Could an acquisition be on the cards for 2011?

Paul J Siegenthaler is a serial business integrator whose expertise in mergers and acquisitions is highly sought after.

His top ten tips for 2011 include how to ensure a smooth integration, how to create a sense of common purpose within blended organizations, and crucially how to instigate acceptance of change whilst avoiding common pitfalls.

1. Follow my Leader
Strong leadership from within can only ensure the smooth integration of two businesses. Maintaining credibility to the workforce is crucial to motivate and create a sense of common purpose, and this must be conveyed through senior management as they project energy, clarity and enthusiasm. Ensure their ways of working and behaviours match the vision and values to which the company aspires, to reinforce the credibility of the merger.

2. Focus on Clarity
The belief that two companies will, given enough time, blend seamlessly together and simultaneously develop new ways of working with little input required is a falsity. Clarity on structure and team integration must be implemented by strong management, and not expected to happen organically.

3. Don’t procrastinate
Speed matters in a merger. The longer the integration process drags on, the more likely it is to cost the company, not only in direct costs but also in terms of lost revenue. The longer the delays, the more likely individuals in both organizations are to tire out and miss sales or business development opportunities. Hesitancy may also undermine morale and shift focus inwardly, and put the business at risk.

4. Prepare
The prerequisite for speed is preparation. The majority of CEOs I have spoken to are unaware of how much can and should be done in advance. Typically, much of the preparation that could take place before the two companies are under common ownership only starts after the merger or acquisition transaction is completed: this delays the actual commencement of the integration process by several months. By then, pressure will have mounted significantly to get things moving, and the natural tendency will be to rush into “action” mode, ill-prepared and probably under-resourced: a sure recipe for failure.

5. Set the Boundaries
Agree the rules which will apply when the integration begins, whether it be how the products or services of the future combined portfolio will be positioned and prioritised in relation to each other, where the future offices or factories will be located or how the trading terms will be harmonized. This does not pre-empt what those decisions will be, but defines and prioritizes the criteria that will be considered in making those decisions. A pre-agreed and well-documented decision tool is immensely valuable in companies involving a number of business units each having to go through the same integration process, ensuring coherence and avoiding the need to re-invent the wheel.

6. What’s the worst that could happen?
Prepare for and understand worst-case scenarios. A realistic projection is vital, along with the courage to let go of overly optimistic thinking. The economic downturn has taught us a lesson that these unfavourable scenarios can occur and not just an intellectual exercise to pay lip-service to proper risk management.

7. Expect the unexpected
Understand that an uncertain market may be just as challenging as a depressed one: uncertainty turns major decisions into gamble. The value of the business case will constantly fluctuate as market conditions and projections change, making it impossible to decide with confidence when to “push the button”.

8. Don’t believe everything you read
Beware of media scaremongering. The press was quick to print figures suggesting the M&A market had been hit by the worst year on record, but few mentioned that the latter half of 2010 saw a marked rise in the number of strategy consulting assignments, a number of which signal increased readiness for M&A transactions in the near future.

9. Plan for Spring
The crucial time for the market in 2011 is likely to be after March or April: only by then shall we get a better understanding of whether the British economy is showing any sustainable signs of recovery, in spite of the announcement of public spending cuts and the hike in the VAT rate. This will lift the paralyzing uncertainty experienced in 2010.

10. Communicate!
Meaningful communication is crucial: articulating messages that are relevant to the various target groups within the organisation, discussing topics that are close to their daily preoccupations, and that bring clarity to their own situation. There is no magic recipe or short-cut here, good communication takes time to prepare and time to percolate down the organization, but is crucial to a successfully integrated culture.

Paul J Siegenthaler is a specialist M&A adviser.