Consolidating Contracts in a Post-Merger Integration

This step focuses on combining and rationalizing all the contractual commitments to and by each of the two companies and their respective functional departments. Rationalizing non-headcount spend and eliminating inefficiencies and redundancies are key contributors to realizing the synergies scoped by the M&A deal.

In this step, the PMI team conducts a comprehensive assessment of all existing contracts, agreements, and property rights to determine which ones will carry on into the future state and which can be wound down. We accomplish this by creating a complete inventory of all contracts and a series of interviews with department responsible parties. Stonewater Partners uses a proprietary business contract matrix to capture details pertaining to all contracts to which either of the two companies is a party, including vendors, expiration dates, key terms and conditions, and contracted spend (see Figure 4). We flag any overlapping spend whereby the same vendor is under contract with both companies and include it in our consolidation analysis. We recommend paying particular attention to change-of-control and assignment clauses that kick in as a result of the M&A transaction, and we capture any contractual amendments that are needed pursuant to such clauses in the contract issue tracker we maintain along with their estimated financial impact.

Figure 4. Stonewater Partners Business Contracts Matrix

As companies go through and rationalize the contracts for the future state, we also recommend to plan, where appropriate, for contracts to be consolidated under one legal entity and managed by a centralized procurement group. In the closing stages of this process, the PMI teams create new contract templates, harmonize different debt covenants, and align all audit and compliance activities under one consolidated group.

Interested in learning more? Find the next article in this series, “Asset Management in a Post-Merger Integration”, here.