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Supporting merger integration for two payors

Combined organization achieves a 1.5 percent increase in revenue in the first year.

Challenge

Two regional nonprofit payors determined that competing at a national level would require merging their two companies. Their markets did not overlap, so a merger would allow for geographic expansion as well as the ability to utilize each company's strong product portfolio and management talent.

McKinsey was asked to help develop an integration plan that would position the combined entity to better compete with national plans and guide the organization through post-announcement/pre-close integration activities.

Discovery

The McKinsey team partnered with client managers to design an integration plan with three distinct phases. In the first phase, the team focused on working with senior management to lay the foundation for organizational integration. The team facilitated discussions with senior personnel to gain clarity and agreement on critical issues such as aspirations and how merger success would be defined. Discussions also pinpointed the main sources of value creation and the planning process and governance structures that would be used during the integration.

With those agreements in hand, the merger was announced and post-announcement activities got under way. The team worked with the client in the second phase to:

  • establish a program management office (PMO) and key management processes
  • build the financial baseline and set value-capture targets
  • charter and launch "synergy teams" to focus on capturing value from each major synergy expected from the merger
  • develop plans for priority tasks such as communication and key employee retention
  • launch an organization and culture diagnostic

In the third phase, the team continued to support and refine integration activities as the companies worked toward closing the merger. Contributions included facilitating steering committee reviews of the work of the synergy teams, identifying additional sources of value and helping the client develop plans to capture them, and helping to resolve cross-cutting issues for the synergy teams.

Impact

The merger allowed the new company to achieve a stronger market position and the competitive advantages that executives had sought. Marketing an expanded product line across the new company's expanded geography boosted revenue significantly. In year 1 of the merger, total revenue exceeded the aggregate of the separate companies by nearly 1.5 percent. Over years 2 and 3, revenue is expected to increase by 5 to 7 percent.

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