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Successful Mergers in One Easy Lesson

Douglas Yorke Rumson Acquisitions | April 5, 2016

There is really only one major consideration that business owners and senior executives need to keep in mind to successfully integrate their acquisitions.  Ready?  Here it is:

Merging two businesses is not like running one bigger one.

That’s it.  No, really, that’s The Key.  If you approach your next deal with that one maxim in mind your chances of a successful integration – and hence a successful investment – will soar.

How could it be that simple?  It’s that simple because your only chance of hitting a target is by aiming properly at the start.  Merging two companies is not about managing growth or managing costs or even managing people; it’s about managing change.  It requires a different focus, different skills, a different timeframe, and a different approach to a host of issues, many of them not readily measurable.

Business owners and C-level executives who assume they can execute a merger in a way that keeps their core business humming (their day jobs), AND prevent the target business from stumbling (an extra day job), AND meld the two of them together with minimal disruption (a completely different job) on their own are kidding themselves. Period.

There is no project that will affect more corners of your company, more of your staff, and more of your outside stakeholders than a merger.  None.  So the odds are that something somewhere will go wrong if you don’t see the integration process for what it is.

Once you’ve accepted the fundamental difference, including the different skills and approaches that are needed, you will be more likely to insist on the right steps and ask the right questions about effective integration.

Let’s look at a few of the key things to do (and not do) as you move into and through the integration:

  • DO NOT view acquisition as a business strategy; in almost all cases it is merely a device or a technique by which you execute a strategy.  DO acquire opportunistically but not outside the bounds of your strategy.  Successful deals start with sensible strategies.
  • DO use that underlying strategy as the basis for your integration priorities and decisions.  And make sure you can articulate the strategy in words of two syllables or less. Remember you are managing change.  Your ability to articulate what the change will entail and why it will be positive will determine whether stakeholders successfully embrace it.
  • DO NOT be misled by the unfortunately common term “post-merger integration.”  If you wait until the transaction has closed to start your integration, you will have wasted precious time and put valuable resources at risk.  DO start your integration in the strategy phase, or at the very latest in the deal structuring and due diligence work.
  • DO decide well ahead of closing day the extent to which you will merge the two companies.  As a general rule, acquisitions that are focused on adding to the buyer’s scale should be integrated fully whereas those aimed at expanding its scope can be integrated more selectively.
  • DO identify the key value drivers that will support your attaining the deal’s strategic intent.  These value drivers will then become rallying cry and measuring tools for your integration team.
  • Speaking of which, DO assemble a dedicated and diverse team (staffed in balance from both companies) to manage the integration process.  Treat them as the biggest value creation vehicle that your company has at this moment.  Put one person in charge who, if at all possible, has no other “day job.”  DO staff the team and fund it for what it is: an insurance policy against the 70-90% failure rate of acquisitions.  If you are not willing to fund a thorough integration process, take the purchase price and put it on red at the nearest casino — your odds of a positive return are better there.
  • DO create a clear and fast channel for integration decision-making so your team doesn’t waste time waiting for answers.
  • DO NOT rely on your lawyers and accountants for all your due diligence needs.  Strategic and operational discovery is the third leg of a comprehensive due diligence process. It will be absolutely essential in determining what to do with your acquisition and how to make the deal actually work.  DO create your own due diligence list built around the strategic intent and the value drivers of the deal, your roadmap for realizing them, and potential surprises that could impair your doing so.
  • DO over-communicate.  The time to guard secrets is not when your company’s work environment is at its most turbulent and your stakeholders are at their most unsure.
  • DO go fast.  Make decisions as quickly as possible.  Faster actions means shorter periods of employee uncertainty and competitive exposure and a swifter translation of strategic intent into return on investment.
  • As a corollary, DO NOT wait for perfect information or the perfect resolution; they don’t exist.  A grade of B+ on a completed and working project is better than an A+ grade on a project that never gets to market.
  • DO identify and take swift action to protect key people and customers on both sides of the deal. These are essential value drivers to achieving the acquisition’s objectives. DO NOT give any of them the excuse of time to walk.
  • DO target a few key metrics to measure your progress against the acquisition’s stated objectives and share that progress regularly around the combined companies.  DO NOT use your company’s default KPIs.  Remember the mantra: you’re merging not running.  Track results that measure the progress against the specific strategic intent and value drivers of the deal.  They will almost always differ from those of the underlying company.
  • DO identify a couple of “quick wins” that can be used to reinforce to all your stakeholders the benefits of the transaction.  DO toot your company’s horn far and wide when the winners come in.  Everyone loves good news.
  • DO take the time to look up from your integration to-do list every so often.  Ask yourself and your team, “What are we missing here? What could be going wrong that we aren’t thinking or hearing about? What opportunities are we missing because we’re too tightly focused on managing the integration process?”
  • Finally, DO NOT be fooled into ending the integration process too soon. Consider the athlete: one of the most frustrating – and dangerous – times is when his injury seems behind him and he wants to quit physical therapy and get back out on the field. Integration is like that.  Be disciplined to stay the course until a reliable, extended and consistent stream of metrics (both financial and otherwise) confirm that the combined business can indeed run itself.  Even in lower and middle market deals, this process usually requires a year or more … but the goal is not return to normal, it’s return on investment.  They’re different.

Like merging two businesses versus running one bigger one.

Axial is the deal network for the middle market.

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