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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:
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Balance sheet asset consolidations and possible sales,
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Revenue growth opportunities, and
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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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