Merger madness

I couldn’t help but notice all the Facebook buzz and tweets about the upcoming wedding of Prince William and Catherine Middleton. Dubbed the wedding of the century, the young couple will tie the knot on April 29 with all major news networks covering the wedding — live!

Networks are expecting close to two billion in worldwide audiences! Certainly a new world record for the most watched wedding of the century. Unfortunately I won’t be watching this wedding as April 29 is also the premiere of The Fast & The Furious 5 and I much prefer the adrenaline-pumping, action flicks to the alternative.

The wedding is one thing, though, and the marriage another. I do wish the couple a happy and successful marriage. The wedding, after all, is only the beginning.

It is very similar to my experience in mergers and acquisitions. Oftentimes we, deal guys, get so caught up (and rightfully so) in working the deal that by the time we reach the “finish line” of successfully signing and completing the acquisition, it feels more like a relief than a celebratory conquest. Our famous words after signing a deal are usually “and now the work begins.”

Anyone can propose and sign on the dotted line, but making a marriage work is what separates the winners from the rest.

KPMG International has found that 83 percent of corporate mergers and acquisitions fail to enhance shareholder value. This was through extensive research of over 700 deals and interviews with 107 executives from those companies. So basically eight out of 10 deals fail to deliver against expectations.

It is important to understand the reasons why most M&A fail to deliver on the value, and what can be done to ensure a high probability of success. There is the usual talk about “culture” and “values” serving as the foundation of any successful merger/marriage. I’d like to provide entrepreneurs a quick checklist to ensure you’ve covered your bases. For those of you integrating large companies, I recommend hiring external help. Any of the big consulting firms have done tons of engagements in this area. While I’m not a big fan of a lot of consultants, it is important to tap outside expertise to do it right. It is important to screen through various firms in order for you to select the right one. Not all consultants preach the right advice despite what they might tell you.

Eight simple things to remember when integrating companies (this is by no means an exhaustive list but it can serve as a general guideline):

1. Set up an integration team. This usually consists of senior management, majority of which come from the buyer or one taking over control. It is absolutely important that BOTH companies are represented though. The task of the team is to map out the direction and monitor its progress.

2. Putting the plan together. The caveat here is to integrate the important areas only. Many make the mistake of merging divisions that should remain separate. Most companies are organized functionally, so the plan should focus on how to merge functional areas together (i.e. sales, human resources, legal, finance, MIS).

There can also be cross-functional teams that are created for a specific purpose. For a recent acquisition we did (I cannot disclose the name due to confidentiality purposes), we are creating a committee to focus on the launching of new products and services across the distribution channels of one company, supplied by the core operations of the other.

3. Define the objectives and the “finish line.”  It is important to know when to declare victory and let the operations manage themselves. They call this the “exit criteria.”

Citing Mergerintegration.com, some examples of a successful exit criteria are:

• HR: All employees are on one payroll system, one benefit system, and one compensation system.

• Sales: All salespeople are following common procedures for order-taking, processing an order, and delivering products and services to a customer.

• Marketing: Unified front in terms of advertising, branding, pricing, etc.

The plan should define the steps involved in reaching that specific objective or exit criteria.

4. Bain & Company says: “Integrate where it matters.” In other words only do so where necessary or where value is created. When LVMH acquired cognac producers in France, they certainly didn’t integrate production. Due to the customer needs of cognac drinkers, it is important to maintain the uniqueness and distinctiveness of a cognac producer, to preserve their individuality. Integrating cognac production therefore doesn’t make sense as it will erode the value of the brand and company. 

5. Culture is a No. 1 priority. Decide if you want to retain the existing culture or change it. If you want to change it, use org structures, compensation packages, performance appraisals, and systems/procedures to do just that. And according to Bain, do it quickly. Most companies take the slow approach, which creates more uncertainty.

6. Do not distract core-operating teams on integration work! This is the biggest faux pas possible. The management teams of each company must focus on operating their respective machinery and defending/building market share.

I’ve actually entered an industry with a disruptive offering at the time the market leader was under-going a post-merger integration. Due to most of their executives focused on integration and turnover, we successfully captured a majority of market share within six to nine months of launch. Timing is everything. Do not let the post-integration work become a vulnerability. It pays to have a budget and executive team lead the integration effort that is not composed or does not distract focus and bandwidth from the operating teams.

7. Management team selection. Deciding and announcing the new management team (even if it is exactly the same as the inherited structure) is important to do once it is decided on. It gives employees certainty on who their new bosses are and reduces the No. 1 reason for churn after a merger, which is uncertainty.

8. Communicate, communicate. Last but not least it is always important to communicate across the organization. Hold town hall meetings, management meetings, follow up with e-mails and published work. It is important to have a strong and consistent communication plan until the merged organization has not just “bought in” but adopted the newly merged thinking and desired way of operating.

Hope this helps with all of your merger madness. I’m about to do a huge one. I wish you all the best of luck and happy mergers.

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Any questions? E-mail me at egtheplayer@gmail.com.