Making Mergers Work

February 07, 2012

Matt is the CEO of a mid-size manufacturer about to embark on his second acquisition and it has to go better than the last one. The promised synergies were just not delivered, at least within the time frame promised. Dealing with unhappy shareholders and bank was no fun.

Business integration is like implementing new technology or bringing new plant online - the entire organization is affected and has to be motivated to make it happen.

If Matt is going to deliver on the promise this time he will need to prepare the organization so that everyone is pulling in the same direction. He can't afford to miss a beat. For example using the due diligence process to identify not only potential liabilities but also to prepare for the eventual integration.

Most observers point to people issues as the primary reason for mergers not delivering their potential. Managers tend not to know too much about organizational theory and anyway who can afford an HR dept with the capacity and skills to handle a major transaction?

"An independent, experienced project manager is what we need" thought Matt, someone who can keep people projects on track and our team engaged. We have so much to do and our team doesn't do this every day and won't have the time to go off and "learn how" before we start!

With any transaction shareholder expectations are high and a management team does not get a second chance to get it right. A good integration plan will involve the following key components:

1.     Use the due diligence process to not only satisfy yourself that there are no unexpected liabilities or management hurdles to overcome but also to gather insights to help plan the integration. Even if the deal doesn't go through you will have learned a lot about a competitor.

  1. Value is destroyed by people not by liabilities. Understanding the values and culture of the business to be acquired will be critical to how you approach integration.
  2. In times of talent shortage a solid management team can be a key acquired asset. Understand who the key players are both in terms of skills and leadership - shareholders will and so should you, at least before you make any decisions to lock in or release them.
  3. A clear plan is essential; who is doing what and when. Everyone should know their role and how it affects others and contributes to the transaction.
  4. After the completion date there is a limited window of opportunity to implement the changes you want to see and set the tone for the merged organization

Matt listened to the 5-step process and couldn't help thinking that this was overkill. "We're a small emerging company do we really need so elaborate?

An HR merger plan does not need to be elaborate, time consuming or expensive but it does need to be comprehensive so that no asset or opportunity is overlooked. To achieve value accretion effectively and as objectively as possible it is best handled by an outsider - someone with no vested interest in the outcomes.

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