The merger or acquisition deal is done - the ink has dried on the documents and the lawyers have returned to their respective corners. Now the work really begins. For the sake of argument, even in the case of a "merger of equals", one business must take the lead role, so I will use the terms acquirer and acquiree here.
Beyond the select group involved in the acquisition decision, due diligence, negotiations, and settlement, what communication has taken place within the two businesses? A number of questions need to be addressed.
Has the purpose of the transaction been communicated? What was the goal of the deal? There are several business reasons for mergers and acquisitions. It is done to facilitate growth or survival. Businesses may purchase entry into new markets or industries through the acquisition of established businesses in those arenas. They may expand market share by acquiring and eliminating competition in new or existing marketplaces. When diversifying beyond the acquiring company's core competencies, it may choose to compliment core competencies for minimal business risk, or sail boldly into uncharted waters of unrelated products or industries at much higher risk.
Did the deal involve full or partial assets of the acquiree? In a full acquisition, the acquirer takes on the complete business including products, people, processes, systems, facilities, and customers. It may include all or partial liabilities, based on transaction negotiations. In a partial acquisition, the acquirer takes on a product or service line, some facilities, assets, people, and customers. A partial acquisition may include certain liabilities and systems, but the selling company (the acquiree's parent) retains its independence, processes, systems, and remaining product lines, people, and customers.
Will the integration be full or partial? If the deal included the complete business of the acquiree, a choice is possible. A decision can be made to immediately migrate all duplicate systems, processes, and organizational structures to those of the acquiring company or to retain the status quo and consolidate only period-ending financials for the short or long term. In a partial acquisition, the brunt of the supporting infrastructure was retained by the selling company and so the only choice is for immediate migration. This is not unlike the first day of a format change on your favorite radio station. Yesterday you were singing along with your favorite tunes, and this morning they are broadcasting the farm report on what has become a country station. Consider the impact on your customers, not to mention the affected staff.
Internally, the areas to be addressed include people, process, product, facilities, and information. Externally, the areas include branding, public relations, and supplier and customer retention. The disciplines needed for successful acquisition integration are risk management, change management, process management, and project management. I will expand a little on these critical disciplines.
A mapping process must take place internally for people, product, process, facilities, and information. Even in a back-end financial consolidation, financial information flow and the charts of accounts must be mapped. Many surprises are found in the mapping of charts of accounts as, over time, accounting debris is accumulated and never cleaned out. This mapping process affords an excellent opportunity for spring cleaning. I have seen the mapping of the two charts of accounts become almost an archaeological dig to discover the origins of some of the line items for both acquirer and acquiree. This tends to lead to some degree of finger pointing, and is best left to the accountants.
Often overlooked, or more likely downplayed, risk management is needed to anticipate and eliminate or minimize potential problems with the integration. While no one wants to be seen as negative, driving forward without regard to risk is a disservice to professionalism. Risk management is an ongoing endeavor, as risks evolve with the integration process. Identified risks can be graded by probability of occurrence and severity of impact. Risk triggers are identified and monitored for threshold convergence. Identified risks can be addressed through avoidance, transference, mitigation, or acceptance. Avoidance eliminates the potential causes for the risk. Transference shifts the consequences of the risk to a third party (think insurance). Mitigation makes changes to the situation such that the probability and/or impact are reduced to acceptable levels. Acceptance is either active, where contingency plans or workarounds are prepared for when a risk event occurs, or passive where you do nothing and just hope for the best. On the whole, you gain more respect when an identified risk is monitored and dealt with by a planned response rather than having it happen by surprise and become a crisis situation. My examples of this are too numerous to mention.
Change management is critical to successful integration. The speed at which the integration must take place determines the form change management takes. If time is of the essence, change must be driven as a top-down process with essentially one-way communications. In its best form, it would be considered a benevolent dictatorship. If time is less a factor, more two-way communication and involvement by many levels in any decision making enhances buy-in, acceptance, and assimilation of change.
A review and mapping of organizational structures and people is needed. Risk increases for incongruent organizational structures, such as where one organization is organized in a chain of command format and the other operates in a matrix format. Organizational mapping provides fodder for decision making on duplications. The tendency is to blindly migrate to the acquirer's structures and eliminate any duplication on the part of the acquiree. In an ideal world, consideration would be given to anything the acquiree has that might actually be more efficient or effective. It may even have been the underlying factor that made this particular business the preferred acquisition target over all other candidates.
When reviewing people, it should not be forgotten that they embody corporate knowledge that is not easily replaced in the short term. Communication, training, and re-training are critical to the success of any change management process. Informal organizational structures need to be identified to find the informal leadership. They become the ones to focus on in initial change management processes, as they need to be champions for changes within their spheres of influence.
Process management is needed to address business processes, workflow, automated systems, and the flow and use of information. In many cases, supply chain management can fall within this area. Mapping processes for deals that just increase market share within an industry can be relatively simple. The tendency however, is to fit, rightly or wrongly, all processes from the acquiree into those of the acquirer even if it equates to forcibly placing the proverbial square peg into the round hole. Just as in the review of organizational structures, consideration should be given to those things that the acquiree is performing better/faster/cheaper than the acquirer. Processes and their accompanying automated systems should be looked at for a decision to preserve, integrate, replace, or remove them. Briefly, how do they stack up with respect to business support, technical excellence, cost of operation, quality, timing, etc? Information needs to be mapped and reviewed for quality, currency, and timely support of operations, decision making, and the customers.
Project (and program) management is needed to manage the multitude of interlaced tasks to be addressed in the integration that must mesh smoothly across all functions and processes of the business. Whether it is handled through a Project Management Office (PMO), a task force, or loosely through functional management structures, there ultimately needs to be a single point of authoritative coordination to ensure successful completion. One must also consider that the integration effort is outside the day-to-day operations that functional management is being graded on for their bonuses.
As a final word, communications are perhaps the most critical aspect within these disciplines. How communications are handled at all levels can foretell the outcome of an acquisition integration effort. I have seen one instance where, with integration well underway, acquiree staff still did not know how to answer the phones. It was a rocky integration.
I have merely touched upon
the broad topic of merger and acquisition integration. If you would like
further information on any aspect of this work, please contact Govan Consulting,