Chairman's Message, August 2015
by Jim Jeffries, Chairman, M&A Leadership Council
The requirements for successful merger integration are often counterintuitive to most business practices and tenets. And, so it is when most companies discard the talent they just purchased and lay the added responsibility for integration on the backs of the personnel who are also responsible for running the business.
The fact is that the best way to maintain business stability while integrating the companies is by leveraging the resources of both companies even if it means additional short or long-term retention of some of the duplicative talent. In this way you gain the benefit of tacit knowledge, networks, culture, and operational wisdom from both sides of the deal that you can’t get at if you refuse to utilize this incremental value. However, doesn’t it seem logical that the people who are going to be responsible for future results should be responsible for making the merger work and integrating the companies? Not necessarily!
“Responsibility overload” will always defeat the purpose of merging companies. To ask corporate leaders to continue to manage the organization they have been responsible for and then double its size overnight with an unfamiliar organization, and then add to that the responsibility of blending the organizations while removing redundancies (no track record at all), is something that cannot be successfully accomplished. Lastly, asking them to use and manage a team of consultants adds even more to their load, thus destroying the opportunity. At the end of the day you have two companies under one name with fewer customers and less talent, yet the operating costs remain the same.
The counterintuitive opportunity here is that you have two fully staffed companies with many redundancies. Why do most companies place all the responsibility on one team and simply let the other team go? Or, worse yet, they bring in consultants who add to the complexity and inherently slow the entire process. Remember, consultants in essence get paid by the billable hour, and their hours are not cheap. Therefore, consultants are incentivized to make the integration of the organizations last as long as possible with numerous projects continuously emerging. Integration must be an event with a beginning and end... and little time in between. You can’t have it both ways.
One critical success factor is to decide at deal announcement who will be responsible for the merged, ongoing business, and direct them to focus solely on operational and revenue stability during the integration. Secondly, identify the best and the brightest of executives who may not be retained after the merger (typically from the acquired corporation) and give them the assignment to lead the actual integration, as a full-time responsibility. Seems counterintuitive, and well, it is. However, given the proper oversight by top management as well as proper financial incentives for these soon-to-be-outplaced executives, and you can create a highly effective, positive team which WANTS to get the integration done quickly and realize synergies. With proper incentives and post-integration severance packages everyone wins (shareholders, customers, employees, and management). It’s counterintuitive and difficult, but highly effective.
Until next month,
Jim