Setting the Stage for a Successful Acquisition
Bob Nealon of Nealon Advisory Group, with contributions from
this article we continue our series on the topic of Growth by
Acquisition, providing insights to guide you through your M&A planning
and integration efforts.
Previous articles have discussed the reality that all mergers are
really acquisitions and the importance of understanding and communicating
the goals and necessities of an acquisition. In this article, we help you
set the stage for a successful acquisition.
During the period prior to actually consummating the acquisition, there is
considerable discussion by both parties about the benefit to be derived
from combining the entities. The quantification of these benefits
represents a large part of the basis of the price to be paid. The eventual
realization of these benefits will depend on the success of the
integration. Being clear about the integration plan can maximize the
return on investment.
Determine integration scope and scale
Although each combination of companies has some unique characteristics,
most can be positioned on a scale between two alternatives described
Significant independence - The acquired entity
operates with significant independence. Changes are made in the capital
structure and financial reporting requirements. Perhaps branding is
impacted. The acquired company may hold a dominant position in a
specific market that the acquirer may wish to enter. In such a
situation, relative independence may be the appropriate approach.
Significant integration – Complementary synergies are
identified. The acquired company may be a start up or an emerging
company that has developed a new technology or product which has yet to
be introduced to the market or entered full scale production. The
acquirer who has an established market position and a robust supply
chain adds value by extending these capabilities to include the acquired
Being clear about the integration strategy from the outset will increase
the probability of achieving the targeted results. Changes can be made as
new information is learned but the direction must always be clear.
Throughout the due diligence and deal negotiation process, confidentiality
and restricted sharing of information is required. As soon as the
combination is announced, active communication within the organizations is
required. Management must be prepared to explain its strategy and to
listen to the feedback from impacted employees in both organizations. If
the strategy that supports the deal makes sense, then it will make sense
to the employees who are most knowledgeable about the businesses.
Generally, the external communication messages about the deal are not
sufficient for the employees of both organizations. Be prepared to do
more. Think of this as a dialogue and not just a message. After all, it
will be these same employees who will be asked to execute a successful
Information changes during the evolution of an acquisition integration
project. Recognizing this, it is acceptable to acknowledge that which is
not yet known or decided. To avoid unnecessary speculation and rumor,
management should be able tell people when unanswered questions will be
Prevent the communications vacuum
Uncertainty is the enemy of progress. In the absence of clear direction,
people will establish their own and it may become counter to the strategy
if the strategy is not known. The best advice is to communicate early and
often as things change throughout the integration process.
Give special attention to the critical employees in both companies
Identify the key employees in each organization and communicate directly
with them. Explain the strategy and listen to their concerns. These people
will become the leaders of the integration initiatives. Their leadership
will be a critical success factor. By engaging them, they in turn will
become an effective influence on the rest of the organization. As they
adopt the strategy, others will follow.
Not all employees have the attitudes best suited to be leaders in this
type of work. These assignments require proven change leaders who have the
ability to rally others to the cause and to engage with others in a
professional and productive manner. Make sure that your team leaders
demonstrate this style.
Deliver difficult messages early
Acquisition integration means that some things will change. The scope and
degree of control that individuals and groups in both companies have over
their work changes. Depending on the strategy, it may increase or
decrease. Regardless of the impact, these expectations should be
communicated as soon as possible. If facilities are to be restructured or
closed, if work will move between groups, if projects are to be
accelerated or stopped, etc., management must be prepared to give that
direction to the employees of each group.
Plan for a change in priorities
Similar to adding any type of new responsibility to a group, the
announcement of an acquisition will require impacted groups to
reprioritize their work to accommodate the new expectations. There should
be very active communications between groups regarding:
what new work will be undertaken to support the
what current work will continue and
what current work will be stopped or delayed.
Think about all
Every successful company operates within a network of successful
relationships among employees, customers, investors, suppliers, regulators
and in some instances, even competitors. Management can increase the
probability of achieving a successful acquisition by considering these
relationships early in the process. Understandably, the concerns of
investors and employees will usually take priority. However, timely
communications with key customers and suppliers early in the process can
preserve and even enhance critical relationships for the future. In
addition to appreciating the consideration, these entities can often
provide valuable insight into new opportunities that could be pursued as a
result of the acquisition.
Now that the stage has been set for the initiation of the integration
program, the next step is to define and select the integration team. We
will continue this discussion in the next article.
If you would like to receive more information on this subject without
waiting for the full newsletter series, or if you need assistance with an
acquisition you are planning or are in the midst of integrating, please
contact us. We can help!
+ Join Craig Bailey at SCORE 2007 in Boston
+ Growth by Acquisition
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