Often, after companies have agreed to a merger, the integration process is delayed. Below, we look at how both companies can maintain independence pending formal approval and use the delay to prepare for the merger.
1. Do not delay with the formation of the organizational structure of the future company. Otherwise, there is a threat of loss of valuable employees. Without understanding what to expect, they may quickly find another place—outside headhunters and competing companies are particularly active at such times.
Therefore, it is necessary to announce the future CEO of the company as soon as possible and to start forming the management.
2. It is necessary to plan how the merged company will operate, but it is equally important to avoid sharing trade secret information before the merger/acquisition has been approved. This requires forming a so-called “clean team,” which will only deal with planning the integration. The “clean team” works with the data related to trade secrets (production, procurement, commerce, finances, and organizational structure).
3. Ensure that data is shared securely. You can’t send data by mail or transfer it via any media. You must create specific data rooms—folders with different levels of access: for the “clean team”, for employees involved in the merger, etc. The system of keeping files and requests for information and transferring information from folder to folder must be strict and well-regulated.
4. Involve all divisions in the preparation of integration. It is necessary to establish cooperation at the early stages of planning. A common situation is that the changes in the work of commercial, financial, and other services are already known. But the IT systems are not configured for these changes: the integration of IT systems is very long and complicated, and the start of the merged business depends on their proper functioning.
5. Start negotiations with contractors as early as possible. As soon as they find out about the forthcoming merger, they will begin to exert a lot of pressure on the commercial services, trying to get more favorable conditions. It is important to think in advance about how to react to such situations.
6. Seek a balance between the benefits and risks of the merger. It is worth looking for a compromise: if you quickly fire people, those who remain may not be able to cope with the increased workload, and if you quickly integrate the divisions responsible for the distribution, it will not work either—negotiations will take some time.
7. Use the postponement to revise the plans. Usually, the preparation for the first birthday of the united company gets planned: who should come to what office at what time, whether to connect to the old IT system or to switch to a new one, etc. An equally detailed plan is usually developed for the first 100-180 days. Any postponements greatly affect the mindset of the team planning the integration.
One of the challenges that comes with design services is the cyclical nature of the services business. When the economy tightens and corporates are watching their operational expenses, the first step will be to halt any external contracts/contractors which are not deemed absolutely essential.
Whereas the earlier (staircase) model is a good approach in scaling up revenue and creating new revenue streams, the foundation of the company is still based on the service model: headcount continues to be the main driver (typically up to 60-70% of revenue). In terms of (enterprise) valuation the additional revenue streams, however, will already make a significant difference.
Design services companies typically start small (some exceptions when it concerns management buy-outs) and natural growth is a slow process as it requires hiring and training of engineers based on/driven by the revenue stream of the company. Growth of business is tied to growing the team and it is not always easy to find the engineers.