“Unfortunately for most companies, as statistics bear out, the vast majority of mergers just don’t go as planned. In fact, most mergers are driven by growth, but at the expense of shareholder value.”
Jim Jeffries, Chairman M&A Leadership Council
THE ART OF M&A LEADERSHIP (First of 2 parts)
Building on last month’s article titled, “Leveraging the Sell-Side Talent,” it’s important to remember that successful merger and acquisition integration is difficult at best and impossible if approached exclusively with internal resources employing existing processes and protocols.
“Merger and Acquisitions” magazine quoted the CFO of a company in the midst of the integration process who accurately asserted, “If you overpay, that’s fatal. If the integration fails, you have overpaid!”
The push for “critical mass” in prior years often led to “critical MESS.” Companies focused on the assimilation of assets and hoped for the consolidation efficiencies that were sure to follow. The predictable result: more assets, little to no empirical efficiencies, a stagnant to declining bottom-line, loss of key personnel along the way, and general chaos in the new organization. So how does one avoid chaos and bring order to integrations?
First, every merging company person must realize that the integration and the realization of the synergies associated therewith, is the most critical initiative for the ongoing business. There is nothing a company can do that will affect shareholder value more dramatically than the success or failure of integrating large mergers or acquisitions.
Most industries trade at some multiple of EBIT. If the removal of costs through synergy realization flows to the bottom-line, one can easily calculate the enormous shareholder benefit derived from 50, 100, or 250 million dollars of synergies. However, most companies will never achieve 50% of announced synergies.
How do you get the focused attention of the two organizations? The integration event must be clearly sponsored by the CEO….not just announced by, but sponsored by. If the integration is not perceived to be of utmost importance to him or her, then it will not be important to the employees throughout the organization. In the case of the best combinations I have witnessed, the CEOs engaged themselves in the decision-making process for all major decisions as Chair of the Integration Steering Committee. They insisted on executive participation in integration planning. They even agreed to stringent behavioral and decision-making protocols for the integration process. One particular CEO even put the leader of the integration in the office next to his own.
In this case, the company was clear that the integration was a priority. It was necessary that all personnel understand that managing merger and acquisition ambiguity and workload is often counter-intuitive to accepted business practices and tenets. Most companies struggle with managing all the nuances of their day-to-day business. Post-close and throughout the integration, companies must manage their own business, as well as the business of the acquired/merged company while simultaneously integrating the organizations, personnel, processes, and systems. Certainly, this is a daunting task inconsistent with the internal machinations of all but a few of the most sophisticated acquirers.
All the moving parts of two large organizations being managed concurrently with integration can indeed create chaos. But it can be manageable chaos. Sophisticated integration models and methodology can help you “bite-size” this overwhelming task. How? Integration engages every division, function and department of an organization. This typically creates ten to fifteen distinct, macro-areas of focus that require dedicated integration management personnel (internal or external).
Each of these areas may have five to twenty significant events that must unfold from day one through a six to twelve-month period. Each one of these events will have several key actions that drive the event. Each key action will have numerous sub-actions that must occur concurrently. Typically, most organizations have little acumen for this abundance of issues and must develop a strategy, methodology, and resources to manage it all. All of these actions have to be accomplished without losing focus on the day-to-day business. One must act in a counter-intuitive manner to normal business practices to make the integration work.
So, where do you find the critical resources to ensure the success of your integration? Often, it is unlikely for anyone in either organization to have experienced a successful integration. Sourcing experienced external integration leadership is the most profitable solution. But there is still an abundance of internal resources available. When two companies come together, there are usually many highly knowledgeable and talented executives and managers who may not be retained or are temporarily expendable to a project of this magnitude. These people should form the top layer of your Integration Management Team. A special incentive package should be created for the team members with specific metrics tied to the success of the integration process.
Again, using executives who may lose their positions within the new organization post-merger is a desired practice. This counter-intuitive approach may appear highly suspect at first glance, but putting their knowledge of both organizations and their years of experience to drive the integration will payoff in huge synergies if you incent them properly.
To be continued in next month’s issue....