I had scanned the internet and blogland as much as I cared to and still not found any kind of satisfactory forum for dialogue on the subject of acquisition integration. Even the integration-related groups on LinkedIn seemed pretty inactive or, well, sort of lame. So I launched The Merger Verger to lay some observations and opinions out there and to see who and what came back.
This is important stuff folks; a lot of shareholder value hangs in the balance.
When do powerful small brands outweigh powerful large brands?
CFO Magazine recently featured an interview with Gordon Stetz, CFO of McCormick & Co., the spice and flavorings company. The article featured a picture of Stetz seated in a grocery store aisle, his head barely visible amid the sea of his company’s famous brands.
The stated message of the piece is about McCormick’s three-part strategy for acquisitions, a sensible approach about which more here: CFO Magazine. What caught The Merger Verger was the unstated message of the photograph, the visual evidence of the company’s branding strategy post-acquisition.
Now, McCormick dates its history back to 1889 and its red and blue “Mc” logo is recognizable in every supermarket, 
convenience store and bodega across the land. Success like that often leads companies to a kind of ego-driven branding myopia. “We are the great and powerful _______.” (Fill in the blank.) “We have the market power; everyone knows us; the value of our brand will add so much to these little guys.”
What bull.
The picture of Stetz tells a thousand words about McCormick: we buy brands because of their power not merely 
because of ours. If you purchased names like Zatarain’s or Lawry’s or Old Bay Seasoning and had to bring them into the fold of your huge and powerful uber brand, what would you do?
One of the toughest decisions a business person faces is the one to not do something bold. We are bred for boldness, steeped in a culture of advancement, rewarded for our actions. What idea is there that cannot benefit from our improvements?
In such a culture – magnified by the immense time pressures of integration – it takes both courage and objectivity to say, “No, I think we should just stay the course on this one.”
Is your integration process at risk of rushing headlong into failure? Keep in mind the important step that McCormick seems to have mastered: stop and smell the fines herbes.
Afterword: “stay the course” does not mean “do nothing.” As a powerful, branded acquirer, there can be any number of actions to leverage a newly acquired smaller brand while leaving that name intact. But those actions are all subordinate to the larger strategic objective of retaining the basic value that your company paid so much to obtain.
So the word from Oz should have the shorts doing chest bumps. This from Magnus Nicolin, CEO of Ansell Limited (ASX: ANN), which acquired Comasec SAS:
The overall integration process will be a gradual one as we take time to get to know the Comasec business.
It would appear that even the most basic tenets of acquisition integration have not reached Australia yet.
In case The Merger Verger’s reading is unclear let me offer the shareholders of Ansell a translation:
We are standing by to flush our (your) investment in Comasec down the toilet using a process that will be slow but certain.
In fact, let me go a step further and offer a letter that you might want to send to the noble Magnus, your CEO:
Dear Mag:
We are glad that you are seeking ways to grow our investment in Ansell Limited. But I, for one, am distressed by what I read about your approach to the Comasec acquisition. Please be aware that your future at my company will depend in large part on how well that approach plays out.
Now, me, I’m just a humble shareholder so don’t expect me to know as much as you about doing acquisitions but it occurs to me that a “gradual” process can’t be that smart. I mean, if you just sort of amble along doesn’t that merely postpone the time that any benefit might inure to us as shareholders? And 
wouldn’t it extend the time that we are paying for duplicated overhead? And increase the likelihood of employee defections? And open us to competitor shenanigans? I’m just dubious. Is “slow and steady” really the right approach here?
And another thing: you say you want some time to “get to know” the acquired company. (Uhm … how do I say this nicely?) I would have hoped you’d get to know the company before you acquired it. By the time the transaction closed, I would have expected you to know not only the target but also what you were going to do with it. You see what I’m saying?
Listen, anybody can make an acquisition. We don’t pay you to do that; we pay you to make them work. “Mañana” cannot possibly be the right approach.
So get on with. Today.
Cordially,
Cher Holder
The Merger Verger’s Take:
An “overall integration process [that is] a gradual one” is a failure waiting to happen. A true short’s delight.
