50% of M&A deals don’t deliver the hoped-for value in the PMI phase — the right organization design can help

This is a republication of the article below, with the title above, focusing on the topic in question.

The Secret to M&A Success? The Right Organization Design

By Danny Friedman, Lianne Pot, and Michele Rosiello.
July 14, 2022

Structure of the publication:

  • Introduction 
  • 1. Transformative Consolidation 
  • 2. Growth Engine 
  • 3. Hybrid Growth and Cost Synergy Opportunities 
  • 4. Capability Move
  • Conclusion

M&A deal volume has reached significant levels globally, as companies seeking to create new value deploy mergers and acquisitions as a strategic lever. 

For instance, some strive to generate new value by achieving greater scale; others, by boosting revenue growth or acquiring new capabilities.

Yet roughly 50% of M&A deals don’t deliver the hoped-for value. Why? 

One culprit is failure to pay sufficient attention to the organization design of the new entity that will emerge post-close. 

Organization design addresses the question of how integration of two previously separate entities will be managed. 

Key considerations include 

  • the reporting structures, 
  • processes, and 
  • systems that determine how a company operates, 
  • and the ways in which key talent, organizational culture, and decision-making are handled.

In any M&A deal, the people component of the new entity’s organization design has become vital for success. 

That’s because talent-related disruptions are upending the business landscape-especially the shortage of employees with skills required in highly technical and specialized fields, and new ways of working (including remote-only and hybrid work) arising from the pandemic.

To ensure that an M&A deal delivers value in the short and long term, post-merger integration (PMI) teams must develop the right organization design for each newly combined company, especially the talent-management and operating-model components. Doing so is challenging. 

There’s relatively little visibility into key talent pre-close. And, not all deals are created equal. For example, different companies often have different operating models, and deals have different strategic objectives.

To surmount these challenges, PMI teams should tailor their organization design to each deal’s strategic rationale and type. 

With this in mind, we’ve identified four organization-design “archetypes” that PMI teams can consider while planning M&A transactions

Below, we highlight defining characteristics of each.

  • 1. Transformative Consolidation
  • 2. Growth Engine
  • 3. Hybrid Growth and Cost Synergy Opportunities
  • 4. Capability Move

1. Transformative Consolidation

In this transaction type, two companies are combined, with the primary objective of achieving a level of scale that neither could have managed individually. Additional important goals include capitalizing on cost synergies and improving organizational agility. These are large-play deals whose success hinges on the ability to implement major transformation. Given these deals’ magnitude and complexity, PMI teams should design the new entity’s operating model upfront-addressing questions such as:

  • How will the companies fit together once they’re combined?
  • Which functions will be fully integrated, left alone to continue operating as they did previously, or managed using a hybrid model (some processes are fully integrated while others remain autonomous)?
  • What capabilities should be located in which business units, versus centralized in corporate-level functions or outsourced?

PMI teams must also establish a fair and clearly communicated talent-selection approach. Key priorities include developing financial and non-financial incentives for retaining critical talent, and crafting communications for different employee segments explaining what (if anything) will change in their part of the organization. Given today’s unprecedented departures of labor from the workforce, it’s more vital than ever for PMI teams to manage employees’ expectations and help them cope with uncertainty. Doing so can help minimize loss of essential talent.

For legacy companies with similar operating models, a cascaded organization-design approach, whereby leaders at each level in the new organization select their direct reports, is preferable. This approach helps build the right organization for the future, eliminate role overlaps, and capture labor synergies in a fair and objective way, while also reinforcing the new leaders’ accountability.

BOX: Setting the Stage for Transformation in a Financial Institution Merger

BCG supported the integration of two leading financial institutions by defining a people strategy for the combined future organization. After identifying the current-state baseline across the two organizations, including their operating model, talent distribution by job family, location, and level, the integration team mapped key job families to skills to properly allocate relevant talent across the combined organization. BCG also used an organization design cascade methodology and was able to design down to layers 5 and 6 by close, as well as capture nearly half of the intended labor synergies. Furthermore, we designed a roadmap for implementing the people strategy, to ensure that the mix and deployment of talent the strategy called for would deliver the intended cost savings and organizational effectiveness.

2. Growth Engine

These transactions are intended primarily to drive fresh growth, typically by activating revenue synergies. Consolidation of functions such as back-office or support services to capture cost synergies is lower on the priorities list. They also tend to be large in terms of deal value and company size.

