Astute Planning, Flawless Execution,
Delighted Customers

Issue #118

Tuesday, October 24, 2007

Building the Integration Team
By Bob Nealon of Nealon Advisory Group

Welcome back to our series on Growth by Acquisition, providing insights to guide you through your M&A planning and integration efforts. In the previous article in this series, we discussed the selection and formation of the integration project team. Once the team is in place, it is time to start accomplishing the program goals.

The initial business analysis of the acquisition identified synergies that would provide the additional profit and cash flow to justify the investment. With the acquisition finalized, it is time to begin generating the funds to pay for it. Now is the time to confirm the initial planning assumptions and identify new opportunities that may have arisen since the due diligence was completed. From there, the team can establish specific program goals and milestones. These opportunities can be grouped into three categories as follows:

  1. Balance sheet asset consolidations and possible sales,
  2. Revenue growth opportunities, and
  3. Operational consolidation savings opportunities.

Balance Sheet Asset Consolidations

In some cases, the consolidation of operations will produce assets which are now superfluous to the business need. These assets can be sold and the proceeds applied to offset the cost of the acquisition. The obvious example of this would be two companies combining and determining that there are excess manufacturing or distribution facilities. By consolidating operations to optimize facility utilization, excess facilities can be reconfigured to support new businesses or sold to produce cash.

Revenue Growth Opportunities

These opportunities can take several forms including the following:
1. Company A (The acquirer) may have distribution channels suitable for Company B's (the acquired) products and/or vice versa. These cross selling opportunities, effectively captured, can grow revenues while reducing the proportional cost of sales and marketing.
2. Company A and Company B may have complementary products which when combined may represent significant value to the customers which they could not provide individually. By marketing this bundle of products, sales yields and potentially customers' share of mind will increase.

Operational Consolidation Opportunities

There are several forms of these opportunities which could be classified as cost avoidance or cost savings. In the area of cost avoidance, we will use the example of Company A who has a dominant position in an evolving market. Faced with the need to update the product offering to remain competitive, the company faces a long and potentially expensive product development cycle. As an alternative, they acquire Company B which has developed a compatible product that is ready for market introduction. As a result of this buy versus make decision, the acquirer has accelerated their time to market and avoided the development expense. Success will now depend on their ability to successfully integrate the offering into their product line.

An example of a true cost savings would be a case where Company A must maintain a geographically dispersed field service force to meet customer uptime commitments. Often such an employee group is less than fully productive due to geographic dispersion. By acquiring Company B serving a similar market and service profile, the combined service force can yield improved utilization and reduced expense levels.

All of the strategies summarized above require well developed plans and deliberate action. The key to successful integration at this point is to set the targets at the outset and to be clear and explicit about the specific goals and opportunities that will be pursued. Here are a few examples.

If facilities are to be combined or closed

If the project plans involve the closure of a facility, notify the impacted employees as soon as the specifics are decided. Some of the impacted employees will be needed to implement the transition and to remain active through the closure. These employees should be recruited to stay with the project and be offered performance and retention incentives to see the project to conclusion. The successful decommissioning of any facility requires a coordinated plan and a cross functional execution team.

If units of existing work are to be transferred

The Acquirer will decide if any employees currently doing the work will be offered a transfer to the new location. In any event, the transfer will require the movement of both physical and knowledge assets. Employees at the new location will need to be trained in the processes and procedures of the new work. Physical space and resources to meet specific requirements must be provided. In these cases, all of the employees at the destination location who will support the transition should be identified as early as possible. These will be the receivers of the new work.

The job scope of these employees must be formally modified to provide the time to succeed with these new responsibilities. Within the acquired company, specific employees should be identified to represent the sender groups and be paired with the receivers during the transition.

If responsibilities are to be transferred

Employees of the acquirer performing similar duties may be asked to assume the additional responsibilities. These employees will need to be identified and trained. The knowledge transfer will come from the employees at the acquired company who are currently doing the work. Their cooperation and efforts will be needed to ensure a successful transition. These employees may have significant technical, market or institutional knowledge which will be transferred to other existing or to be hired employees at another location. These folks should be notified of the company's plans and desires as soon as possible. Management must pay close attention to the available bandwidth of the group adsorbing new work. We recommend that easily monitored productivity measures be established and closely watched.

In every case outlined above, it is the responsibility of the managers who will have the continuing responsibility to take actions to ensure a successful transition. Early and open communication with impacted employees of both companies is absolutely essential to the success of the transition. If the integration plan includes the departure of employees of the acquired company, the managers with the ongoing responsibility must act quickly and decisively to preserve and transition the valuable institutional knowledge critical to the success of the business. We recommend that management provide sufficient overlap in work responsibilities for the current employees to accomplish a complete knowledge transfer.

In our next article in this series, we will discuss the recommended methods for executing the knowledge and work responsibility transfers.

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!



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