As a kid, did you ever play the Pete and Repeat game with your friends? The one about Pete falling overboard and Repeat being left? Then the whole thing plays round again (ad nauseum). Get it? Repeat is all that’s left? (Yeah, I know …)
Anyway, it turns out (observation courtesy of the smart folks at Bain & Company) that this is the most successful formula for sustaining and growing a business: focus on that which you do uniquely well; understand intimately why it is better; c
ommunicate that understanding throughout your organization; repeat.
Successful practitioners of roll-up acquisitions get that formula particularly well. Ditto for those whose acquisition sights are set on bolt-on deals. Have you read the most recent annual report from Berkshire Hathaway? There’s a strategic theme there. Sure, the portfolio is diverse but the acquisition M.O. of each of those companies is focused tightly on growing the sweet spot. Simple. Elegant. Effective.
Simplicity means that everyone in the company is on the same page – and no one forgets the sources of success.
Chris Zook and James Allen, two Bain partners, have written a book on “repeatability” in business, concluding that truly successful companies have crisp elements that differentiate them from their competition and they aim to maximize those differentiators to the exclusion of everything else that ambles down the strategic pike. The book, entitled “Repeatability: Build Enduring Businesses for a World of Constant Change,” is available on Amazon and spin-off articles are available on the Bain website (links below). The Merger Verger recommends the recent article in Harvard Business Review; it has many concepts that have direct application for acquisition strategy and integration planning.
There are several elements of the “repeatability” concept that bear on dealmaking and acquisition integration. First (as always) is the message of strategic intent; get that part right and many of your acquisition risks will be behind you. But … this is not just a process of thinking you are good at this or that; you must really understand your uniqueness in the marketplace. No fluff allowed.
The next key element is to articulate that message throughout your organization. In fact the Bain authors state in no uncertain terms that the greater the distance between a company’s strategic plan and the men and women who are called upon to carry it out, the greater the risk of dissipation, digression, disinterest and disaster. Keep your competitive differentiators clear and make sure that your team knows them and is invested in them.
The final key is the simplest to describe and potentially the hardest to do. Repeat. That is, repeat without straying from your strategy and your differentiators.
In closing, let me pause on the second of the three elements: articulating the message. The Bain authors imply that this step is too often overlooked, under the theory that everyone already knows what their employer does and what it stands for. Not true, they say. But if going the extra mile to articulate issues of strategy and competitive uniqueness is a value driver in normal settings, how much more so in the context of an acquisition?
A link between well-defined, shared core principles and frontline behavior was more highly correlated with business performance than any other factor we studied.
Take the time to truly understand, articulate and sell your company’s strengths to your newly acquired staff. They will be better performers and better apostles for it.
Some useful links:
Bain specialty site on Repeatability in business
HBR article: the Great Repeatable Business Model
About the Art: Danish architect Bjarke Ingels Group’s award winning design for Kazakhstan’s new National Library, modeled on a möbius strip.
Ah, branding! So it’s good-bye to Smith Barney. Off to that eternal reunion with Harris Upham.
Lots of Wall Street’s legendary names have morphed into history. Many from their own greed and hubris (Lehman, Salomon, 
Bear and Drexel come to mind). But others – and Smith Barney joins this list this week – from an acquirer’s marketing decision.
Rebranding is a commonplace part of the post-merger integration process. In this case, The Merger Verger agrees with Morgan Stanley. The Smith Barney name may have been venerable one day but it holds sway today only in the hearts of a small group of graying brokers.
I have watched and at times worked for companies that have acquired strong brands. Sometimes the names were dispensed 
with almost immediately. Other times not. In the case of HSBC, for example, they owned merchant bank Samuel Montagu, broker James Capel, commercial bank Midland, and several other highly-regarded names in the UK banking/securities industry. And they kept those names long after their acquisitions.
HSBC utterly failed to build any degree of cooperative synergies between the units and in fact left the door wide open for tiffs and snits and spats and all manner of productive maturity.
