What do successful mergers and acquisitions (M&A) integrations have in common? Timely and thorough planning. Companies often either wait too long to begin planning or…
Successful mergers and acquisitions integrations depend on strong leadership and a consistent message of a compelling shared vision and strategy.
Presumably, a sound strategy drove the decision to buy or merge with the company. What was the initial rationale—or key value drivers—when you were “shopping”? Perhaps you were looking to gain market share or rev up the company’s innovation pipeline. The deal was compelling enough that you invested in due diligence, which either confirmed that adding the company would help accomplish your goal or uncovered some other reason for pursuing the transaction.
For an M&A integration to succeed and to realize the anticipated benefits of the acquisition, it is important that executives establish and communicate key value drivers for the integration. While the key value drivers may evolve during pre-close planning and into the early integration period, they serve as a North Star as the companies learn more about each other. This piece explores where to look for key value drivers, how mutual discovery between the two organizations validates them, and how to stay focused on them through the integration.
Every M&A deal should add value. To understand how to unlock that value, a company must first understand what it is acquiring and why. If you haven’t identified or at least hypothesized key value drivers before due diligence is complete, take the time to establish them before the deal is done. They will provide structure and support sound decision making.
For example, a company might aim to expand the business by extending its reach or scope. An acquisition could add capacity or related product lines, or open access to new markets or distribution channels. Integrated Project Management Company, Inc. (IPM) worked with a food manufacturer that acquired a product line from another producer to expand its reach. The two companies served many of the same customers, so executives kept the long-term growth goal in mind while developing key value drivers to minimize customer disruption and protect one sales team from cannibalizing the other.
Another scenario occurs when an organization wants to change its structure by consolidating or improving costs. They may target suppliers or distributors for acquisition to integrate the supply chain. A company with a strategic goal to improve its business capabilities, use of technology, or research and development expertise may shop for a company with the tools and talent it lacks. The goal may be to diversify the business, gain efficiency through performance improvement, block a competitive threat, or invest in a high-growth but risky sector.
The point is that the reason for the acquisition should inform the key value drivers. And the key value drivers should inform decisions. You make very different decisions if your goal is to diversify than if you’re hoping to gain efficiencies.
Executives need to establish and communicate the initial key value drivers. They should be sure employees of the combined organization understand the deal rationale and the opportunities identified in due diligence.
After the deal closes, a structured mutual discovery process will reveal different and deeper information than due diligence typically finds. This allows executives to validate the assumptions behind the initial key value drivers or adjust them based on solid evidence.
The key value drivers serve as a North Star for the benefits the acquiring company looks to realize. And they can be the focal point for the structured mutual discovery process.
The purpose of mutual discovery is to gain an understanding of the operating norms, organizational structure, processes, systems, and culture of each company and its functional departments. Discovery will help identify unique strengths and major weaknesses, similarities and differences, and key risks to business continuity. All of these will further validate or disprove the assumptions that the initial key value drivers were established on.
Many executives skip this step. They might think they know everything about the acquired company because it’s like theirs. Or they may expect that the new company will simply adjust to their way of working.
The reality is that you can never truly know another company’s operations, processes, or culture until you get inside it. And each of these elements and more will impact how the two organizations come together and move forward together.
IPM worked with a food and beverage company that acquired a division of another company. The executives didn’t take the time for mutual discovery or working with the new company before creating integration plans. As a result, they continued to hit snags as they tried to fit round pegs into square holes. The acquiring company enlisted IPM late in the integration to help, and together they were able to work through issues as they came up. When the company made another acquisition, IPM was able to guide the executive team and apply what it learned from its prior mistakes to execute a mutual discovery process before finalizing key value drivers, communicating to the broader organization, and solidifying integration plans.
Some executives believe due diligence provides all the information they need. But mutual discovery is different. The acquiring company receives information that the seller may have held back for competitive reasons. Also, the acquired entity gets to learn about the company it joined and see the people, processes, and culture behind the numbers. And functional teams and subject matter experts can delve into deeper, detailed information.
The many layers of mutual discovery are also important because it helps people form relationships. At the same time, functional teams can better identify potential problems and opportunities for improvement and collaborate on what their future state together looks like. From a cultural perspective, getting to know each other feels like building a relationship, rather than executing a financial transaction.
Mutual discovery should be structured and implemented with discipline to ensure it is comprehensive, focused, objective, and empathetic.
Enable information to flow in both directions between the acquirer and the acquired. It’s not an opportunity to grill the new teams for information; it is a chance for both companies to learn from each other. A framework that considers people, process, and technology will help ensure you address the critical elements of how things get done.
It’s critical to establish a system to document learnings and collaborate. What information do you want to learn (team structure, responsibilities, key performance measurements, workflow processes, etc.)? Where and in what format do you want it (formal surveys, document dump on a public drive, file structure on shared platform, etc.)? This will provide one source of truth, improving decision making.
Sharing should take place organization-wide and down to functions and even common roles. For instance, a company IPM worked with was in the process of developing a new system for recording adverse events. Through the structured discovery process, when the IT teams were evaluating existing projects, they learned they wouldn’t need that new system after the integration. Thanks to the mutual discovery process, they were able to avoid implementing an unnecessary system and reassign those resources to integrating other technology.
Focus on building effective working relationships through sharing job experiences, and discussions about past and current roles and responsibilities. Through the discussions, teams and people will develop an understanding of their counterparts’ processes, structure, and systems. What methods, tools, or vendors are used? Are there continuous improvement projects in the works? Guide them to identify opportunities and risks, and to continue to consider and validate the key value drivers.
