Gunslinger Wisdom – 2

The quote below comes from PRITCHET, LP, a post-merger integration consulting firm based in Dallas. They use the metaphor of a gunslinger to describe those who would succeed at managing mergers.  (The Merger Verger likes the metaphor and has used it previously here: Gunslinger Wisdom.)

During a merger, you need to become a bit of a gunslinger. There is real danger in waiting from problems to “draw first” … and you don’t have the luxury of taking time to aim perfectly. Colt 44 Doc Holliday
We’re not advocating that you proceed with wild abandon,
but we do want to emphasize that the conservative, slow, methodical approach typically doesn’t cut it in a merger environment. That can be the most reckless strategy of all.

The Verger agrees with the good folks at PRITCHETT; they are correct that too much can go too badly wrong with a wait-and-see attitude. The idea of taking one’s time “to get it right” is yet another one of those areas where merging companies and running them are two completely different arts.

That said, it is equally important to note one element of their observation that is tucked neatly right in the middle: “We’re not advocating that you proceed with wild abandon….”

Continue reading

Disney Eats Shark, Survives

Thrives, in fact.

The Merger Verger was looking for his Baked Alaska recipe the other day – in a fruitless attempt to impress a third-date woman friend – and what should drop out of the file labeled “recipes” but an article on Disney’s 2008 acquisition of Pixar. What ho, Malvolio!

finding-nemo-bruce

So, we provide below a few nuggets from The New York Times piece entitled, “Disney and Pixar: the Power of the Prenup.”

The worries were two-fold: that either Disney would trample Pixar’s esprit de corps … or that Pixar animators would act like spoiled brats and rebuke their new owner.

The Verger says: Respect is a two-way street. Trust is a two-way street. But in both cases someone has to go first. Disney went first and that was the key to getting the deal right: they respected the unique culture and needs of Pixar and made that respect clear in words AND in ink. It makes perfect sense to expect the acquirer to go first. (Side note: that is one of the reasons why “mergers of equals” tend to fail; neither side wants to bend first.)

[Robert A. Iger, the new chief executive at Disney] … won some early support at Pixar by talking candidly and clearly about the [unpleasant] lessons he learned when his previous employer, the ABC television network, endured two takeovers.

The Verger notes: As the leader of the buyer, Mr. Iger knew that he had to convince the unconvinced. He used candor and psugarcoatersonal experience and he did NOT sugar coat it. If your target’s people are smart enough to do something that you want to have, then the chances are good that they’re also smart enough to see through sugar coating.

Don’t do it.

Mr. Iger also agreed to an explicit list of guidelines for protecting Pixar’s creative culture. For instance, Pixar employees were able to keep their relatively plentiful health benefits and were not forced to sign employment contracts. [He] even stipulated that the sign on Pixar’s front gate would remain unchanged.

The Verger notes: While the extent Disney went to may be over the top for industrial companies, for creative companies and service businesses it may not be. Keeping good people is in the details: health plans and signage; Disney even let the Pixar folks keep email addresses with the Pixar name rather than converting them to Disney.com. It’s the little things that evidence to people that you will do right when the big things arise. And this: Iger made a written contract about what he was going to do and not do; but he didn’t make his “new underlings” do the same.

And finally:Elena D'Amario / PARSONS DANCE

The key to successful integration, analysts say, has been Mr. Iger’s decision to give incoming talent additional duties. … “If you are acquiring expertise,” he told The Times, “then dispatch your newly purchased experts into other parts of the company and let them stretch their legs.”

The Verger notes: how better to let your new people know that you value their wisdom and their creativity than to put it to use on a bigger stage?

Obviously there’s some risk of professional dilution in letting people loose on too many projects, but giving acquired staff an opportunity to soar right when they are at their most worried can go a long way towards ensuring that your best talent doesn’t suddenly become your competition’s best talent.

About the art:

Top: Finding Nemo, courtesy of Disney

Middle: DK (who cares?)

Bottom: Elena D’Amario of Parsons Dance Company (photo by Lois Greenfield)

Put it All on Red

The cost of a proper integration process is sometimes off-putting to executives. The problem is that – like many professional services – the ROI is pretty squishy.

That’s just a stupid excuse, in the very humble opinion of The Merger Verger.

The integration effort needs to start soon, ramp up big and go long. That all costs money. Sometimes Big Money. Estimates in the range of 10% of deal value are fairly common.

Executive: “Ten percent? Are you kidding?”

Verger: “No. Face the facts.”

The facts are that well over half of all deals fail to achieve their intended results and many actually destroy shareholder value. Failure percentages range as high as 70-90%. That’s horrible.

So look the old Verger in the eye and tell him that you’re willing to invest 100 cents on the dollar for a deal with a 70-90% likelihood of failure but not 110 cents on a deal that might actually work?

roulette_wheelA thorough, effective integration process is an insurance policy … insurance against decades of past failures. That’s the problem: how do you measure the ROI on an insurance policy where the payoff is not measurable at the outset?

