Acquisitions are more prevalent when economies are tough. Companies hope that they will be able to achieve economies of scale by combining functions that require repetitive tasks. What is often underestimated is the work that must be done post-merger to actually experience the desired results. Yesterday, we examined the role of cultural due diligence in assessing the promise of combining efforts with another company. We assume that that assessment has been done and the decision was made to proceed. What is at issue is how to proceed!
Price Waterhouse Coopers conducted research that indicates that approximately 85% of acquisitions are seen as failures after the fact. In the UK, Cass Business School at City University of London studied 12,339 deals between 1984 and 2008. The findings were that price was not the best predictor of success, but that integration of the two companies was. The CEO Rountable recommends the following process and checklist for better integration:
Create a master to-do list broken down into themes including key items that arose in due diligence.
- Allocate a manager, for each theme.
- Be realistic with timetables.
- Break items down into actions within 30, 60 and 90 days.
1. Get control of the bank accounts. Ensure all accounts are receiving the best group interest rate.
2. Establish operating budgets including capex with authorization guidelines.
3. Establish a new management information timetable. Metrics will be key.
4. Review balance sheets for adequacy of provisions.
5. Drive through planned cost savings quickly and effectively with clear communication.
1. Establish a reporting structure to ensure continuing trading is seamless.
2. Review reward structures to ensure continuity of management.
3. Anomalies between acquirer and target sales commissions will require urgent action as sales teams talk.
4. Quickly review of problem employment contracts and put resolutions in place to minimize exposure.
5. Organize immediate sales & customer service training.
6. Establish a key meetings schedule to allow free and timely flow of information.
7. Establish a clear understanding of the authority levels of the target’s leadership team.
1. Deal with exposures revealed by due diligence, prioritizing those related to keeping the trains running!
2. Plan for merging disparate systems or at least to allow them to “talk” to each other.
3. Lock down the security around customer databases.
Sales & Customers
1. Ensure live deals under negotiation are not disrupted by the acquisition.
2. Cleanse all sales forecasts ASAP and integrate the revised version into the group cash forecasting system.
3. Review cross selling opportunities between key customers of buyer and seller.
1. Communicate often and clearly with staff and key stakeholders externally, especially key customers.
2. Visit key customers to share the strategy of the merged group and why it’s good news for them.
3. Use the joint press release on the deal to motivate staff and impress existing customers.
1. Set a timetable for all web site changes and allocate a webmaster to drive the project.
2. Collateral may need to change to reflect the new products of the merged entity.
3. Emphasize the benefits of the merger for the customers.
1. Draw up a detailed checklist of contingent liabilities.
2. Note earn-out implications for company management. Factor into the integration plan.
3. Insurance and risk exposure reviews should be conducted as a high priority.
4. Tax and accounting matters related to regulatory compliance may require urgent action.
Obviously, this list is by no means exhaustive, but illustrative of how one would go about dissecting potential problem areas and making adequate preparation. If your team will make a commitment to be thorough and anticipate things that could go wrong, you will know what questions to ask and what systems to take apart and reassemble. Integration is hard, but the effort is critical to successfully meeting the goals of the transaction.