Why org planning is job #1 for M&A value preservation

Prioritizing organizational design early in deal planning is essential to downstream success.

Mergers and acquisitions (M&A) can often feel like a high-wire juggling act: There are a lot of balls in the air, but even one misstep can mean a long and costly bounce down.

To avoid this fate and preserve the anticipated value of the transaction, C-suites and their deal teams need to start planning and implementing their organizational redesign as early as possible. How will talent, roles, and reporting structures function in the new entity?

An early-and-often emphasis on organization design points the way. You need to keep the right people in the right slots—with the motivation and resources they need to do their jobs—while also managing redundancies and integrating cultures and systems.

Fail to properly plan and then execute this org design juggling act, and your business may stumble as you lose key talent, morale, and expected value—as evidenced by the long history of failed mergers and the related write-offs, downsizings, and even bankruptcies that can follow.

But getting things right well before Day 1 and building org design into the deal process from the start can help ensure a smooth M&A transaction with the expected value intact, as we outline in our recent report on value preservation during deals.

A four-part approach

Our M&A and organization design specialists have worked closely with company leaders on a wide range of successful transactions over the years, and we’ve found that organizational planning plays out across four key phases. Here’s a closer look at the approach we take.

Phase #1: Define organizational risks

Look across the organization: Could uncertainty around the merger impede day-to-day business operations, create gaps in key talent or leadership roles, or slow important decisions? How could roles and responsibilities get clouded? Try to get ahead of these uncertainties by making organizational design decisions as early as possible.

As an example, working with a global Tier 1 automotive parts supplier that was acquiring an electronic components company, we developed a standardized and rigorous talent selection methodology supported by data and insights from KPMG proprietary tools. This approach combined top-down selection of higher managers with bottom-up matching of roles and skill sets for lower-level employees.

This standardized, data-driven framework allowed the operational leadership to continue to run the businesses separately until deal close, while senior leaders designed the future-state organization.

Phase #2: Align design with the business strategy

Companies make deals to take advantage of market trends or adjust to changes in their business environment. It can be hard to stay true to a deal’s strategic rationales while also implementing the disruptive change that comes with M&A.

In one recent client success, we worked with a technology company that acquired a business that specialized in direct-sales lead generation. The goal was to sell more offerings and custom services at the first point of contact—and improve the overall customer experience by enabling rapid handoffs from sales to engineering. The challenge, then, was to integrate the new lead-generation capability into existing operations.

The integration team designed the new sales organization for agile decision-making, enhanced information flow from sales to engineering, and new performance tracking and incentives to reinforce the business strategy of enhancing the customer experience. The team accomplished this by adding a reporting structure that closely aligned to the desired sales cycle, but which was bolted onto the existing customer-focused reporting structure.

Success! This new organization design leveraged the scale of the combined orgs. But most important, it also mapped to the overall core strategy of improved customer experience.

It’s imperative to link the organization design to the long-term strategy and vision that drove the original deal logic to begin with.

Phase #3: Separate “savings” from bona fide “synergies”

Investing in organizational design up front can help ensure that expected synergies are realistic. Too often, identifying areas to cut back is left to diligence teams who focus on financial models without considering the knock-on consequences of specific actions. To avoid these gaffes, we consider bottom-up evaluation of business processes while also understanding the rationale behind the financial targets. The timeline for achieving synergies may have to be adjusted to ensure smooth operation of the business.

For example, in one recent deal, both companies had billing departments. The acquirer’s was in-house and the target’s was outsourced. The easy call was to eliminate the outside entity. But on further review, the outsourced service had unique capabilities around automated payment reconciliation that would have upset a group of customers if removed—and potentially affected cash flow.

As a result, the acquirer decided to stick with the third-party until an in-house solution could be developed to ensure continuity—and preserve the deal value.

Phase #4: Provide transparency before day 1

Addressing organizational design early can help alleviate workforce anxiety. Well before D-Day, employees should know how and where they will fit into the new entity. Transparency from the start is the best way to retain needed talent and ensure new talent has the support they need for their jobs.

Working with a large environmental services company, we identified a variety of environmental, regulatory, and operational risks that required people with special knowledge and certifications to address. Qualified people were placed on triage teams to respond as needed. People were asked to work part time on these teams even as some of them were transitioning to new roles. The teams were ready and able to perform their jobs on Day 1.

Mergers and acquisitions are disruptive, high-stakes events, so it’s important to have professionals with organizational design experience guiding the business—and its people—through the process. Organizational design can also help ensure that the value anticipated by the C-suite and deal team is actually achieved, rather than falling away due to incomplete planning and an underestimation of the importance of organizational continuity overall.


John Luce

John Luce

Principal, Advisory M&A Services, KPMG US

+1 312-665-1112