Reverse merger integration

What is reverse merger integration?

While the term Reverse Merger is exactly defined in the finance literature, Reverse Merger Integration is not well defined.

We will use a very generic definition here:

Reverse integration is defined as a merger integration, where the buyer adapts to the target.

Adaptations can happen in e.g. organizational structure, processes, leadership or culture.

Merger integration and change intensity

What is the impact of merger  integration on the buyer and target organization? The literature proposes a view on the number of changes in both organizations, which results in the following diagram.

Since we use a very wide definition of reverse integration, all of the boxes apply to reverse integration. Only in the case that the buyer massively adapts to the target and the target does not change a lot, a simple reverse integration is achieved.

Paths of reverse integrations in the change intensity diagram

Reverse integrations often start with a phase of preservation. The target company is owned by the buyer, the financial systems are integrated, everything else is not being impacted a lot.

Why is the preservation phase important? There are at least two reasons.

The buyer usually plans to continue the business of the target. Massive changes of the target organization can negatively impact the target business. This impact should be avoided.

The buyer has to learn what it means to adapt to the target business. A successful merger integration can only be executed with full knowledge about the target and the targets´business models. Preservation buys time to learn.

Path 1: a clean reverse integration: from preservation to reverse integration

Here, starting with preservation, the transition of the buyer organization into the target organization is being prepared.

Changes to the buyer organization are planned and executed. This results in the full or partial reverse integration

Path 2: making change happen in the buyer with transformation

From preservation, the path now leads to transformation. The buyer and the target adapt a lot to the other, creating a new organization or way of doing business. 

A new organization can be created e.g. if a target manager takes responsibility for target and buyer organizations.

A new way of doing business can be created e.g. if the target brings business models that are new business models to the buyer. In this case, if the buyer wants to continue the business model, the buyer will learn how to run this new business model from the target and thus incur many changes to the buyer organization.

Path 3: the open, learning organization absorbs the target

During a short preservation phase, the buyer plans some few key adaptions. Then the absorption of the target business is being executed.


(C) Dr. Karl Popp 2017