity to collaborate with internal business partners, validate and enable synergy strategies proposed by others and contribute EHS-specific operating efficiencies. Implementing lean EHS programs and procedures, for example, often reduces the complexity and cost of this essential function, while upgrading information solutions for EHS and sustainability delivers operating efficiencies and improved reliability.
Companies seeking to take their EHS and sustainability programs in a new direction should start by evaluating carefully the new company’s business context and objectives, and then crafting an EHS and sustainability vision that aligns with the company’s needs and resources. The next step is developing a deep understanding of the sources of value for sustainability and EHS throughout the organization. Finally, an appropriate organization and programs should be implemented to achieve the EHS and sustainability vision. Depending on the scope of the transaction, this process can range from one or two minor adjustments to a major overhaul of the entire sustainability program’s mission, purpose, values and organization.
Our experience indicates that some companies approach these changes superficially, often by simply cutting EHS staff or budgets without revising their guiding vision or underlying programs. Unsurprisingly, these efforts seldom deliver the promised results. Leading companies, on the other hand, take a more robust approach. They evaluate the overall EHS and sustainability compliance and risk profile across the business and identify opportunities for cost reduction and growth in operations, product development and supply chain. When this insight is supported by appropriate organizations, people and programs, results usually meet or exceed expectations.
Sustainability due diligence
Quite often, the strategic nature of transactions means that a detailed pre-merger due diligence has not been undertaken. This practice can deprive sustainability leaders of valuable baseline information on the target’s history, programs and compliance, which is needed to prepare effective post-merger integration plans. Companies that fail to form detailed integration plans for Day 1, Day 100 and even Day 1,000 often find that their sustainability integrations lack clear direction, rendering them inefficient and ineffective.
Sustainability leaders must ensure that they secure sufficient baseline information on their acquisitions to understand fully the material liabilities, compliance deficiencies and required capital investments associated with transactions. These costs, along with the human resources needed to integrate acquired assets, must be documented and communicated to senior management so that appropriate funds, internal staff and external resources can be obtained for a successful integration.