Then one day, HSBC awoke from the Battle of the Logos and – poof! – St. Andrew’s cross was the winner. All HSBC all the time. In an article written at the time of the change, the Independent of London observed, “visitors to the HSBC dealing floor will bear witness to a different business logo on virtually every pillar.” That is an accurate statement, I am here to tell you. It was a mess.
Conversely, some years ago, Graybar, then mostly an electrical equipment distributor, acquired Hansen & Yorke, a small but successful industrial supply company in the New York area. The target was to be the launching pad for 
Graybar’s expansion into the industrial supply sector. Immediately after closing, the Hansen & Yorke name was jettisoned and replaced with “Graybar Industrial.” It was a death knell. Buyers of industrial goods knew the H&Y name, one with 35 years of real customer goodwill. Sure the Graybar brand had recognition but as a faceless giant, not a service-oriented family company.
You would be wrong to conclude that The Merger Verger views little companies as good and big companies as bad. This is a question of marketing and customer expectations. Key word: expectations.
Disturb the longstanding equilibrium that a target has maintained with its customers at your peril. Brands and names in particular symbolize – evidence – that equilibrium … for better or worse.
These are issues of brand reverence, in the HSBC case too much for the target’s brand; in the Graybar case too much for their own. HSBC’s mistake was to let the old brands linger too long, let the culture of uncoordinated independence take root under the new ownership structure. Graybar’s mistake was to disrespect the degree of customer goodwill that a little guy’s brand can represent.
When you boil a name change down to its purest essence, there are two constituencies that matter:
The Merger Verger does not see this issue as a chicken/egg problem. I believe that the interests of the customer should carry the lion’s share of the weight in any name change discussion. (I have no doubt that there were plenty of old-time brokers opining fervently against dropping the Smith Barney name but, believe me, they’ll get over it.)
For a small-to-medium sized business, the core question to address before making the decision to keep or change a brand is this:
I would ask that question in the immediate context and in the context of how the strategically expanded business should look two, five, ten years from now. THINK CUSTOMERS. If the change is appropriate within any of those horizons – even the very long one – I would either make the change now or set the path down for doing so over a known and finite period of time.
If that decision is made with objectivity and strategic vision, your next step is communication: sell the change, making clear what it stands for and how stakeholders will be better off for the combination charging forward under the new flag.
Oh, right: then deliver on what you’ve said. Don’t forget that part.
Consider Graybar. Obviously in the face of using a small acquisition to launch a new, potentially national business unit, the Hansen & Yorke name had to go. They just did it too fast and communicated their intentions too little. Don’t make those mistakes.
Personal Note:
Speaking of final good-byes, I said mine today to my long-dead father’s best friend, Chillie Callman. I remember him fondly from my growing up years and again from my years back home as an adult. A good man gone but after a life lived fully and generously. Thanks Chillie. RIP.
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The Merger Verger is so confused. People seem to be slow to get things started and then in a hurry to get them over with. What’s up with that? I mean, if we were talking about eating Brussels sprouts, I could understand but if you’re in the merger business you must think it’s fun, right? Why not dig in? Why not see it through?
When I hear CXOs talk about acquisition integration, they mention two timing events, almost exclusively: closing day and Day 100. That’s it. Life begins at time zero and ends 100 days later. Hell, a stinkbug lasts longer than that.
Here’s the message:
Acquisition integration should start sooner than you think. It should start in the strategy stage. Particularly when strategic expansion – either in the vertical or horizontal direction – is the plan, attention to integration issues can clear the pathway, identify issues to address in advance and sharpen the analytical assumptions that underpin your bidding. If you are starting to think about an acquistion, start to think about integration.
Query to Readers: I would welcome stories from readers who have been involved in integration activities that by virtue of starting either early or late have given rise to potentially useful observations.
Acquisition integration should continue longer than you think. 
There is no finish line, no “The End,” no graduation, not even any fat lady singing in acquisition integration. Even the attainment of financial metrics does not necessarily mean “it’s over.”
Remember the adage “old habits die hard?” Old habits prevent the adoption of change. And acquisition integration is about the effective management of change towards a specific strategic intent.
