A post-merger integration (PMI) can be both an exciting and stressful time for any organization. So, what can you do to ensure a successful post-merger integration?
In this episode of the Two Cents: Finance Talk podcast, we’re joined by Janice Hopkins, Director of Finance at Convergence Networks.
Janice is amid a post-merger integration herself and has a lot of useful tips and advice to help finance functions prepare for a post-merger integration and navigate the common challenges that come along with it.
Listen to the full episode below:
Or keep reading to learn:
- What is a post-merger integration?
- The reality of being a finance professional in the middle of a post-merger integration.
- Post-merger integration challenges.
- How to get familiar with new laws, accounting standards, and audit requirements.
- How to ensure your company’s merger is a success.
What is a post-merger integration?
Mergers happen when two or more companies combine. More often than not, a merger occurs when one company is purchased by another. Both companies usually benefit from the merger as it leads to increased shareholder value.
However, merging more than one company isn’t easy because there’s a lot to consider and no guarantee that both companies will work seamlessly together. There’s a steep learning curve and it takes some trial and error before all the moving parts work like clockwork.
A post-merger integration (PMI) is the aftermath of the original merge. Now that both companies have come together to maximize synergies, the merged company (and everyone in it) must learn to work together and ensure the deal lives up to the predicted value of the merger.
An inside look at the post-merger integration process
What better way to make sure your post-merger integration is a success than to learn from someone who has experienced it themselves?
Janice Hopkins is the Director of Finance for a Canadian firm in the technology sector. She has been with the company for 10 years.
Two years ago, her company merged with another company in the same industry that was based in the US. But the merge didn’t stop there because six months after the initial merge, they merged with another company.
Here’s what Janice had to say about what it means to integrate after a merger:
1. People are the most important part of any merger
Integrating is many things. Your people are the most important. And for the success of any merger, it's going to involve the people.
Being in two countries, you're going to have cultural differences. You may or may not have some resistance to the merger. People may not understand the merger and what it means for them.
"It's about the people because ultimately, that's what's going to make or break a successful merger.”
2. Consider your clients
You must think about your clients and the message you're going to tell them during the post-merger integration process.
Are they going to be nervous?
If you're a smaller entity based in the city and owned by owners in the city, are your clients going to feel like they’re just small clients in a big conglomeration?
You want your clients to continue to feel valued. You also need to make sure they understand how this merger can benefit them and the staff.
If you've merged with another company, you've got more resources and training at your fingertips.
"Everybody, on some level, could be a little insecure during the post-merger integration phase and that can often touch on people's insecurities. So, you really need to make sure you consider all of that to help ensure your merger is a success.”
3. Streamline processes and systems
You have to talk about your systems. Ask questions like... are we all using the same systems? Are we all getting our data the same way? Are our processes the same and do we treat contracts the same?
"For a successful post-merger integration, you want to streamline everything because it just makes sense. You can't do one thing a certain way in one location, and something completely different elsewhere, it just gets too complicated.”
4. Post merger finance integration
Since I'm the Director of Finance based in Canada, it has implications. We must consider the currency we’re reporting, how we report it, and the frequency at which we report it.
Now that we have external owners, we can have much tighter timelines. The timelines get stricter because they apply to everybody.
We also need to think about what systems we should keep, who has the best systems, and how can we pull everyone together.
When we have weekly meetings for all staff, we have to pick a time that suits everybody. You can't have people up at 7am in one location, whereas they normally start at 9am.
"You have to pick a convenient time for everybody and have different people report different responsibilities.”
Challenges of a post-merger integration
Many challenges come with merging two or more companies. A few examples of possible challenges include having an unclear integration strategy, disengaged leadership, weak synergy program management, etc.
Janice shared some interesting insights about the challenges her finance team faced during the post-merger integration process.
Currency differences (the US and Canada)
I'm based in Canada, so I had to change the currency I was reporting in. With the Canadian and US integration, we both refer to our currency as dollars, but these are two different currencies. So, we must get everyone straight on that and specify which dollars we’re reporting in.
Dealing with extensive audits
Another possible challenge, if you're merging from a smaller firm, is that you might not have been required to have an audit before. And because of the merger, all the offices are now part of the audit.
So, we're working with a new accounting audit team, and an audit is a much bigger deal when you’ve merged because everything is scrutinized more. You have to have all your paperwork in place and we’re subject to more auditing standards.
We had to make some changes to how we record revenue and inventory, etc. because it's much stricter than if we were a non-audit company.
