📬 Synergy Sync-Up: Designing a Strategic Post-Merger Integration

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Hit me with your toughest questions or dilemmas. I’m looking for new questions to answer in the Mailbag. Submit your questions here, and I’ll do my best to get to them in the coming weeks.

We’ve got some great topics today. Here’s what’s on tap:

Now, let’s get into it.

VA from Romania asked:

Could you please elaborate on the financial integration process during mergers and acquisitions, specifically focusing on the frameworks and best practices you recommend? Additionally, what does a typical implementation timeline look like?

Thanks, VA.

I’ve run a few integrations in my time, both as project lead before my CFO days and as CFO. They are tough. Really tough.

It’s a bit like an ERP implementation (and sometimes that’s part of the scope, too) where there are so many moving parts, touching so many areas, all at once.

I’ve always liked the simple three-phase view of post-merger integration (PMI):

Continuity is about ensuring safe transition during ownership change. Also know as the ‘do no harm’ phase. At the strategic level, that means clear, confident communication with customers, suppliers, employees, and investors. At the operational level, it’s the nuts and bolts: control of bank accounts, embedding new financing, handling legal particulars, and making sure payroll and billing keep running. This typically take 30-90 days.

Integration is where the real hard work lives. This is the cultural, systems, and process alignment between the acquirer and the acquired. You can choose to decentralize and run separately, but that needs to be a conscious board-level decision, not a “we just never got around to integrating” outcome.

The big-ticket items here are:

This can take anywhere form 6 months to several years dependent on size and complexity.

Synergies are the prize. If you do 1 and 2 well, you can strip out unwanted overheads, consolidate sites, and unlock new revenue opportunities. In practice, you can’t afford to wait until full integration is complete to start delivering financial benefits. There’s usually low-hanging fruit you can take early to prove the deal was worth doing and, if debt-funded, to free up cash.

Some common quick wins:

It’s tempting to try and go after every single synergy prize too early, and ending up with nothing. Keep focused on the low hanging fruit for now, and then let the ‘difficult synergies’ come post-integration.

And don’t forget to keep an eye on your core business while all of this happens. Everyone will want to be working on the shiny new thing, but you have to take care of the golden goose that pays the bills. That is most often the acquirers’ core business.

I have a piece coming soon with a case study on M&A and post-deal synergies, which you can look forward to. In the meantime, here’s a piece that I wrote up a couple of years ago on the topic.

Thanks and good luck!

TD from Ohio asked:

It's audit season, and it seems every year our auditor comes to us with extra fees. They always find some reason to justify it (new regulation, slow response time, extra testing, etc). We have a five-year contract with them, where we had negotiated fees. We typically are not talking huge amounts - like 5-10% of the total audit fee. I feel like they are nickel and diming us, but part of me wants to manage a good working relationship, so we usually settle at some number below what they first propose. Should I be firmer and not allow any additional fees? Or what is reasonable and normal in these cases?

Thanks, TD… audit fees. One of my favorite topics. Let’s break it down.

It’s certainly true that the audit firms have been on a fee grab of late. Their regulatory burden is increasing. It’s getting harder for them to sell non-audit services to audit clients.

And that is creating tension inside accounting firms. The non-audit partners typically generate 1.5-2.5x earnings per partner vs their audit counterparts. And partner comp doesn’t reflect that… meaning that non-audit partners will feel like they subsidize the audit business.

The non-audit partners might have been prepared to tolerate this when they could justify audit as a ‘loss leader’ against which they could sell their more profitable services. But as I said, that is getting harder to do as independence rules tighten.

This was the tension behind the scenes in EY’s much-fabled but ultimately failed ‘Project Everest’, which proposed a demerge of the two halves of the business. And there have been examples of it in local markets. KPMG and Deloitte both demerged parts of their UK advisory businesses (supported by PE) in recent years.

So what is the response inside the firms? They need their audit practices to be more profitable. And as any good consultant will tell you, there are two ways they could do that… increase revenue or decrease costs

On costs, you can bet the audit firms are working in the background to offshore and automate work. You can also bet that you, the client, won’t see any of those savings.

What about increasing revenue on audit services?

Well … the scope of an audit is largely fixed so the upsell opportunity is virtually zero.

That means one thing: chargeable rates going up - i.e. you and me paying more for our audits.

In my last role I saw very aggressive fee increases from 2020 to 2022. They tried to justify it with the macro inflation picture, but that doesn’t really hold water with me. If non-partner payroll is one-third of revenues in audit firms, then they would have to be paying their folks 15% more each year to justify a 5% increase in audit fees. And that isn’t happening.

And… they’ve been asking for a lot more than 5% in recent times.

But, I’m also not seeing other firms jumping through hoops to quote for new audit work. That’s a long way of saying “yes” audit firms are trying to repair their ‘broken’ margins. So, expect upward fee pressure.

You can play hardball, but I’m not sure you’ll “win” unless you’re happy to switch - and even then there is no guarantee you’ll find it cheaper. They all have the same problem.

The better play is to lock in a multi-year contract that sets clear rules for rate increases: CPI-linked, capped, or stepped. That gives them predictability and gives you protection.