Let me see if I can explain this timing thing in a way that even the visual learners will understand. If we view old habits as including practices, perceptions, expectations and the like, we might ask “to whom does the adage apply?” Let’s look:
Hmmm. That’s odd. It seems to apply to everyone.
So, Sherlock, what does that suggest to integration professionals (and the executives that depend upon them) about the timing of the integration process?
Wait, I answered that question already … about a dozen lines ago: “Acquisition integration should continue longer than you think.”
This does not mean “forever” but nor does it mean in full accord with the best-laid plans. Not everything will go according to plan and most of the unforeseens will require more time than less. So be prepared for that in advance. In fact, any good integration plan will prescribe how to handle key delays.
Unfortunately, despite years of working on deals and a zillion conversations with people about them, I cannot offer a formula for when an integration process can be declared complete. It is just different with every deal, with every team, with every set of circumstances. So your focus should be on the objectives, not on the clock.
This is a vital topic and we’ll likely come back to it again often but let me close here with another …
Query to Readers: What are the metrics you follow (using the term “metrics” both numerically and subjectively) to assess/sense when an integration process is nearing completion? What lessons can you share from those times when the numerical metrics had been achieved but softer goals had not?
TMV offers up an absolutely astonishing piece of artistry, courtesy of the International Space Station and a photographic artist named Knate Myers. The clip has been circulating for a couple of weeks but it’s so good that I wanted to make sure everyone caught it.
Click here to view. Just under four minutes and well worth it.
“We catch a glimpse of a huge swirl of clouds out the window over the middle of the Pacific Ocean, or the boot of Italy jutting down into the Mediterranean, or the brilliant blue coral reefs of the Caribbean strutting their beauty before the stars. And…we experienced those uniquely human qualities: awe, curiosity, wonder, joy, amazement.”
- Russell L. Schweickart, Apollo Astronaut (“The Home Planet”)
So the woes are official. United’s recent announcement of its 2Q 2012 quarterly results confirmed what virtually every customer already knew: the merger of United and Continental is still causing problems. It’s not quite Jeffrey Smisek with his Head on Fire but it’s not good either.
Even the most carefully 
orchestrated integrations can hit clear air turbulence, particularly when merging entities as complicated as airlines. Let’s look at some of the issues in hopes of finding a little preventive medicine. (Ahem … American, are you out there?)
The UAL announcement noted the following problems:
“Can your bug guys work with my bug guys?” Shakespeare notwithstanding, THAT is the question as far as Neil Parker, President of BugBusters USA is concerned.
In the current issue of Pest Control Management (yes, you read it here first), Neal tells his tale of attempting to integrate an acquired company where the cultural differences loomed larger than they had initially appeared. Article available here: 
Neil asks the kind of questions that all too many senior executives fail to ask until the answer is only clear via an assortment of unanticipated problems:
What happens when a company with a “new school” mentality acquires a company with an “old school” way of doing business?
Parker’s answer echoes that of so many other companies that pay short shrift to the cultural aspects of an integration: disaster (lost employees, lost customers, brand dimunition, bad PR, etc.).
What The Merger Verger likes about his article is that he is so forthright: we blew it. I recommend reading it (2 minutes, max). There are both specific examples of cultural hurdles and useful insights. Check it out.
The message to CXOs:
In the spectrum of companies doing acquisitions, Bug Busters USA is a gnat. So your choices in reading Parker’s article are these:
Today’s suggested reading is the U.S. Declaration of Independence. It is a required text for all Americans and worth the five minutes for ROWers as well. (You can find the text anywhere but The Merger Verger likes the offering from the National Archives, available here.)
The Declaration can be cast as a document that has relevance to acquisition integration but the tether is thin, I admit. However, it IS the essential 
communiqué from our founding fathers to the rest of the world announcing America’s management buyout from our British parent. And it is a clear and powerful articulation of the strategic rationale behind one of the most unprecedented, most complicated, and most successful mergers in history.
Nicely done gentlemen.
Doug