Successful integrations also consider and align the two organizations’ cultures. Mutual discovery should consider each company’s guiding vision, values (both stated and demonstrated), work environment, trust in leadership, communication style, and other hallmarks of culture. Where do the two cultures align, and how are they different? (For more on cultural issues of mutual discovery, see sidebar, Consider Cultures and People.)
Now that you’ve collected all this information, what do you do with it?
The information gleaned from a structured mutual discovery process will clarify and confirm the key value drivers of the merger or acquisition. You’ll be able to understand the difference between where the two organizations are and where you want to be as an integrated company, and identify how to achieve that future vision.
Use the information to define gaps and risks; determine what decisions, timeframes, and budgets are needed; and outline key steps toward integration. Ensure the right people—both company leaders and those closest to the work—are involved and aligned on integration needs. This is one of the keys to change management, which will be necessary to gain buy-in and engagement from employees and sustain new ways of working and interacting. Empower the functional teams to build their own integration plans in line with the key value drivers to strengthen organizational buy-in.
Keep long-term integration strategy and priorities in mind. Discovery may also uncover issues or opportunities that cause you to re-evaluate the key value drivers. It’s helpful to establish a careful vetting process if new opportunities emerge. On one hand, you want to be open to possibilities, but on the other, you don’t want to be distracted by “shiny objects.”
You may even decide to change the key value drivers the combined company will pursue. IPM partnered with a food company that acquired a small manufacturer of a similar product to gain market share. The small company used only organic ingredients. Through the mutual discovery process, the buyer learned about different procurement and production methods, and chose to shift the key value drivers from simply gaining market share to embracing the new natural and organic market.
Another of IPM’s M&A clients identified saving costs through workforce downsizing as a key value driver. The buyer intended to close some locations and outsource the work done there. However, in the mutual discovery process, executives learned that one site performed well above average due to the highly educated employees in that overseas market. Leaders from the acquired organization were able to justify the costs of retaining the facility and save their employees jobs. Today, that site serves as a European hub for the combined company.
Whether key value drivers change or not, it is critical to prioritize integration projects based on their impact to accomplishing those value drivers. This will determine what work is necessary and in what order. Too often, executives want to move too quickly or do too much at once, overwhelming the teams and skipping foundational steps. Be disciplined about saying no, or not yet, to some things. And don’t let new things distract you from your goals. Run ideas that emerge and future projects through your vetting process. If you treat the integration as a well-managed portfolio of projects, prioritization and resourcing methodologies will provide the structure that will drive focus.
Clarifying and communicating the key value drivers, along with a thorough and structured mutual discovery process, will provide a path toward gaining the intended benefits of an M&A deal. Use those value drivers as a North Star as you implement the integration plan with discipline and the change management plan with empathy.
Soon the combined organization will be rowing in the same direction, on its way to successfully accomplishing its goals.
Neil Domonkos, Director, M&A Integration
Zack Fijal, Principal Consultant, M&A Integration
Integrated Project Management Company, Inc.
One of the leading causes of failed M&A implementations is not appreciating and aligning the two organizations’ cultures. Mutual discovery can help assess each company’s vision, values, work environment, and other elements of culture. The combined organization should identify the characteristics of the ideal shared culture. Then you can begin to outline a path to getting there. Be realistic about the time, effort, and reinforcement that will take.
Empathy is critical, especially coming from leaders of the acquiring company. Employees may be concerned about losing their jobs. Many people resist or fear change, even if it’s for the better. Honesty, transparency, and consistency will go a long way toward building trust. Gaining employees’ confidence will take time.
You will want certain individuals to stay with the company, either through the transition or for the long term. Besides skills and capabilities, they have historical knowledge, relevant experience, or the ability to engage others. You may want to offer retention bonuses, employment contracts, or other incentives to encourage them to stay. Recognize that the culture and working environment often play a role in retention as well.
There may be plans to eliminate redundancies or downsize the staff in other ways, or you’ve intentionally delayed those decisions until you learn more information. There may be employees you must learn from and then let go. Be honest about your intentions, even at the risk of losing them before you can tap their historic knowledge. Misleading people is never appropriate. And it would communicate to the remaining staff that they can’t trust your word and that dishonesty is accepted.
Some leaders begin making plans with those employees who will continue to have jobs, leaving others out of meetings. While those leaders may be trying to avoid being dishonest about layoffs or structural changes, those left on the sidelines become more uncertain of their future. Honesty and transparency are critical.
IPM led the integration at an organization whose executives told the acquired company that it would delay any discussions about role or structural changes for two weeks, to take the time to get to know the teams and individuals. While it caused uncertainty at first, the leaders’ openness and eagerness to learn about their new colleagues eased employees’ minds and set a positive tone.
It’s critical to base decisions on objective and measurable data to avoid politics or favoritism—or even the impression of it. This is not only reasonable and considerate, but it also can prevent legal action from anyone who believes they were unfairly dismissed.
You may still find employees who don’t react well to the uncertainty. They may be angry about the change and give false or incomplete information, or simply refuse to cooperate. Or they may feel that “information is knowledge,” so if they don’t give away all their knowledge, they will be deemed necessary. While leading the integration of a consumer product company’s acquisition, IPM’s consultant pulled a manager aside to explain how she was hurting her cause by withholding information. She believed that that if she was the company expert in a variety of areas, the work couldn’t go on without her, and she would keep her position. However, company leaders and the integration team began to perceive her as uncollaborative, selfish, and a bottleneck. The consultant’s frank honesty helped the manager see that she was valued beyond the knowledge she held and made her more comfortable sharing.
If an integration is to be successful, employees of the combined company must be engaged and cooperative. Respect, honesty, and transparency will help win their support.
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