Nine Points to Consider; Ten Really

Here’s a good, quick summary of issues to remember when doing an acquisition: Post-Acquisition Integration: Points to Consider.  It’s from a small-business website out of the UK.

The only comment that The Merger Verger would add is to remember that “post-merger integration” does not start post-merger. Very important.  See various postings on process and timing herein by exploring the tag “Timing.” And for CXOs, reread here, particularly attending to point #5.

Alternative: if nine points make your brain want to explode, try Five Points, also out of the UK.The Five Points Brewing Co.And if you can’t get to Hackney, you can pint pine here.

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Transition During Transaction

When making a large acquisition the CEO, CFO and integration team leader (and one or more related divisional heads) should make a firm commitment to see the integration process through. If you are part of the decision to take the risk, you owe it to the organization to stick around and make the return.

Escher Sky and Water IThat means:

  1. Making a commitment (either as a personal ethic or a stated intention) of at least one year post-closing; and
  2. Living by that commitment despite other opportunities that might arise.

Whose job is it to ensure that these commitments are made? The CEO, plain and simple.

The Merger Verger Recommends:

As the transaction team is closing in on making a formal bid for a transformational acquisition, the CEO should call together the appropriate parties and say something like this:

We are about to make an investment that could open great new doors for our company but will also expose it to great new risk. Success will require the dedication, focus and time of this team in particular. For that reason, I am making a pledge to you and to the company that I will not seek or accept other opportunities that might come my way for at least one year following closing. I ask each of you to do the same. If we can’t make that pledge than we need to rethink our intentions for this deal.

Look, the Merger Verger understands that there is no loyalty any more and even that “shit happens.” But at the outset of a deal that has the potential to create or destroy enormous amounts of shareholder value, double-checking that there is an emotional (if not legal) commitment to standing by the risk should be a cornerstone of any “GO” decision.Cornerstone Setting
About the Art

  • Top: Sky and Water I by M.C. Escher, woodcut, 1938 (17.25″ x 17.25″)
  • Bottom: Laying the cornerstone of the main Boston Public Library building in Copley Square, Charles Follen McKim architect, 1895

I Told You So (She Coulda’ Said)

One of the painful truths of business is that once in a while you are right and it doesn’t become obvious until it’s triage time. Such is the case at HP, as its well-publicized acquisition of Autonomy Corp. (2011) has destroyed more shareholder value than a whole battalion of court jesters and Shakespearean fools.  How could a board of directors ignore the clear and direct advice of its CFO?  Because it had (past tense) a CEO on a mission.

And what does the board say to a CFO like Catherine Lesjak when the dust has settled? “Oh, gee, I guess you were right.  Would you mind hanging around for a while and cleaning the whole freaking mess up for us?  That would be great.”

Come on, really?

Autonomy (Oh No)

In a short but insightful article in CFO Magazine, there are some useful lessons for all of mergerdom.  The Merger Verger offers an annotated copy of the article below:

HP Finance Chief Shines amid Scandal

Short This Stock

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 spent my money to acquire 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.  I don’t pay you to do that; I 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.

Timing Is Pretty Much Everything

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.

  • CXOs: challenge your people but be open to change.  It is better to be flexible and successful than rigid, punctual and errant.
  • Integration Directors: lay out clear plans and expectations, monitor them closely and prepare in advance for any project’s inevitable sloths.   And keep your CXOs informed, good or bad.

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?

Bug Trouble: Integrating Pest Management

“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:

  1. Slough off his comments as arising from limited experience and irrelevant smallness; or
  2. Conclude that if cultural issues can trip up a tiny deal by a fairly simple company how much more can they clobber a big, complicated, challenging deal like yours?

Dud Diligence: an Acquisition Jack-in-the-Box

This posting is for the C-level executives out there who are doing (or thinking of doing) deals for their small or medium-sized businesses.  It is about helping you prevent form from overshadowing substance. It is about details.  PS: if details bore you permit me to humbly recommend your opting out of the deal business ASAP.

The Merger Verger has seen a boatload of due diligence checklists over the years and found almost all of them wanting, including some that were just pathetic.

Why?  Mostly because they are not written by people who run businesses; they are written by people who advise businesses.

Let’s be honest here: due diligence checklists are about the details, where God (or the devil) is.  A lawyer can make a fine checklist for matters relating to corporate formation or past board meetings and the like; an accountant likewise within his or her purview. 

These lists are fine with respect to ensuring that you get what you pay for.  But when it comes to understanding whether a product is approaching an inflection in its growth curve or whether the production manager knows the difference between a kaizen event and a tsunami, they usually ain’t worth squat.

Continue reading

To Do or Not To Do?

Here’s a great quote that The Merger Verger came across the other day.  It should warm the cockles (whatever they are) of every integration manager’s heart:

Perhaps most important in the overall scheme of things, companies that beat the odds in M&A are prepared to walk away from a bad deal.  They insist on high-level approval of deals and often use the compensation system to encourage executives to ward off ill-considered acquisitions … They also set a walk-away price.

This last step is crucial.  Consider a finding from a recent Bain survey of 250 executives.  Respondents cited “allowing politics of emotions to interfere with decision-making” as the greatest due-diligence challenge.  Successful corporate buyers excel at resisting risky deals.

Source: Rovit, Sam, David Harding and Catherine Lemire. Strategy & Leadership, vol. 32, no. 5, 2004, pp 18-24.

“Successful corporate buyers excel at resisting risky deals.”  Ye Olde Merger Verger could not have said it better himself.

EMC Acquisitions in a Nutshell

There’s a very good – smart, succinct, helpful – posting on the corporate blog of technology company and active acquirer, EMC Corporation, written by Matt Olton, the company’s SVP of Corporate Development.  The piece (entitled “Explaining EMC’s Success in M&A” and available here) is short and necessarily high-level but still has some juicy tidbits on how EMC acquires companies and how they manage the integration process.  Check it out.

The Merger Verger’s favorite snippet is:

A large part of EMC’s hard-earned reputation as a preferred acquirer comes from EMC’s company-wide commitment to post-acquisition success.

Enjoy (and hurry back).

CEO Roundtable Blog » Post Acquisition Integration – A Checklist

The Merger Verger is not a big fan of “short and sweet” due diligence checklists but this one from Loren G. Carlson, of the CEO Roundtable, is well worth reviewing, particularly for those new to the topic.

CEO Roundtable Blog » Blog Archive » Post Acquisition Integration – A Checklist.

There are two reasons why I like this list:

  1. It reinforces the essential (and dual) role of due diligence, reminding us that while information is important in the process of buying a company it is absolutely essential in making that purchase succeed; and
  2. It lays out the sometimes non-obvious connection between legal due diligence and operations, citing examples of how “purely legal” stuff can affect directly the commercial elements of a deal and therefore its success or failure.

Carlson acknowledges that his article is to “get you started” but with that caveat in mind he does a nice job.  He also notes that the most successful acquirers were those that “invested in post-mortems after the deal” to learn from what went well and what didn’t. (Too important topic to cover here/now; more another time.)