Working with new people/firms
We had to get an auditing firm that is international because they must have an office in Canada because we still have some Canadian tax laws that need to be applied. But they also needed to have a strong presence in the United States for the same reason.
Operating in two different countries (the USA and Canada)
Merging companies in different countries is inherently more difficult because you’ve got a lot more to consider. One of the biggest issues that companies face when merging across borders is various cultural issues.
You’re also likely to face some resistance from within both companies, either by the staff or clients.
Deloitte reports that 64 percent of managers interviewed believe that resistance tends to be low at the top management level and high at the worker level. However, other findings show that post-merger integration projects face resistance at all levels, from regular workers to middle and top management.
Still, one of the biggest issues facing merging companies operating in different countries is the currency differences. Janice spoke about this in more detail:
“Getting the wrong currency can have implications. For example, if I get a journal entry and I assume it's in Canadian currency, that could mess up the Canadian books. So, I need to ensure that I ask what currency they're using every time in their reports and so on.”
Another important factor to consider when merging with a company in a different country is their Generally accepted accounting principles (GAAP). Canadian GAAP and US GAAP are slightly different, which Janice talked about in the podcast:
“I don't know US GAAP. So, I have to defer to the auditors and to our CFO who's based in the United States to tell me about what US GAAP is. And as a result, US GAAP takes precedence because we do report to our US private equity firms and our auditors are US-based."
How to get familiar with new laws, accounting standards, and audit requirements
The number one thing to do when you’re trying to learn about another country’s accounting standards and audit requirements, etc. is to get a good auditor.
Janice recommends seeking an auditor that specializes in or is familiar with mergers. In the early stages of a merger, accounting can be quite complicated. So, choose a good auditor who knows what they’re doing and perhaps has some experience in the industry as well.
“Your audit team is really important because they’re going to have many questions about your processes, how you do things, how you record things, etc. And if they understand your industry, then they can jump to what they need to ask more quickly.
“You have to be open-minded about new processes and new ways of doing things. They might say you can't do that anymore, you can't record inventory, your revenue, or expenses like that.
"And even though you may have been doing it the same way for 10 years, now you have to change it… you have to accept that that's the way it is. And it's probably for good reason because it can make everything more accurate as a result.”
How to ensure your company’s merger is a success
Here are Janice’s top tips to help ensure your finance team survives a post-merger integration:
Ensure a clean cut-off point
When you first go into a merger, you’ll reach a cut-off point, which is when the old company ends, and the newly merged company begins. It’s best to make sure your cut-off is nice and clean and that your revenue has a nice clean break, etc.
Try to make your processes as simple as possible and be open-minded to other offices.
What are their finance processes like? They may have a much better process. They may record revenue in a way that you hadn't thought about. They might have a more efficient way to invoice clients or deal with collections, accounts receivable, cash flow, etc.
Having processes documented is helpful. And it helps everybody organize their minds and ensures everyone is on the same page in terms of reporting deadlines, etc.
If you have a new CFO post-merger integration, they might be based elsewhere, and that person needs to understand how each entity does things.
"If a company is going through a merger, chances are, more mergers are coming."
So, you need to build processes to help things run as smoothly as possible. You don't want to reinvent the wheel every time you merge with another company but at the same time, you've got to be respectful of the fact that the latest company to jump in might have a better process than any of the existing companies.
Use the same software across all entities
In terms of software, if you can get on the same platforms, it's inevitable that you'll find efficiencies. If we're all on the same platform, it allows the CFO to jump in to say how well Canada is doing in that aspect, they don’t have to go to a whole bunch of different platforms. They can access everything in one place.
Communicate with other departments
In finance, we need to think about what the rest of the departments need to ensure success.
What kind of metrics do they need and what are their deadlines?
What can we do as a finance department to help other departments? Because as finance professionals, we're the holder of the data and the timeliness.
"Communication is important because we're all in it together and other departments need to know that we're willing to talk and help them get the information they need within the required time frame.”
About the guest
Based in Canada, Janice Hopkins has worked as the Director of Finance at an owner-managed IT Managed Services firm, Convergence, for 10 years. The firm recently merged with several US-based IT Managed Services firms, with the head office based in Portland, Oregon.
Janice started her career in public accounting at Ernst & Young and has worked in many industries including construction, health services, and education.
Want to listen to more episodes of the Two Cents: Finance Talk podcast? You can tune into more episodes of the show right here.