The Sales and Marketing Professionals
Ensuring Merger & Acquisition Success
By Clare G. Ross CMC
In Brief: If you are committed to growth by merger or acquisition, that’s exactly what you’re doing. And buying a used company can be a mine field of hidden surprises. If not handled properly, it can add significant costs to the acquisition or scuttle it altogether. In a merger or acquisition you are often buying someone else’s problems, plus the merger event itself creates a host of new problems on its own.
According to available statistics, acquirers have less than a 50-50 chance of being successful in merger/acquisition ventures. With significant financial exposure at stake with the initial investment and ongoing operations, the stakes are high.
By its very nature, a merger or acquisition creates lots of uncertainty and anxiety in the minds of people at all levels in the acquired firm. Who’s going to stay? Who will be leaving? How will my job be affected? Will I have a new boss? Will I have to learn new systems? Procedures? How will I be measured? Will acceptable performance be re-defined? Unless this anxiety is dealt with effectively throughout the acquisition process, the whole deal could be in jeopardy. Key people could jump ship and productivity could suffer significantly. Organizations that may appear to be highly-compatible and that seemingly should be able to achieve valuable merger synergies can have underlying cultural differences that can seriously threaten the relationship.
Buying a firm, structuring the deal, determining the price are all fairly straightforward elements. They are relatively easy to quantify. But dealing with the myriad of cultural differences, differing management styles, human emotions, concerns and insecurities generated by a merger or acquisition, is something else. These concerns and frustrations are rarely identified and dealt with up front and that is why most mergers and acquisitions don’t live up to their expectations. These concerns and frustrations are frequently below the surface and only become issues when the merger is consummated. By then it is often too late. The deal is already done and these anxieties and differences begin to show up as reduced levels of productivity.
Research has shown that reductions in productivity of 50% are not uncommon during the integration phase of a merger or acquisition..
Timing and Speed are Critical
It is essential that acquisitions be assimilated into the parent as quickly and as smoothly as possible to minimize losses in productivity and maximize synergistic opportunities between the two organizations. Speed is critical.
A high percentage of merger difficulties and failures result from faulty management of the acquisition process itself. Surveys of CEOs found that different corporate cultures and the related “soft issues” accounted for most of the dissatisfaction with merger results. A lot of time and effort is expended finding good companies, courting them only to fall short on the follow-up activities. The acquirer blunders along, improvising instead of following a strategically designed and systematically conducted program for merger integration.
But, being careful during a merger or acquisition means moving quickly. Speed is your ally. An approach that reflects a strong sense of urgency holds far more promise than a strategy based on caution. And the mistakes that come from going too fast are nothing compared to the problems of going too slow. A slow integration process can actually let problems fester -- and it fails to take advantage of the energy stirred up by a merger event.
Just imagine the impact on your bottom line of a drop in productivity of 30-40 percent (a conservative estimate). Say you acquired a 200 person firm with an average hourly labor cost of $45, including benefits. If we assume a drop in productivity of only 1.5 hours each work day (a conservative estimate), the daily cost that can be attributed to the merger will be 200 x 45 x 1.5 = $13,500. If the integration is poorly managed, and takes two months longer than would be necessary with good transition/integration management, the total climbs up to $540,000!
Steps for a successful merger integration effort start even before the deal is finalized. They include:
Establishing the Integration Team with members from both firms. This consists of key people who can understand their organization and get things done.
Select a leader for the integration team. This can be someone designated from the acquiring company or an outside merger integration consultant. Sometimes a merger integration consultant is also used to assist the Integration Team Leader to organize and facilitate the process.
Developing operating charter for the merger team. This is much like a mission statement identifying what needs to be done and how the integration team will function.
Issue and opportunity identification. This is a key step where issues, problems, and opportunities are developed that need to be addressed to effect a smooth transition. These often include cultural differences, management style issues; organizational issues, system compatibility; policy and procedure differences; etc.
Develop The Integration Plan. The leader of the integration team along with any consultants, develops the integration plan. It should include:
1. Schedule development
2. Integration Budget development
3. Objectives development
4. Task Force Development to focus on resolving key issues and objectives
5. Action plan development to address key issues and objectives
Hand -off to appropriate operating groups to implement the action plans in conjunction with the transition team.
Merger integration should not be treated as an after-thought. It is something that needs to be addressed during the merger search and negotiations phase while there is time to minmize any negative impacts and time to maximize opportunities for positive synergy. As soon as serious discussions begin with a short-listed candidate company, the integration planning efforts need to begin. Issues uncovered early may be unresolvable and give you cause to end negotiations instead of moving forward into a minefield of potentially disastrous issues.
Clare G. Ross CMC, is a Certified Management Consultant specializing in Strategic Management for architects, engineers and construction companies. 928-776-4760