Interview by STEVENY | Published: OCTOBER 25, 2011
M&A activity rebounded strongly in the first half of 2011, with a remarkable 49% increase in EMEA region deal value compared to the same period last year, says analyst Mergermarket.
So we thought it would be interesting to talk to an expert on post-deal integration which, as anyone who has experienced it will testify, is where all the big, visionary ideas can quickly unravel.
Paul J Siegenthaler is a veteran of planning and executing M&A integrations on an international scale, and author of Perfect M&As: The Art of Business Integrations. In this first of two interviews he talks about why things go wrong, good and bad integration examples, and the role of interim executives.
The failure rates remain eye-watering. Are we getting any better at integrating merged or acquired businesses?
Yes and no! There are two groups, broadly speaking: in the first we have those for whom M&A is an infrequent activity – perhaps a once in a decade event. In other words, it’s not ‘business-as-usual’. They lack first-hand experience in integrating companies effectively and therefore underestimate the complexity, effort and resources required. They try to manage the integration almost exclusively with in-house resources. By the time the programme begins to derail, it’s usually too late to call in additional resources to put it back on track.
In the second group are those who are pursuing a growth strategy through repeated acquisitions. These companies, for the most part, are consistently successful at integrating each new acquisition. They get better and better by learning something new each time and refining their approach. This shows that there are lessons to be learned and which, when correctly applied, hugely improve success rates.
What is the most common mistake people continue to make?
The first and single most important mistake is lack of focus and clear accountability. People still think that a CEO can run two merging companies and drive the integration process as well. Both organisations will be destabilised by the merger process, so driving day-to-day business is harder than normal. Diverting focus away from the day-to-day business will inevitably lead to a company falling behind its financial targets. Usually at this point all hands will be called on deck to save the quarterly or yearly results. But then the integration process stalls and is at risk of failure if it cannot be revived subsequently.
What are the stellar examples, both good and bad?
There are different measures of success, depending on the chosen time horizon. But, in my view, the definitive, ‘best in class’ example of a very large scale integration done well was the merger of Guinness and GrandMet to create Diageo. They started with a very clear vision. This was then articulated into ways of working and a statement of company culture. In parallel, the integration teams underwent a very thorough exercise of process re-design, developed a series of decision tools, and created templates to allow data in both companies to be standardised ahead of the merger’s completion. They also set up programme monitoring tools, and developed a full set of training modules to allow the global subsidiary companies to begin their integration without delay. Fifteen years later, Diageo is its industry’s global leader.
A classic merger that turned into a value-destroying disaster is that of Daimler-Benz and Chrysler. Management somehow assumed that two vast organisations would end up blending seamlessly, without having diagnosed vast differences in culture and processes, and without a clear vision of the desired end-state of the company. None of the hard issues were confronted and resolved: Daimler-Benz and Chrysler appended their names to form the group’s new name, DaimlerChrysler, and maintained two parallel management structures under co-CEOs located at separate headquarters. They never merged, but merely coexisted side by side, like water repels oil in the same container. There were no customer benefits, and none either for shareholders or employees; in fact, quite the contrary. The value of DaimlerChrysler eroded by the equivalent of Chrysler’s entire value at the time of the merger and it demerged in 1997 after nine very difficult years.
What is the role for interim managers in post-M&A integration?
I see two roles for interim managers in post-M&A integrations:
In most integrations, it is not possible to backfill the individuals who are seconded to the integration team solely with internal resources. In addition to those temporary gaps, there is inevitably a surge of activity in finance, human resources and information technology functions revolving around the integration. Ideally you want in-house, high-calibre people on the team rather than lots of consultants, because their acquired knowledge will be very valuable to the company when the integration is completed. Backfilling the gaps left in the organisation with interims gives the integration team members reassurance they will have a job to go back to when the project is over.
Senior interims may also provide a level of skill and specific expertise which is not available in any of the two companies merging. Most companies are unlikely to have a senior director in their ranks with the experience of post-M&A integration. This role cannot be devolved to someone who is perceived as an external consultant. An interim integration director is not there just to provide advice and guidance, but is also responsible for delivering the integration programme. He or she will be regarded as an in-house resource, conforming to the client company norms, but unhindered by company politics or any desire to forge a career for themselves. This neutrality can be very valuable as it ensures balance and impartiality when issues need to be resolved or important decisions made.
In what circumstances would you advise an executive to use interims?
You need to be brutally honest and ask yourself: ‘Do we genuinely have the right number of appropriately experienced executives who can be fully released from their day jobs for the entire duration of the project?’ If there’s any doubt, then I’d say seek interim help. If serial, high-frequency M&A is part of your strategic plan, you’ll probably have strong resources. But even then, extra interim executive support might be required during periods of high activity, or to access very specialised skills.
Interim managers tend to be high-pace and results-oriented, because most assignments only last a few months. They have to “hit the ground running” and prove their value from the outset. For them, it’s more ‘first 12 hours’ rather than ‘first 100 days. Companies can use these characteristics to keep up the required change momentum; to prevent that ‘wading through treacle’ inertia that so often stalls change programmes.
Interims can also deliver value as ‘stop-gaps’ when new roles are created, or when departments or functions are relocated as part of an integration plan. Finding permanent candidates often takes several months. This provides management with time and flexibility to seek the perfect permanent candidate rather than compromise on quality for the sake of filling the gap. It also allows the company’s plans to continue without delay, and gives the in-comer a flying start in their new role.