Now, that’s the macro trend. The other issue is the year-end overrun bill. This isn’t new, it’s a client - auditor battle as old as time.

This is where I’m firm. If they drop a 10% “extra work” bill on you after the audit because of inefficiencies they claim were caused by your team, I’d only discuss it if they flagged it during the audit and gave you a chance to fix it in flight. Otherwise, it goes in the trash.

The real trick is to prevent the overrun conversation entirely. During audit planning, sit down with the 2–3 most senior people on both sides and agree you want a “zero overrun audit.” Ask both sides what it would take, write it down, and get everyone to commit to doing their part. If you want to go theatrical, make them sign it in blood.

Push back where it’s opportunistic, negotiate structure for the long term, and you’ll keep the relationship intact while still protecting your budget.

Happy negotiating.

Hasnain Jiwani from Houston, TX asked:

I love your content, every bit of it, and I aspire to be like that someday. Thank you for all the effort you put into it!

I saw your response to a question regarding the optimal time to close. I'd argue 5 days is still too long. I work for a $4B company that is getting acquired by a $36B company in the Oilfield services space. Our current close is 2 days, and the acquirer closes in 3 days. We're both among the fastest filers with the SEC. The key to unlocking a faster close without burning people out has been the LEAN technique called SMED (Single Minute Exchange of Die).

I'm no expert in this area, but I understand the concept comes from manufacturing, where changeovers are a big source of lost time. So these engineers sat down to break down everything in the process and figured out what is Internal vs. External to the process. Then relentlessly moved as much to the External as possible. For accounting this means, a critical look at materiality, frequency of entries (monthly vs. another cadence), cost accrual cut-off that may be one or two days before month end or based on last month (warranty expense is a prime example, what value do I get from capturing the last days of claims data vs. finishing off that task before getting into close?). It’s a process and took over a year to get there. We went region by region.

Then another useful LEAN tool was Process Razing. Simply stated, you place all close activities in a matrix format and compare region by region to figure out how you get the next region aligned to the most efficient one. I understand that these are the same concepts used by Formula 1 cars to get the pit stop time from 67s in 1950 to under 2s these days.

Hasnain, thanks for sharing this.

This is more of a share than a question, but it’s too good not to put in front of everyone.

First up, I agree, 5 days is still too long. But 2 to 3 days is proper best-in-class, hall-of-fame stuff. I use 5 days as a proxy target because most closes are longer than that, and it’s a good direction of travel. It doesn’t have to be the endgame. And not all closes are the same. Some will take longer by their nature, especially those with physical inventory.

But whether the target is 2, 3, or 5 days isn’t the important part. The important part is the mindset… that the close is always in beta, constantly looking for ways to squeeze minutes out.

Your example nails that mindset. Tightening the close is exactly the same idea as reducing the pit stop time for F1 cars:

And SMED is a perfect way to think about it.

For those who haven’t come across it, SMED comes from manufacturing. You break down the process and separate steps into “internal” (must happen during the changeover) and “external” (can be done before or after). Then you relentlessly move as much as possible to “external.” In accounting terms, that’s things like bringing forward certain accruals, cutting off some processes a day or two early, and shifting non-critical entries to a different cadence.

I like the process razing idea too, lining up every step of the close by region and forcing the slowest to match the fastest. It’s sharing best practice, but less cuddly - by brute force.

In my experience, most soggy closes aren’t slow because the individual process steps take too long. It’s the dwell time in between. Waiting for the final inventory count from ops. A draft trial balance sitting in a controller’s inbox while they’re tied up elsewhere. Map those dwell times, then target them, and most > 5-day closes will find a few days to take out.

And as we bring AI-powered tools into accounting, the bottlenecks will shift. Things that took days will take minutes. Which means dwell times will move, and mapping will matter even more.

And why does this matter? Because a faster close shortens feedback loops and speeds up exec decision-making across the whole business. And that’s one of the highest-leverage improvements you can make as a finance leader.

Thanks for showing everyone what best-in-class close financial close engineering feels like.

A few of the biggest stories that every CFO is paying close attention to. This is the section you might not want to see your name in.

New traffic light system at PwC: red means you have a life outside of work, green means you’re brown-nosing…

Urging myself not to make a pun about how “urgently” CFO Michael Port split from the role after only 2 months.

“The CFO departure comes as the company looks to continue addressing material weaknesses related to its internal controls for financial reporting.”

I’ve said it before… in a turnaround scenario, if you are unable to turn the ship effectively without compromising your values, damaging your reputation or career, you must know when to leave.

ICYMI, here are some of my favorite finance/business social media posts from this week. In the words of Kendall Roy, “all bangers, all the time.”:

Guess it’s a dying business…

Let me know what you thought of today’s Mailbag. Just hit reply… I read every message.

On Saturday, we discussed the mixology of debt. Figuring out how much debt your business can take on is just the starting point. The real edge comes from how you structure it. What slices you use, how they match your cash flows, and which lenders you bring to the table. The mix matters. A lot.

Check it out now

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.