In a conversation with a client earlier this week, we talked about the successes that many of our clients have found after deals are completed – and the failures we occasionally see. We noted that, in many cases, the credit or the fault stems not from the price people paid but rather from the success (or failure) of the integration – which, in our view, in turn stems from the amount of work they put into integration investigation, planning and execution before the transaction is complete. Everyone seems to know that integration is important. And nearly everyone we work with pays some attention to planning for it. But some firms are just better at the process than others.
There are many mistakes that we see time and time again. Below are a few that we have seen recently, though there are dozens more we may talk about in another post.
Most acquiring companies put some pre-deal effort into thinking about how the products of the acquired company will be integrated with their own, and how they will be sold. Along the way, they usually plan for how many of the technology staff will be needed in the future and who won’t. They think about who they will report to. They usually do the same for other key functions such as sales, marketing, and admin functions. But often they make these plans with minimal input from those in the company being acquired. As a result, they often make assumptions that seem perfectly reasonable, but may turn out to be unfounded in the breach. That’s the first mistake. You must involve both sides extensively in integration planning.
The next mistake is a failure to appreciate the critical importance of maintaining strong post-deal client relations. This requires more than a one-off meeting and a welcome letter from the CEO to the clients of the acquired company. It requires maintaining the people who have nurtured and built these relationships over time, and leaving them in place until a proper handover is possible. Time and time again, we see acquiring companies take the client relationship for granted – or assume that their personnel can take on the task of maintaining that relationship without help from the old guard. If they don’t fire those with institutional memory, they move them to other roles (integrating the sales force) or create an environment that effectively encourages client-facing individuals to move on. It’s a recipe for disaster.
A third mistake is assuming that all cost cutting needs to come from the acquired company. Instead of evaluating each person and deciding who is the most qualified person for the job, be it head of sales, marketing, technology, finance, etc. In too many cases, we see a strong bias against losing anyone from the acquiring company. Too often, managers at the acquirer come at the integration process as if they are the victor and the acquired company the vanquished in some kind of battle in which to the victor belong the spoils. It sets the wrong tone and deprives the acquiring firm of the best talent.
Another misstep relates to planning for integration of “cultures.” Sure, it would be easier if buyers only acquired companies with values and practices identical to their own. But this is both impractical and limiting. The key to success is to recognize the differences in culture between firms and figure out in advance not only if they can mesh, but how. It’s about acknowledging the differences. We once watched a fast-paced Boston-based company that had weekly beer-busts mesh quite well with a Utah-based company that was Mormon-led and staffed. It can be done, but it requires effort, patience, and forethought. On a current buy side assignment of ours, it’s a fundamental component in the process of filtering acquisition targets. If the people have a strong connection and a common vision for the future, most challenges will be surmountable.
We have looked at hundreds of potential acquisitions for clients. In some cases, lack of cultural compatibility is a primary reason for rejection. We often encourage the two parties (buyer & seller) not to leap to conclusions. They should go to dinner a few times – without the bankers – and get to know each other. They’ll learn a lot about the potential for success from those casual conversations, including if it feels right to continue on at all.
The final mistake I’ll mention here is speed. There is such a thing as pushing for integration too fast –and also too slow. The right answer is the result of a deliberate, disciplined, detailed plan that is clearly communicated to all and has concrete milestones leading to a single company result in a predetermined time frame. Rushing this process can lead to miscommunication and more problems down the line.
You’ll do yourself a big favor by doing more than just thinking about integration before a deal is complete. It takes work, discipline, and detailed planning. There needs to be clear roles, goals and communication. But some people like waking up and banging their heads against the wall time and time again….not our place to judge, just to observe.
I’m assuming that many people reading this have their own success and/or horror stories associated with mergers and acquisitions. Please let us know your thoughts…