You don’t. But you’re corporate executives; it’s your job to make decisions on imperfect information.

That said, there are some proxies to consider:

  1. Try this out for a measuring stick. Go home and tell your wife that you’re going to cancel all your life insurance policies because the returns are just too hard to assess positively. She’ll kill you. What’s your return on that?
  2. Take a look at the cost of your car insurance as a percentage of your purchase price. It can be 25% or more. Not only that but you hope you’ll never use it! Sure makes paying 10% for something that you will actually use and benefit from seem like a bargain.

Recommendation:

If you are not willing to fund a thorough integration process, go to the nearest casino and put the deal’s purchase price on red. Your chances of a positive return are higher.

99.9% Perfect

A statistic was bandied about years ago that in managing the Apollo moon launch projects, if NASA had 99.9% of its systems working perfectly, there were still 15,837 things (or some such number) going wrong.

Apollo-11-Infographic

Merde! That’s a lot of room for error.

On that score The Merger Verger sees little difference between the moon launch and the integration of an acquisition … lots and lots of room for things to go wrong.

It’s one reason why the Verger finds checklists both empowering and debilitating. Deals contain enormous amounts of wee activities that contribute to the whole of a success. Lose track of them and your spaceship veers slowly off into outer darkness.

BUT … focus too sharply on your checklist and you have no vision on changing circumstances that may obviate certain listed activities and necessitate other new ones.

Good project managers run with checklists but they do not live by them. They think. They envision. They project. They call audibles. And are ready to do so at any time.

 

The Merger Verger Issues a Challenge:

While we’re on the subject of moon launches and whatnot, TMV would like some computer historian or NASA retiree to provide us with a comparison of the computing processing power available to NASA during, say, the Apollo 11 moon landing and that contained in the laptop from which this post is written.

Walking in Whose Shoes

Integrating Benefit Plans for Real Benefit

One place where the difference between running businesses and merger them shows up in magnified form is in the combining of two disparate benefit plans.

The Merger Verger was discussing this issue recently with a mid-level executive in a service business that was being acquired. This contact was not a part of the integration team but was concerned for the impact of benefit changes on her own staff. She had recently been informed of the intended changes in a manner that was informative but not at all helpful.

She felt that the integration team – most of them senior staffers – had not Lobbwalked in the shoes of their subordinates’ subordinates (and below) and that both the changes and the manner in which they were dictated reflected little thought. She foresaw disgruntlement arising from lower levels that would be challenges to the integration and to mid-level managers … challenges that senior managers might never get a real feel for. All because no one walked in the shoes of those being affected.

Example 1: If you, the buyer, have a vacation policy that is less generous than that of the target, forcing conformance with your plan may seem like the most efficient way to go but to the target’s staff, it represents a pay cut. Yes, that’s right: a pay cut. They now have to work a day or a week or whatever more for the same amount of money; that’s a pay cut.

Example 2: If you recast your benefit plans to have some give and some take, do not presume that what you – as a senior executive – think is a “good trade” will be received as such down lower into your staffing layers. In the case above, there was a decrement in paid-leave days but an increase in 401(k) coverage and match. That might be a reasonable swap for higher-paid executives for whom investment accounts matter but people counting their days off or without spare cash are not likely to see it that way.

LouboutinThink your new staffers will be happy about that? Think they’ll drink the new Kool-Aid with enthusiasm and gusto? Wrong. They will gripe, take reduced initiative, spread bad Karma and generally prove that the kind of “savings” you were hoping to achieve are frequently not worth it. So think again.

Lesson: What a buyer might think of as an efficient answer to an integration issue may not be for reasons that relate to people’s responses way on down the food chain. Before you foist some new program on the target’s people, take off your Lobbs or your Louboutins and walk in their shoes for a while.

Higher ROI … Guaranteed!

Ha! Did The Merger Verger get your attention with that one? No, sadly, we’re not offering 1-year CDs paying 1.66666%. This is an acquisition integration forum. We’re offering wisdom here, of the stunning variety.

This one of the stunningly simple variety:

The single-most important step that a company doing an acquisition can take to make it succeed is this:

Acknowledge that merging two companies is not the same as running two companies… or even running one bigger company. It’s just not.

If you accept that premise, you will approach the integration process with more awareness and more thoroughness and your chances of success will soar. Therein lies our guarantee.

But, lo, wise Merger Verger, why is this so?Mobilgas 1960 VietNam

Because running most companies is about maintaining and optimizing existing paradigms. Merging two companies is about changing them. Very different!

M&A execution (as distinct from deal making) is about CHANGE MANAGEMENT.

In that spirit, TMV draws your attention to a fairly useful online resource that outlines and describes 33 different techniques for creating change in an organization. For each technique, the reader is given an overview, an example of the technique in action and a discussion (background, psychology, pitfalls, etc.) and links to more detail. Simple. Good. Check it out.

Change Techniques, courtesy of ChangingMinds.org

About the Art: Today’s illustration is the cover of a 1960 Mobil road map of Viet Nam.

