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What happens after the deal has closed? How does one ensure that the key objectives behind the deal are met once the dotted line is signed? Here, lawyers Prasenjit Chakravarti and Nitish Goel discuss the importance of a watertight post-closing integration plan.
The finish line, the chequered flag, the summit – as is the case in sports, reaching the ultimate goal and completing an important task puts us in a celebratory mood. Naturally, the same victorious fervour is felt at the completion of a large business deal as well. Getting a deal to completion consumes a lot of energy ranging from drawing up of completion checklists, allocating responsibilities and monitoring completion of all actions within the agreed timelines. Hence, it is fairly easy to get distracted after a successful closing and take the eye off the ball after completion. However, the initial period after closing is crucial for putting together a roadmap to integrate the businesses and create synergies to ensure that the key drivers and objectives behind doing the M&A deal are met.
Deal done! What next?
Every M&A deal has its own unique business and operational challenges and therefore, a one-size-fits-all approach for post-closing integration should not be adopted. All of the issues which are relevant to the target business may not be flushed out during the due diligence exercise as the buyers are increasingly moving towards a ‘red flags only’ review of a target rather than a detailed due diligence. This is so since the buyers are usually eager to complete a deal as expeditiously as feasible and thus, rightly so look at the “big picture” issues rather than getting bogged down with granular or housekeeping issues. It is, therefore, important to build a customised and a comprehensive strategy to consolidate the target business with an aim to integrate the businesses and unlock maximum value.
Since the internal management team and employees of the target will continue to focus on day to day affairs of the company, professional experts should be engaged for drawing up a transition plan and entering into appropriate documents to ensure that the parties have appropriate protocols in place to achieve their desired objectives.
Below are some of the key focus areas which the parties should be mindful of while designing a post-closing integration plan:
The road ahead…
Many compare a merger/ acquisition to an arranged marriage – the similarity being that both parties must work together long after the wedding is over in order to build a stable foundation for the years ahead. If realistic objectives are framed, proper attention and priority is given to the post-closing integration plan, implementation is fully supported by the management of the target business and periodic review and assessment is carried out, the likelihood of accomplishing the targets of an M&A transaction can increase manifold.
The onset of COVID-19 pandemic has made it difficult to monitor compliance of a post-integration plan for various reasons including due to restrictions in terms of mobility and reduced engagement with employees. Businesses are struggling with mitigating demand and supply side challenges and may not have sufficient time to prioritise integration of target businesses. Buyers are also under tremendous pressure to demonstrate value creation in undertaking inorganic growth.
It is therefore now more important than ever to develop a precise, quantifiable and relevant action plan to successfully integrate businesses after an M&A transaction and achieve the goals set prior to undertaking the transaction.
Khaitan & Co – Prasenjit Chakravarti and Nitish Goel
The content of this document does not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at [email protected].
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