THE ART OF M&A LEADERSHIP (Second of 2 parts)
5 Basic Protocols that Can Determine Success or Failure in M&A
Possibly the most critical element in the integration process is speed. The speed at which the integration of two companies is completed is the single most important predictor of success and is directly proportional to the amount of synergies (dollars) captured.
Why speed? It mitigates employee uncertainty and forces integration focus while eliminating the time to talk yourself in and out of decisions. Finally, it impresses and stabilizes your customers, and drives bottom-line value. In a recent engagement, the company’s predicted twelve-month cash flow related to cost reduction was actually realized in less than six months due to accelerated integration planning and an aggressive execution timeline. Forty-five million dollars of cost were removed in the first five weeks following close as opposed to internal plans that had cost-cutting events staged over many months. This hard driving execution creates real shareholder value while it stabilizes stakeholders by delivering results.
Decision-making based on established integration protocols and planning should be rapid and precise. Operational and administrative executives must be engaged in the process and interact with team managers, but their focus has to be on maintaining the stability of the business. Team management, conversely, must be 100% dedicated and focused on the integration. Part-time integration is often doomed from the start.
A Harvard Business Review article observed that, “Guiding this kind of expedition takes a new type of leader, someone who can jump into complex situations quickly, relate to many levels of authority smoothly, and bridge gaps in culture and perception. But this leader also needs…world-class project management skills…” Unfortunately, few companies have the time or integration experience to develop the complex and requisite skills necessary to manage such an endeavor. Successful integration management needs to:
- Develop structure around and drive the process
- Connect the diverse management cultures and practices of the two organizations
- Employ a disciplined methodology that creates focus
- Engineer short and long-term successes that produce value
- Simplify the complexity of integration
The article also states that, “integration management cannot be wedded to perfection.” The “perfect answer” is the death knell for successful integrations. Nowhere is the 80/20 rule more applicable. In integration leadership, a good decision made today is better than a perfect decision made next month. Perfection is the enemy to speed and speed is an absolute in integration.
Additionally, a great integration without stabilized performance from announcement and throughout the process loses its luster very rapidly. Early wins and positive stock performance can evaporate as quickly as they were achieved. The CEO, company executives and management must understand that performance is almost always tied to the quality of the personnel driving the effort. If the right personnel are the key to stable performance, does this mean that the acquiring or primary surviving company should maintain their positions? The answer is simple although the process to determine the answer is not. “Best Players Play” should be the corporate mantra regardless of the organization in which such players may be found.
Experience dictates that personnel selection is one of the most difficult tasks organizations face. Most companies fail to develop even the most basic personnel selection process. The dominant company generally likes their people and has developed long-term psychological contracts that are difficult to break.
This brings to mind the story of a Human Resource executive within a large company. The company was in a growth mode, which led to promotions throughout the organization. In her exasperation at the lack of adherence to the personnel selection process by the CEO and others, the HR executive lamented, “We think we’re looking for the person that stands tall among all the rest, but no one realizes that we’re just choosing between the tallest pigmies.” The point being that unless you have objective measures and outside benchmarking in which to rank personnel, you may just be choosing the tallest pigmy. Your business is too important to focus such selections internally or even within the acquired companies’ personnel. The perfect candidate for your ongoing success may well be sitting at the desk of another company. Don’t limit yourself to what you can see or touch. The stability of the company and success of your performance is too important.
There are many lessons to be learned regarding merger and acquisition integration, and only a few have been addressed herein. Unfortunately, for most companies, integration lessons are learned in the throes of an active merger, and as statistics demonstrate, at the expense of shareholder value. Most mergers and acquisitions fail to even earn the cost of capital.
For simplicity’s sake, take the following to heart:
- The integration process requires “counter-intuitive” behavior, disciplined decision-making, and processes
- The value of successful mergers is directly related to the integration process and the resultant realization of captured synergies
- Integration is a unique event, to be managed separately so the best players can focus on stabilizing the current business while you may want to leverage others in building the new business
- Speed is critical to minimizing employee and customer uncertainty and driving shareholder value
As stated earlier, most mergers do not bring value to the shareholders. And, most mergers do not apply counter-intuitive measures to the integration process.
S3 (Speed-Synergies-Stability)
The faster you can achieve synergies while maintaining the stability of the ongoing business, the higher the impact to cash flow and resulting value!
Regards,
Jim