What Can We Learn – 1?

Star date: Z-Ω ↵12-4Q. The year of the Okra

OK, with all the news clips and amazing photos of the space robot landing two days ago on comet 67P/Churyumov-Gerasimenko, The Merger Verger is prompted to ask, “Is there any lesson for us, back here on Planet Integration?”

Let’s start with the basic facts.

Ariane5 proposedA consortium of scientists and engineers has landed a smart box the size of a small dumpster on a rock the size of Manhattan. No biggie so far but God is in the details. The rock is 300 million miles away; it took ten years for the crafty little dumpster to get there. Plus the rock is moving at 40,000 miles per hour, which is fast even on the Jersey Turnpike. And there’s no EZ on / EZ off on this highway; the drivers didn’t even know whether the comet’s surface was paved or unpaved. Other unknowns abounded, the details of which you can read anywhere.

Importantly (and not widely publicized in all the fanfare), an aborted takeoff ten years ago necessitated a change of comet to 67P from 46P, which may not seem like a big thing but was.

Stay with me here: 67P is bigger than 46P. Good, right? Easier to hit from 300 million miles away. Wrong! Bigger means more mass which means more gravity which means faster landing which means greater risk of damage to the scientific equipment. (Merde)

And now, two days into the good part, we find that the solar-powered dumpster – named Philae – bouncy-balled into an unfortunate landing spot in the shadow of a cliff. (Double merde.)

But there is good news. Despite the fact that the intended 4-5 month mission length has been reduced to days, some 80% of the overall mission’s objectives will be met anyway, being handled not by the dumpster but by Rosetta, the mother ship from which it was launched.

Take-Aways and Observations by The MergerVerger:

Good things take enormous amounts of time and ridiculous amounts of planning. That may seem obvious but too many business people overlook it when trying to merge two “similar” companies. Effective integration can take ages but if your underlying mission is well conceived it will be worth all the years of occasional course assessment and correction to hit the goal.

When projects take this long, the leaders must actively manage expectations and must create incentive systems that will keep people focused and enthusiastic during the inevitable “dull” periods. Checking in and checking up over and over and over again can keep your people upbeat and your mission on track.

That said, you should always be ready to change targets. If the bidding gets too high, listen for that chorus of hundreds and hundreds of past deal failures: “Walk away,” it says. As our rocket scientist friends clearly showed, there are other targets beyond the first choice and the right marriage of flexibility and dedication can get you there.

Never ever ever forget the mission-critical elements, no matter how small or simple they might appear. What, for example, are you going to do if your solar-powered acquisition lands in the shade? Have back-up plans for your back-up plans.

A corollary to that thought is this trite but true: do not put all your eggs in one basket (no matter how cool the basket). Remember, even if the Philae never landed on 67P, 80% of the mission objectives would have been secured just by getting Rosetta into the neighborhood.

Comet_on_19_September_2014_NavCam-660x543Finally, do not kid yourself with lightweight worst-case scenarios for the deal. When you put together your pro forma numbers did you base your worst case on the impact of, say, rain on your parade? Try making it 3” hailstones instead. And add in a small plane crashing on the parade route. And maybe a tuba player with symptoms of ebola. THAT’S a disaster on parade! Unlikely – of course – but what if?

Summary:

  • Vision
  • Planning
  • Patience
  • Communication
  • Flexibility
  • Teamwork

Illustrations courtesy of the European Space Agency

False Peace

When in an integration process does the cessation of griping mean not that the storm is over but that the hostilities have gone underground, that the people with issues have given up trying to get a resolution?

When is the quiet disquieting?

As a kid growing up on the Jersey Shore, The Merger Verger remembers distinctly his first experience with the eye of a hurricane. Have you Hurricane Sandyever been in one? After howling winds and blowing debris and trees bent sideways, the silence is absolutely enveloping. Utter calm … with no indication of the second round of pandemonium yet to come.

So what happens when a stakeholder’s complaints go unaddressed for so long that he just gives up asking for the desired change? And is there a moment before an employee or a customer walks that she can still be rescued if you don’t mistake the sounds of silence?

Somewhere in your integration process you will experience a time of false peace. Don’t fall for it. You’re in the eye of the storm and all hell could break lose if you don’t keep vigilant and focused. When the first waves of calm come, before you breath a sigh of relief, ask yourself one question:

“What could be going quietly wrong?”

Still Untied: Revisiting United+Contintental

The news from United Continental Holdings Inc. (UAL) is not good. Amid the bad weather that hampered all US airlines and competitive issues affecting all US-Asia carriers, one unique difficulty emerges:

“parallel processes” left over from the 2010 merger.

Merger Verger Translation:

We still haven’t been able to realize the intended benefits of the merger, here, nearly four years later.United-Logo new (untied)

Are you getting that? It is hard to make mergers succeed. And United worked tirelessly at it, hired smart advisors and focused legions of people exclusively on the integration. It still didn’t pan out as planned.

GOD IS IN THE DETAILS, folks. Continue reading

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.