The vast majority of mergers and acquisitions do not deliver their expected benefits, and a good number fail completely. Yet repeatedly we see shareholders place implicit trust in company management teams to carry out a successful merger or acquisition, assuming all will run smoothly. In fact they should probably assume failure, unless something is done differently. But what might that “something” be?
When two become one!
The most damaging myth about business integrations is the belief that, given enough time, two organisations put together will gradually and spontaneously develop new ways of working and end up blending into one seamless business. Why should this happen? Would two individuals locked in one room spontaneously form a solid couple for the rest of their lives? A cogent business case may act as a ‘logical magnet’ that draws the two businesses to one another, but will they blend or collide?
When Grand Met and Guinness merged in 1997, deputy CEO Jack Keenan warned his startled team of senior executives: ‘Merging is like pulling out teeth; you can do it slow and painful, or quick and painful; we shall do it quick and painful.’ He was right. The business case for a merger or acquisition needs to be realised as soon as possible. This means achieving the short-term benefits and savings, as well as the longer-term strategic benefits, which result in the newly merged company being worth more than the sum of its constituent parts.
Speed matters, not only because investors are eager to see early results, but also because companies embarking on an integration are vulnerable during the early stages of that voyage: unless clarity on structure, processes and ways of working is restored rapidly within the organisation, valuable employees may leave, competitors will benefit from the company’s temporary vulnerability and commercial performance may begin to decline.
The Six Pillars of the temple of M&A
In reality, successful integration rests on a few imperative pillars, that if put into place early will prepare the two organisations and provide the supporting structure to underpin the integration effort. Omit one of these pillars and your integration project is likely to topple over:
• Diagnosis and preparation
• Detailed planning (to capture all of the interdependencies)
• Clear governance (to enable fast issue resolution and sound decision-making)
• Resourcing and environment (space and infrastructure for the project team members)
• Team redeployment (think of this at the start of the project, or you will not be able to attract the brightest of your people)
• Communication and leadership
The first of these pillars, – diagnosis and preparation – is sadly where most companies miss the greatest opportunity. “Diagnosis” here means much more than mere, traditional due diligence.
A well organised ‘data room’ may detect some of the hurdles and complexities that will need to be overcome during the integration process, but this alone is not sufficient. Successful business integration can only begin once you have determined how the information will be used, whether it’s from the data room, or the commercially sensitive information that will only become available from the day the two companies are under common ownership. And that ‘how’ can be prepared well in advance by formulating decision-tools which list the criteria and parameters that will need to be considered for specific decisions (e.g. defining the consolidated product range).
Thorough diagnosis and preparation is the most often missed opportunity. It is the biggest ‘opportunity’ because the aim here is twofold: firstly to gain time at the start of the integration process by completing a number of very time-consuming tasks ahead of Day One, and secondly to accelerate the pace of implementation of subsequent phases of the integration.
I like to focus the preparation on three areas:
Data standardisation : decide on common definitions and common data structures (be it manufacturing cost data, HR data, customer data, product classification, financial data…). This allows both companies to restate their historical data in accordance with those new common definitions and templates. This is a very time consuming exercise and it pays dividends: on “Day One”, both sets of re-stated information will be ready to be analyzed on a like-with-like basis. A huge time saving!
Decision-making tools : this is about agreeing the rules which will apply when the integration begins, for example; how the products or services of the future combined portfolio will be positioned and prioritised relative to each other, where the future offices or factories will be located, how the trading terms will be harmonised etc. This does not pre-empt what those decisions will be, but defines and prioritizes the criteria that will be considered in making those decisions. The benefit of pre-agreed and well documented decision tools is immense in companies involving a number of business units each having to go through the same integration process; this ensures coherence and avoids the need to re-invent the wheel.
Simulations: without any exchange of commercially sensitive information between the two parties of the merger or acquisition, third-party advisors can be nominated to carry out a pre-analysis of this data, so that areas of particularly high complexity or risk can be identified in advance of the integration’s kick-off. This provides valuable clues when it comes to resourcing the integration project team to ensure the number and calibre of the team members are sufficient to tackle and resolve those complex issues. Increasingly, companies now use “Clean Teams” to actually commence the integration work using real data before the deal is completed. Teams of nominated employees from the respective businesses, and external consultants, are isolated to work on complex issues of critical importance, enabling the new organisation to move very fast from Day One onwards. This is not without risk, because if for whatever reason the Deal does not reach completion, the employees seconded to the Clean Teams will need to leave the business as they have been exposed to commercially sensitive information relating to two companies involved in the aborted merger.
Communicate, communicate, communicate – not only verbally
For the sake of brevity, I shall skip directly to the last of the six ‘pillars’ listed earlier in this article. Whereas the five other ‘pillars’ only require some intelligence, rigour and business discipline to be carried out, communication and leadership requires a degree of ‘talent’ beyond a mere list of ‘dos’ and ‘don’ts’. A strong, charismatic and enthusiastic leader can compensate for many imperfections in the integration process, but not all of us are born with the temperament of a charismatic leader.
Communication is about informing, but it’s also about capturing people’s hearts and minds, listening carefully, capturing the pulse and reacting accordingly. Sadly, too many managers forget that communication is about more than just words; body language and behaviour come into play when it comes to managing the interface with a crowd of worried or doubtful employees. The senior management team should give some thought as to how they will maintain their own levels of stamina and composure throughout the long integration process and how they will ‘live’ the future company’s stated values. Their people will expect them to ‘walk the talk’ and demonstrate the confidence of a senior management team up to the task of leading the new enlarged business. In my experience, effective communication and leadership is perhaps the most under-recognised and under-practised contributory factor to successful business integrations.