Astute Planning, Flawless Execution,
Delighted Customers

Issue #115

Tuesday, June 28, 2007

Setting the Stage for a Successful Acquisition
By Bob Nealon of Nealon Advisory Group, with contributions from Craig Bailey

In this article we continue our series on the topic of Growth by Acquisition, providing insights to guide you through your M&A planning and integration efforts. Previous articles have discussed the reality that all mergers are really acquisitions and the importance of understanding and communicating the goals and necessities of an acquisition. In this article, we help you set the stage for a successful acquisition.

During the period prior to actually consummating the acquisition, there is considerable discussion by both parties about the benefit to be derived from combining the entities. The quantification of these benefits represents a large part of the basis of the price to be paid. The eventual realization of these benefits will depend on the success of the integration. Being clear about the integration plan can maximize the return on investment.

Determine integration scope and scale

Although each combination of companies has some unique characteristics, most can be positioned on a scale between two alternatives described below.

  1. Significant independence - The acquired entity operates with significant independence. Changes are made in the capital structure and financial reporting requirements. Perhaps branding is impacted. The acquired company may hold a dominant position in a specific market that the acquirer may wish to enter. In such a situation, relative independence may be the appropriate approach.
  2. Significant integration Complementary synergies are identified. The acquired company may be a start up or an emerging company that has developed a new technology or product which has yet to be introduced to the market or entered full scale production. The acquirer who has an established market position and a robust supply chain adds value by extending these capabilities to include the acquired products.

Being clear about the integration strategy from the outset will increase the probability of achieving the targeted results. Changes can be made as new information is learned but the direction must always be clear.

Communications

Throughout the due diligence and deal negotiation process, confidentiality and restricted sharing of information is required. As soon as the combination is announced, active communication within the organizations is required. Management must be prepared to explain its strategy and to listen to the feedback from impacted employees in both organizations. If the strategy that supports the deal makes sense, then it will make sense to the employees who are most knowledgeable about the businesses. Generally, the external communication messages about the deal are not sufficient for the employees of both organizations. Be prepared to do more. Think of this as a dialogue and not just a message. After all, it will be these same employees who will be asked to execute a successful integration.

Information changes during the evolution of an acquisition integration project. Recognizing this, it is acceptable to acknowledge that which is not yet known or decided. To avoid unnecessary speculation and rumor, management should be able tell people when unanswered questions will be answered.

Prevent the communications vacuum

Uncertainty is the enemy of progress. In the absence of clear direction, people will establish their own and it may become counter to the strategy if the strategy is not known. The best advice is to communicate early and often as things change throughout the integration process.

Give special attention to the critical employees in both companies

Identify the key employees in each organization and communicate directly with them. Explain the strategy and listen to their concerns. These people will become the leaders of the integration initiatives. Their leadership will be a critical success factor. By engaging them, they in turn will become an effective influence on the rest of the organization. As they adopt the strategy, others will follow.

Not all employees have the attitudes best suited to be leaders in this type of work. These assignments require proven change leaders who have the ability to rally others to the cause and to engage with others in a professional and productive manner. Make sure that your team leaders demonstrate this style.

Deliver difficult messages early

Acquisition integration means that some things will change. The scope and degree of control that individuals and groups in both companies have over their work changes. Depending on the strategy, it may increase or decrease. Regardless of the impact, these expectations should be communicated as soon as possible. If facilities are to be restructured or closed, if work will move between groups, if projects are to be accelerated or stopped, etc., management must be prepared to give that direction to the employees of each group.

Plan for a change in priorities

Similar to adding any type of new responsibility to a group, the announcement of an acquisition will require impacted groups to reprioritize their work to accommodate the new expectations. There should be very active communications between groups regarding:

  1. what new work will be undertaken to support the acquisition integration,
  2. what current work will continue and
  3. what current work will be stopped or delayed.

Think about all constituencies

Every successful company operates within a network of successful relationships among employees, customers, investors, suppliers, regulators and in some instances, even competitors. Management can increase the probability of achieving a successful acquisition by considering these relationships early in the process. Understandably, the concerns of investors and employees will usually take priority. However, timely communications with key customers and suppliers early in the process can preserve and even enhance critical relationships for the future. In addition to appreciating the consideration, these entities can often provide valuable insight into new opportunities that could be pursued as a result of the acquisition.

Next Steps

Now that the stage has been set for the initiation of the integration program, the next step is to define and select the integration team. We will continue this discussion in the next article.

If you would like to receive more information on this subject without waiting for the full newsletter series, or if you need assistance with an acquisition you are planning or are in the midst of integrating, please contact us. We can help!

 

Contents

+ Join Craig Bailey at SCORE 2007 in Boston
+ Growth by Acquisition
 


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