An appropriate organization design will focus on defining an operating model, organizational structures, and senior leadership selection with an eye toward supporting the deal’s growth objectives. For instance, PMI teams need to craft a go-to-market (GTM) approach that answers questions such as:

  • How will the two companies’ sales organizations be structured, who will report to whom, and what capacity will they need (internally and from partners)?
  • What accounts will be prioritized, and how will account planning, incentives, training, support, and order placement be handled?
  • Which opportunities and leads can which sales teams pursue?
  • Will sales managers be generalists, or specialists?
  • Who will “own” customers that the legacy companies had in common, and how will the new entity present one face to such customers?
  • How will sales teams from both prior companies interface with each other, and what level of support will they need?

Finally, PMI teams must understand differences between the antecedent companies’ organizational cultures and their established ways of working. With significant differences (for example, one sales team bases decisions exclusively on client data, while the other also draws on intuition), addressing them is particularly important for fostering the cross-team collaboration needed to pursue growth opportunities post-close.

BOX: Activating Growth in a High-Tech Deal

When a global software company acquired another business in the same industry, BCG worked with the PMI leadership team to define an organization design to support revenue growth post-close. For example, the design called for the target company to be fitted into the acquiring company with minimal intervention, keeping the target’s headquarters and most of the structure below top management intact. Most of the organization-design effort was devoted to coordinating the two companies’ sales organizations to support cross-selling. For instance, we used clean teams to evaluate and prioritize cross-selling opportunities and determine how best to deploy sales teams.

3. Hybrid Growth and Cost Synergy Opportunities

This type of deal combines characteristics of “Transformational Consolidation” and “Growth Engine” transactions. Growth of the combined sales and marketing organizations plus cost-saving consolidation of back-office or support functions receive roughly equal weight. Here, the right organization design will clarify upfront what must be redesigned and what will remain unchanged in the legacy companies. For instance, will the acquirer redesign the entire target’s reporting “pyramid,” or retain the independence of specific areas of the organization? Will the target’s sales organization keep its current sales teams mostly intact while reporting into the new corporate leadership?

The new company’s organization design should also attend to priorities such as these:

  • Gauge current and future talent needs, and adjust the organization’s headcount baseline to support growth.
  • Reallocate or hire new talent as needed to meet increased resourcing needs. In the case of extensive differences between organizational units and functions that will be downsized and other units that will need significant talent increases, craft a plan for filling the resulting vacancies quickly, possibly by leveraging talent already present across the two companies.
  • Hire contractors as required to augment in-house talent in areas of the business that need more resources quickly to sustain service levels or revenue growth.

BOX: Driving Growth and Capturing Cost Savings in a Retail M&A Deal

The integration of two global, vertically integrated retailers presented major growth opportunities in select markets and aggressive cost-reduction opportunities. BCG worked with the acquirer’s CEO to define a go-forward operating model to support the vision established for the combined entity, including giving certain brands and channels more prominence in the company’s overall strategy and growth plans.

Because the two companies were structured very differently, the new organization design required substantial changes in their operating models’ sales, branding, and marketing elements. To support growth of priority channels, the design also called for talent mobility across brands and channels.

4. Capability Move

In this type of transaction, the objective is to grow revenues mostly by acquiring new capabilities (including technologies), rather than products already in the market. An organization design that enables the right “people experience” becomes especially important here.

Often, the acquiring company is significantly larger than the target, so decisions about where the target’s employees will be placed and how they’ll be managed merit careful thought. Positioning them too low in the acquirer’s reporting structure could unwittingly send the message that they’re not considered valuable, possibly leading to defections. Acquirers should also weigh the trade-offs that come with decisions about how much independence a target will have post-close, and for how long. Independence may help foster a positive employee experience in the target organization, thus improving retention of key talent. But it can also come with a price: less ability to collaborate across the two businesses, which could make achieving the deal’s full potential more difficult.

PMI teams should also identify talent at the target that is most critical for long-term roles post-close. Where feasible, teams should communicate with such employees about those roles before close. They’ll know they have a future in the new organization, and may be less likely to defect. Establishing a change champion at the target firm can further strengthen employees’ engagement with the new arrangement.

BOX: Advancing Toward a New Therapeutic Area

BCG supported the integration of a relatively small biotech company into a global biopharma firm. The larger company wanted to acquire capabilities and technologies in a new therapeutic area. The organization design called for creation of a new organizational unit that would integrate and support talent from the legacy company while also preserving elements of its most cherished cultural characteristics, such as all-employees town halls where patient outcomes and company achievements were shared.


As powerful as M&A can be as a strategic lever, ensuring that a transaction delivers measurable business value is no easy feat. 

The organization design that PMI leaders establish for the new company can spell the difference between a successful deal and a disappointing one. 

By understanding how to tailor their organization design to a deal’s type and objective, PMI teams can sweeten their odds of success.

The organization design that PMI leaders establish for the new company can spell the difference between a successful deal and a disappointing one.

Originally published at https://www.linkedin.com.

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